In addition to establishing a joint company to produce and market LCD panels--a sector seen as Sharp's main source of revenue--the Taiwan firm is also demanding the Japanese company accept board members from Hon Hai, sources said.
Sharp is in talks with Hon Hai over the former's proposal that the Taiwan firm take a 9.9 percent stake in the electronics maker. In connection with the proposal, Hon Hai demanded Sharp spin off its LCD business, but the company appears reluctant to agree.
Under the circumstances, the direction of the tie-up negotiations between the two firms--key to Sharp's reconstruction--is becoming more uncertain.
Sharp's small and midsize LCD business is key to its rehabilitation.
Under its rehabilitation plans, Sharp aims to expand production of panels for tablet devices, such as Apple Inc.'s iPad, at its factories, including its plant in Kameyama, Mie Prefecture, where small and midsize LCD panels are manufactured. The company hopes to turn its earnings around to realize a net operating profit of 121.2 billion yen in fiscal 2013.
Meanwhile, Hon Hai's founder has taken an individual 37 percent stake in Sharp's Sakai plant in Sakai, Osaka Prefecture, equal to Sharp's stake in the factory.
If Hon Hai gains a stronger voice in the production of large LCD panels, as well as small and midsize ones, it is feared Sharp's management identity may be further chipped away.
In parallel with the talks with Hon Hai, Sharp began negotiations with Intel Corp. to see if the major U.S. semiconductor manufacturer will buy convertible bonds worth tens of billions of yen, hoping to conclude the talks by the end of this month.
Sharp also is mulling jointly developing Intel's Ultrabook, a light notebook-sized personal computer equipped with Sharp's unique state-of-the-art LCD panel, IGZO, and an Intel semiconductor.
Sharp is also in negotiations with several U.S. IT companies to sign long-term contracts to supply its LCD panels.
Partnership with 3 firms key
Sharp's future depends on how smoothly it can enhance its relationship with the
three foreign companies.
Its rehabilitation plans were compiled late last month on the assumption that the Japanese maker will have stronger ties with Hon Hai, Intel and Apple.
Sharp sees its small and midsize LCD business as its main revenue source in the future because it expects to boost supplies for Apple's products and gain new orders for PCs, which would be generated through a tie-up with Intel.
If the number of orders from Apple turns flat, or tie-up talks with Intel do not conclude in the way Sharp hopes, the Japanese maker will lose important sales channels, making it difficult for the company to reconstruct its business.
Sharp needs to improve its financial structure with funds from Hon Hai and Intel while securing sales channels to turn itself around.
In July, Sharp began jointly operating its Sakai plant with Hon Hai, which resulted in stopping the deterioration in the earnings of its large LCD screen business for now.
(Oct. 7, 2012)