Sharp names Foxconn executive as CEO to spearhead revival

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[May 12, 2016]  By Makiko Yamazaki and J.R. Wu

TOKYO/TAIPEI (Reuters) - Japan's Sharp Corp has named a top Foxconn executive as CEO and said it would seal a $3.5 billion stake sale to the Taiwanese firm ahead of schedule, as the display maker seeks a return to profit in the face of slowing smartphone sales.

Sharp said Foxconn Vice Chairman Tai Jeng-wu will succeed Kozo Takahashi, becoming the first outsider to lead the century-old firm that began making belt buckles and mechanical pencils.

The change marks a new chapter for Sharp which has struggled to remain competitive even after two massive bank bailouts. The firm and its Japanese peers have been out-manoeuvred by upstart Asian rivals, with companies once synonymous with cutting-edge electronics such as Sony Corp losing cache.

For Sharp, a revival beckons under the leadership of Tai, a 30-year veteran of Foxconn, the world's largest contract electronics manufacturer. Tai has extensive experience running Foxconn's Shenzhen operations and played a central role in the stake negotiations, people at Foxconn told Reuters.

"Tai is No. 2 at Hon Hai. He speaks Japanese. He was selected from a comprehensive perspective," Takahashi said at an earnings briefing, referring to Foxconn by its formal name, Hon Hai Precision Industry Co.

Tai will be one of nine new board members, Takahashi said.

He also said Sharp aims to finalize the sale of a two-thirds stake to Foxconn by the end of June, ahead of their initial Oct. 5 deadline.

Sharp shares closed down 0.8 percent before the announcement whereas the Nikkei benchmark index rose 0.4 percent.

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Sharp will get a boost from a takeover that would vastly expand sales channels for its displays. In return, Foxconn will gain control of Sharp's advanced display technology and strengthen its pricing power with Apple Inc, a major client of both companies.

Foxconn's display-making affiliate Innolux Corp will also benefit from cooperation with Sharp, Innolux's chairman said separately on Thursday. He also announced his resignation to take an as-yet undetermined role at Sharp.

Even with Foxconn's support, however, Sharp will still have difficulty competing, especially as Chinese display makers have been aggressively expanding capacity, analysts said.

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Sharp also lags South Korean rivals in organic light-emitting diode (OLED) technology, which Apple is widely expected to adopt for future versions of its iPhone devices.

But Foxconn chief Terry Gou has expressed preference for Sharp's strength in indium gallium zinc oxide (IGZO) technology.

"IGZO is Sharp's pride," said Innolux Chairman H.C. Tuan. "I am hopeful we can cooperate with Sharp in this area."

Still, Sharp's Takahashi said over-reliance on smartphones was one reason for deteriorating earnings.

"We've failed to move fast enough" to shift focus to larger panels, Takahashi said at the briefing.

Sharp reported a second consecutive annual operating loss of 162 billion yen ($1.5 billion) for the business year ended March, more than triple the loss of the year earlier.

Continued focus on smartphones does not bode well after Apple reported its first ever decline in iPhone sales in January-March, and iPhone assembler Foxconn reported an 8.5 percent decline in sales in April.

Foxconn subsidiary FIH Mobile Ltd, whose clients include Sony and Xiaomi Inc [XTC.UL], also said earlier this month that its first-half profit may fall as much as 92 percent as smartphone sales growth slows to a single digit this year.

(Reporting by Makiko Yamazaki in TOKYO and J.R. Wu in TAIPEI; Additional reporting by Junko Fujita; Editing by Christopher Cushing)

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