Foxconn Bailout of Sharp Throws Into Doubt Solar Future

  • Sharp vows to improve revenue at energy-solutions unit
  • Company plans new investments in home energy management

Foxconn Technology Group’s decision to take a majority stake in Sharp Corp. throws into doubt the fate of the Japanese electronics maker’s solar operations, a business that once made the Osaka-based company the world’s largest seller of solar cells.

Under the terms of the sale, the parent of Hon Hai Precision Industry Co. will control 65.9 percent of Sharp after buying stock, beating out a rival offer from state-backed Innovation Network Corp. of Japan.

“Sharp will probably wind down their solar-panel business,” Hideki Yasuda, an analyst at the Ace Research Institute in Tokyo, said by phone Thursday before the announcement. “There is no longer merit to keep it under Sharp because it is a business that relies on subsidies. It is a business with big swings dependent on the levels of subsidies and feed-in tariffs.”

A retreat from solar would mark an inglorious end to nearly 60 years of involvement for Sharp that began in the industry’s infancy, grew to include solar cells and panels, and ultimately saw Japanese leadership ceded to Germany. In turn, overproduction and crushing debt loads have seen the industry’s focus shift yet again from Europe to China.

Thursday’s announcement provides no definitive answers to what Sharp intends to do with its solar operations, though the Japanese company continues to hold out the prospect of some kind of partnership or realignment.

Energy Business

According to earlier Japanese media reports, Sharp’s solar business could have been streamlined and integrated with Solar Frontier K.K. had the INCJ offer been successful.

“Under Foxconn, it isn’t clear what the objective for the solar business will be,” Ali Izadi-Najafabadi, a Tokyo-based analyst for Bloomberg New Energy Finance, said by e-mail. “However, given that Foxconn is one the world’s largest contract manufacturers, and has a stronger balance sheet to support further investment than Solar Frontier had, there is a higher probability that Sharp’s solar business could survive under this deal than under the media reported INCJ proposal.”

Sharp’s brand name for solar panels will likely continue, he said.

Sharp’s energy-solutions business, which includes solar products, posted a loss of 5 billion yen ($45 million) in the three months through Dec. 31. The company projects a loss of 7 billion yen for the fiscal year ending March 31 for the segment, according to a Feb. 4 filing.

“In order to improve the revenue at our energy-solutions business, Sharp will make the utmost efforts for options, including a strategic alliance and a joint venture,” the company said in the filing announcing the share sale.

Overseas Pullback

Sharp, which started in the solar business in 1959 and remains its oldest major manufacturer, has been restructuring by mainly shutting overseas operations. Last year, it sold Recurrent Energy LLC, a San-Francisco-based solar development unit to Canadian Solar Inc. for $265 million.

The company in 2014 withdrew from an Italian solar venture -- its last overseas panel-manufacturing plant -- shortly after announcing that it would give up its half share of a separate undertaking with Enel Green Power SpA to develop solar projects.

Also in 2014, the Japanese electronics maker stopped making panels at plants in the U.S. and U.K.

Earlier this year, company executives signaled that manufacturing solar panels was no longer key to its energy business.

“What we plan to do is to expand the business” with devices such as energy management and storage, President Kozo Takahashi said at a news conference on Feb. 4. “Some may ask if we will withdraw from solar panels, but we have not made such a decision at this point.”

Energy Business

The company plans to set aside 10 billion yen from the Foxconn share sale for the energy-solutions business, including 5 billion yen for investments in software related to home energy management system development, according to Thursday’s filing.

“We will push through reform from a business centering on the existing businesses such as photovoltaic module sales to a new entity which puts energy solutions at the core,” Sharp said.

Sharp’s diminishing profile is a familiar story in the solar business, which has repeatedly seen the rise and fall of key players.

The industry’s genesis stretches back to the early 1950s when Bell Laboratories in the U.S. announced the invention of the world’s first silicon solar cell. NEC Corp. followed in Japan with production of its first solar cell. Sharp began mass production of the products in 1963.

The 1973 oil crisis prompted the Japanese government to compile a set of plans called the “Sunshine Program” for clean energy such as solar and hydrogen energy to provide support for technology development. Kyocera Corp. entered solar development in 1975.

World Leader

By 1999, panel production in Japan surpassed the U.S., according to the trade ministry-affiliated New Energy and Industrial Technology Development Organization.

In 2000, Sharp became the world’s biggest solar cell manufacturer, holding onto that position until 2006, according to a history of the business on Sharp’s website. But Japanese panel makers were soon eclipsed by German rivals such as Q-Cells, where the market was being spurred on thanks to favorable incentives.  

Japan’s solar market got a boost in July 2012, a year after the Fukushima nuclear disaster prompted the country to diversify its energy sources. With the introduction of incentives known as feed-in tariffs, Japan’s solar capacity jumped from 5,208 megawatts in 2011 to almost 37,000 megawatts in 2015, according to Bloomberg New Energy Finance.

“This deal by itself does not change anything” about the Japanese solar market, BNEF’s Izadi-Najafabadi said. “Japanese manufacturers will continue to struggle with the scale and cost advantage that Chinese manufacturers have.”  

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