Foxconn, Sharp Need to Tackle High Tax, Labor, Gou Says

Foxconn Technology Group and Sharp Corp. (6753) need to tackle Japan’s high tax rate, strong yen and expensive labor force to make their tie-up succeed, said Terry Gou, chairman of the Taiwanese company.

Gou spoke with Sharp President Takashi Okuda by phone yesterday and hopes to meet with his Japanese counterpart in the evening of Aug. 30 or the following day, he said after a press conference in Tokyo. Gou said he hopes talks with the Osaka- based company will proceed smoothly this week. Sharp’s shares rose for a sixth straight day in Tokyo trading.

Sharp, facing back-to-back annual losses, is seeking to raise money by selling a stake even as its shares have plunged 69 percent this year. Gou and Foxconn, whose flagship Hon Hai Precision Industry Co. (2317) makes Apple Inc.’s iPad, announced plans March 27 to invest 133 billion yen ($1.7 billion) in the TV maker and its display venture before a decline in Sharp’s market value prompted Foxconn to say it would renegotiate.

“Hon Hai wants to come in as soon as possible,” Gou said. “If Hon Hai can’t come soon to help Sharp speed up development of products, lower manufacturing cost, improve supply-chain management, it’s probably hard to make an achievement.”

Gou, who invested 66 billion yen of his own money into a display venture with Sharp, will be in Japan until Aug. 31, Simon Hsing, a spokesman for Hon Hai, said by phone yesterday.

Sakai Display

Sharp rose 9.1 percent to close at 215 yen on the Tokyo Stock Exchange, the highest since Aug. 2, the day the company widened its annual loss forecast after market hours.

The company, the biggest loser this year on Japan’s benchmark Nikkei 225 (NKY) Stock Average, fell to a 38-year low on Aug. 15 after Deutsche Bank AG cut its rating on the stock, citing concerns Sharp’s cash flow won’t cover funding needs.

Sharp will offer buyouts to about 2,000 workers in November, the company said in a statement today.

Gou’s schedule includes attending meetings with a Taiwan- Japan business delegation in Tokyo and leading the group on a tour of the Sakai Display Products Corp. facility in Osaka on Aug. 30, Hsing said.

Operations at Sakai Display are running smoothly, Gou said.

Foxconn agreed in March to pay 66.9 billion yen for a 9.9 percent stake in Sharp through its Hon Hai and Foxconn Technology Co. (2354) units at 550 yen per share. The Taiwanese company said earlier this month it will renegotiate the deal and hopes to make the details final by the end of August.

The two sides agreed Aug. 3 not to discuss the matter with outside parties, Gou said yesterday.

Loss Forecast

Sharp widened its loss forecast eightfold this month as a stronger yen, slumping demand for televisions and intensifying competition erode earnings.

The Japanese company is counting on the proposed tie-up with Foxconn to turn around its money-losing LCD unit. The unit may lose 105 billion yen in the year ending in March 2013, Sharp said Aug. 2.

The operation rate of the display venture with Gou is expected to rise to 80 percent during the quarter ending Sept. 30 from 30 percent in the previous quarter, helped by orders through Foxconn group, Sharp said at the time.

To contact the reporters on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net; 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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