Key Points:
· The boards of Foxconn and Sharp yesterday approved a takeover plan valued at USD3.5 billion.
· Through its subsidiaries, Innolux and Century, Foxconn is a leading supplier of thin film transistor liquid crystal displays (TFT LCDs). It is already the largest component supplier, systems integrator and subcontract manufacturer for many of the world’s leading brands.
· The convergence of Foxconn’s business with Sharp’s TFT LCD business and other innovative developments, such as active-matrix organic light-emitting diode (AMOLED) and larger TV displays, creates a powerhouse with the largest TFT LCD production capacity and research capabilities in the world.
IHS Technology Views:
Foxconn Group’s takeover deal means it acquires all of Sharp’s TFT LCD business. This allows Foxconn to strategically consolidate all of the existing display operations and future research development with an aim to compete with other display makers from South Korea, Taiwan and China, as they all race towards capturing a larger share in other lucrative segments, such as smart homes, robotics, Internet of Things (IoT), and smart cars.
Foxconn’s Innolux subsidiary is already in the process of increasing its production capacity with the building of its Gen 8.6 TFT LCD fab in Taiwan. In addition, Foxconn is building three Gen 6 low temperature poly-silicon (LTPS) TFT LCD fabs in Taiwan and China. These fabs are expected to be completed and operational within the next two years. With the acquisition of Sharp, which is currently the leading LCD maker, particularly in high resolution LTPS TFT LCD smartphone displays, low-power oxide TFT LCD tablet PC displays, and a-Si based TFT LCD automotive displays, Foxconn is eager to make considerable investment in building an AMOLED fab for flexible smartphone displays.
In terms of TFT LCD production capacity, the new company will account for 21% of the global capacity in 2016, surpassing LG Display, Samsung Display and BOE, according to IHS Display Supply Demand & Equipment Tracker (see graph below). And the new company will remain its leading position in terms of production capacity for the next couple of years, even despite aggressive capacity expansion plans from many Chinese LCD suppliers.
The takeover deal comes at a time when the TFT LCD industry is locked in fierce competition with Korean and Chinese companies increasing capacity while the display demand replacement cycle is slowing down. Display makers have also started to diversify their products for high-end display products that use either LTPS or oxide for high resolution, as well as diversifying their product mix based on demand in various segments, such as PCs and TVs, and emerging applications for automotive and digital signage. IHS believes the Foxconn-Sharp takeover deal gives the new company a strategic advantage not just in terms of production capacity but also the broad diversification of display products that can be sold into existing and emerging segments.
The most immediate challenge for the new company is how fast and how smoothly they can merge the operations, company culture, and business models. Though, given the new company will be selling into the same key existing customers, such as Apple, Sony, Samsung Electronics, LG Electronics and Lenovo, the consolidation of its operations may well be easier and faster to implement.
