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 Innovation Network Corporation of Japan (INCJ), if successful, would
represent the third bailout in as many years for Sharp, known for
its liquid crystal display (LCD) technology and super-thin screens.
The INCJ is keen to keep it in domestic hands, and plans to merge it
eventually with state-owned rival Japan Display.
Industry experts and some policy advisers are beginning to question
whether "old-school" government intervention can help Sharp's LCD
business survive, as competition from Korean and Chinese rivals
ratchets up.
"Rather than cutting away the dysfunctional groups, this is about
combining the weak part," said William Saito, an entrepreneur and
special adviser to Prime Minister Shinzo Abe's cabinet office.
Sharp's main advantage in LCDs is its IGZO technology, which allows
for high definition and thin, touch-screen displays that consume
less power than conventional screens.
That has failed to shield it from pricing pressure, and weak
finances have prevented it from investing in new technologies even
as rivals experiment in newer screen innovations.
Japan Display, formed in a government-backed deal in 2012 from parts
of Sony, Toshiba and Hitachi Ltd, was previously seen as a weaker
rival.
But it is now doing better, thanks to orders from Apple and Chinese
smartphone makers for its "in-cell" screens, which are easier to
assemble than other types of high-end LCD screens.
Both Japanese manufacturers face strong competition from Samsung and
LG Display, which have been working on OLED (organic light-emitting
diode) screens that do not require backlights and can therefore be
thinner or curved.
In the end, analysts say the ability to quickly ramp up capacity
will matter as much as, if not more than superior display
technology, giving an edge to Samsung and well-funded Chinese
players like BOE.
POLITICALLY DRIVEN
Japan has had some success with government-led rescues in the past;
Renesas Electronics, saved by INCJ in 2013, has turned around.
Renesas specializes in automobile-related semiconductors which are
increasingly in demand for newer features such as assisted parking.
But the world of LCD is far more cut-throat.
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"Its investment in Renesas has been a relative success story," said
Andrew Daniels, a Tokyo-based managing director at Indus Capital.
"But make no mistake ... LCD is a market that doesn't have that
underlying stability that Renesas has in automotive semiconductors."
In the end, however, it will be a political decision, analysts and
political sources say.
Sharp's troubles come as Japan's technology industry has struggled
against more nimble Asian rivals, with brands that were once
household names, such as Sony, losing cachet among global consumers.
Though he won't stand in the way of a foreign buyer, Abe's office
would prefer to see Sharp rescued by a Japanese deal.
INCJ is also considering merging Sharp's home appliances business
with that of Toshiba Corp, which is eager to bolster its finances in
the wake of an accounting scandal.
"In the end, they are trying to saving face for Japan. It's
politically motivated," said Saito, the entrepreneur and government
adviser.
Media reports put the INCJ offer at 300 billion yen ($2.6 billion),
and sources say that bailout would also involve Sharp's lenders
offering at least 200 billion yen, by converting debt to equity.
The Wall Street Journal on Thursday reported that Hon Hai, also
known as Foxconn, was offering 625 billion yen and promising not to
replace top management at Sharp, an apparent attempt to soothe
nationalist concerns.
(Editing by Mike Collett-White)
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