World Praise was sold ingeniously last year. Sharp’s repurchase strategy is questionable. Sharp’s big loss dragged Hon Hai’s Sakai factory into a money-losing product.

Text/Yang Yufei, Sun Rongping

After Dai Zhengwu, the former chairman of Sharp, takes over in 2022, Sharp will stop making profits for six consecutive years.

“Financial News” reported that on May 11, Sharp announced its financial report for the 2022 fiscal year (April 2022 to March 2023), and the group had a net loss of 260.8 billion yen, the third highest in history. It also dragged down Hon Hai, the major shareholder holding 34% of the shares, and became the main reason for Hon Hai’s non-industry losses of up to 20.1 billion yuan in the first quarter.

The key to this major loss is the Sakai Plant (SDP), which became a 100%-owned subsidiary on June 27 last year. The Sakai Plant listed liquid crystal production equipment assets impairment as high as 188.4 billion yen, and other OLEDs produced by Mie County Plant Equipment lost 21.2 billion yen, with a total loss of 220.5 billion yen.

At the beginning, Guo Dong bought Sharp and laid out the operation of the Sakai factory. He lost more and earned less.

The Sakai factory was established in Osaka, Japan in April 2009. It was originally Sharp’s main panel supplier and the world’s first 10th generation panel factory. In its heyday in 2010, the turnover reached 240 billion yen, and the operating profit was 25.9 billion yen. However, due to the large-scale expansion of Chinese panel manufacturers and the impact of price competition, the Sakai factory fell into a loss in the second year. There has been no significant improvement.

According to the “Financial News” report, in the early years, the founder of Hon Hai, Terry Gou, actively promoted the eyeball project, eight screens, one network and one cloud layout, and took a fancy to Sharp, which was in financial crisis. However, at that time, there was a huge wave of opposition from the Japanese side. Guo Taiming decided to go around and invest in his own name first, becoming the major shareholder of the Sakai factory, and then leading Hon Hai to acquire Sharp. This Hon Hai love affair lasted for four years, and it was finally finalized in 2016, setting the highest M&A price in Hon Hai’s history.

At that time, the total amount of the acquisition of Sharp was 388.8 billion yen, with Hon Hai holding 26.14%, FFE, a subsidiary of Hon Hai Cayman, holding 18.41%, FTP, a subsidiary of Hongzhun Singapore, holding 13%, and Guo Taiming personally holding 8.45%. 66%. Later, in order to achieve the synergy effect of vertical integration, Sharp also decided to invest in the Sakai factory at the same time, holding about 20% of the shares.

However, Caixin analyzed that Terry Gou’s ambitions for the panel business are not limited to this. In 2017, he decided to go to Zengcheng, Guangzhou to set up a 10.5-generation factory called SOI (SOI). A joint venture between Terry Gou, the Sakai Factory and the Guangzhou Municipal Government, the groundbreaking ceremony was held in 2017, and Wang Zhichao, the chairman of Innolux, was appointed to manage Super Vision Sakai.

However, after Guo Taiming decided to retire to run for president in 2019, Sharp immediately announced that Guo Taiming had left the Qinghai factory for personal shareholding.

World Praise cleverly sells Sakai factory Sharp and buys it back at a big loss

However, the ownership structure of the Sakai factory is not transparent. What puzzles the outside world the most is that Sharp originally announced in February 2021 that it would liquidate its 23.44% stake in the Sakai factory. At that time, it did not disclose the buyer and price. Unexpectedly, just two weeks later, he changed his mind, saying that the buyer regretted canceling the transaction, and the whole transaction was lost. What is even more surprising is that in February last year, under the leadership of Dai Zhengwu, Sharp actually bought back nearly 80% of the shares in the Sakai factory, making the Sakai factory a wholly-owned subsidiary of Sharp.

“Toyo Keizai Online” pointed out that from Sharp’s press release in February last year, it can be seen that the shareholder structure of the Sakai factory has changed. Sharp’s shareholding is 20%, and the remaining 80% is held by “World Praise Limited” based in Samoa. The largest shareholder of this company is Qiu Qihua, who was the representative director of the Sakai factory at the time. Guo Taiming’s investment company is no longer is a shareholder.

“Financial News” reported that at that time, the outside world questioned the decision of the Sakai plant to “re-become” a subsidiary of Sharp. It took only 4 months from the announcement to the completion of the transaction by means of a share swap, and the converted buyback amount was about 40 billion yen. ; However, the panel boom has been reversed since the fourth quarter of 2021. Investors believe that there is a problem with the buyback process, which does not conform to Sharp’s original idea of ​​focusing on brand management and technology development.

Sharp’s external reason is that after the US-China trade friction, the Sakai factory is expected to supply the display market in the American market. Dai Zhengwu wrote to his employees before handing over the baton in March last year, saying that the Sakai factory was originally one of Sharp’s important subsidiaries. Using a family as a metaphor, it’s like the family’s fortunes are falling, and the father sends out a child as an adopted son. , When the family’s financial situation improves, but finds that the child is in trouble, no matter how much the people around him object, the father wants to lend a helping hand and get the child back.

According to the analysis of Caixin, Sharp has even dragged down Hon Hai due to the big loss of the Sakai factory, and frightened many investment legal persons. Now it seems that the timing of the sale is really “precise”.

In this regard, Sharp CEO Wu Boxun pointed out, “Sharp’s inclusion of the Sakai factory as a subsidiary was made by former senior executives such as Dai Zhengwu after listening to external opinions. There is no problem in the decision-making process.” He also emphasized that next year “Turning losses into profits is an inevitable goal.”

According to the “Financial News” report, Huang Decai, Hon Hai’s chief financial officer, said that Hon Hai holds 34% of Sharp’s shares and recognized a non-industry loss of 17.3 billion yuan according to the ratio. 40 billion yuan.

Huang Decai further pointed out that although Hon Hai is the largest single shareholder of Sharp, it has not actually led its operations, and Sharp has its own independent board of directors and management team, and Hon Hai has no control over Sharp; Explanation of losses and response to improvement plans, if necessary, adjustments to the management team will be required.

It is very difficult for the panel market demand to shift to the Sakai factory to make money

However, “Financial News” also found that the Sakai factory has a high chance of turning profitable in the future? The panel boom has not really come out of the tunnel, and it will not be easy for Sharp to see a turnaround this year. Fan Boyu, vice president of research at TrendForce, said that the utilization rate of the Sakai factory is not only far below 50%, but also the local labor, water and electricity, equipment maintenance and other costs keep the production costs high. It is also trying to increase the utilization rate, but it is expected that the low tide of operation will continue for a period of time.

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Furthermore, Fan Boyu said that the best cutting size for the 10th generation panel factory is 60 inches and 70 inches, but now the TV mainstream is going to 65 inches and 75 inches, which is not conducive to the Sakai factory. Therefore, the Sakai factory will gradually phase out 60-inch products. Although Sharp wants to find outlets other than TV for the production capacity of the Sakai factory, it is very difficult. Currently, only a small part of the production capacity is used in the IT field.

The Sakai factory was once Terry Gou’s new investment favorite, and his personal investment exceeded 20 billion yuan. In 2014, he also showed up at the Sakai factory, hired 600 employees to eat at his own expense, and promised to continue investing. However, with Guo Taiming retiring from politics in 2019, veteran Dai Zhengwu handing over the batons, and Hon Hai Chairman Liu Yangwei’s focus on transforming electric vehicles, how this 10th-generation factory can get out of the gloom and regain its style will face a big test.

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