Hon Hai Says Sharp Technology Will Help ‘Defeat’ Samsung

Hon Hai Precision Industry Co. (2317), the maker of Apple Inc. (AAPL) iPads, expects the group’s investments in automation and touch-panel technologies to help it take on Samsung Electronics Co., the Taiwanese company’s chairman said.

Hon Hai’s parent, Foxconn Technology Group, will use its cooperation with Sharp Corp. to boost production of Apple products as well as those that use Microsoft Corp. (MSFT)’s Windows and Google Inc. (GOOG)’s Android system, Chairman Terry Gou said at its annual shareholders’ meeting in Taipei yesterday. Hon Hai and affiliates agreed in March to take a 9.9 percent stake in Sharp for 67 billion yen ($847 million).

Foxconn, with more than a million employees, is moving more production from the country’s east coast to inland China to fill a shortage of workers and plans to boost automation technologies to cut reliance on manual labor. Gou also agreed to personally invest in Sharp’s display unit as Hon Hai, the world’s largest contract maker of electronics, adds touch screens to expand beyond assembly.

“We’ve confidence that after getting into these new technologies, within one to two years we’ll quickly be successful” with Android, Windows and Apple iOS, Gou said. “The Sharp deal will help us to defeat Samsung. (005930)

Samsung, based in Suwon, South Korea, ended Nokia Oyj (NOK1V)’s 14- year run as the global leader in mobile phones for the first time last quarter, while regaining the lead in the smartphone market from Apple.

“Because mainland labor is in great shortage, we’re very actively moving toward automation,” Gou said. “Our plan is that within five to 10 years the large scale automation will as much as possible replace monotonous assembly. We hope to have it all automated, from Apple phones and tablets” to televisions.

Stake Increase

The decrease in Osaka-based Sharp’s share price and the Japanese company’s technology allows Hon Hai to consider increasing its stake, Chief Financial Officer Huang Chiu-lian said. The idea faces resistance at Sharp, she said.

“Management fears the company becoming a part of Hon Hai,” Huang said in an interview yesterday.

Sharp isn’t in talks with Hon Hai to change the terms of the Taiwanese company’s investment, Miyuki Nakayama, a spokeswoman for the Japanese electronics maker, said yesterday.

“I see it as a potential idea rather than a serious proposal to increase the Sharp stake,” said Kirk Yang, an analyst at Barclays Plc, who attended Hon Hai’s shareholder meeting. “Boosting automation and raising its stake in Sharp would both be win-win strategies for Hon Hai and its partners.”

Hon Hai has no target for its stake in Sharp and is instead focused on building its cooperation with the Japanese company in areas that include panels, mobile phones and household appliances, Gou said. Sharp Display is expected to list in Taiwan within three years, he said.

Foxconn has sent almost 400 engineers to Osaka in the past two months to work with Sharp at their Sakai factory, Gou said. Their cooperation will deepen starting July 1 when Hon Hai begins to procure panels from that plant.

To contact the reporter on this story: Tim Culpan in Taipei at tculpan1@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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