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Sharp’s Recovery Spotlights the Strength of Corporate Alliances Between Japan and Taiwan

Yuasa Kenji [Profile]

[2018.07.19]

Two years after undergoing restructuring as a subsidiary of Taiwan’s Foxconn, Sharp is making concrete efforts to return to a growth path, including acquiring Toshiba’s PC business. By contrasts, Toshiba, without a strong partner to support it, has repeatedly shed its business units.

The Intent of Sharp’s Offensive and Defensive Strategies

Sharp and Toshiba, two large corporations that once epitomized Japan as a consumer electronics superpower, could hardly differ more in their performance and outlook. On June 5, Sharp announced offensive and defensive strategies of issuing up to ¥200 billion in new shares to improve its financial standing and of acquiring Toshiba’s PC business. Although it later scuttled the stock plan due to market instability arising from recent trade tensions, it illustrates two years after undergoing restructuring as a subsidiary of Taiwan’s Foxconn Technology Group, its efforts to return to a growth path through a Japan–Taiwan alliance. In contrast, Toshiba, who lacks a strong partner, has been unable to develop a growth strategy and has repeatedly had to resort to selling off its business units.

Sharp President Tai Jeng-wu explained at a press conference that the firm is increasing management freedom with the aim of full rehabilitation. The acquisition of Toshiba’s PC business announced together with the now abandoned buyback scheme can be viewed as a specific management strategy embodying such freedom.

The Appeal of Toshiba Engineers

Sharp has had the bitter experience of pulling out of the PC business, which was a priority undertaking for the company. Under the Mebius brand, Sharp sold notebook computers incorporating its mainline LCDs and proprietary technology in semiconductors and communication technology. In the 1990s, Sharp developed the world’s smallest notebook computer with both floppy disk and hard disk drives, and in 2009 Sharp launched products with optical sensor LCD pads enabling handwriting input. These products, however, did not become big hits, and Sharp quit the PC business in 2010.

Eight years after its exit, Sharp is reentering the PC business by acquiring Toshiba’s PC-related subsidiary, Toshiba Client Solutions, for ¥4 billion in October 2018. Sharp will retain the Dynabook brand familiar to many consumers and will use Foxconn’s powerful parts supply and production capacities to quickly turn the PC unit into a profit center.

President Tai has stated in press reports that, while he has only examined the PC business from the outside, he is confident it can be improved with the same management methods used with Sharp. Certain of its profitability, he wants to return the business to the black in one to two years and recover the investment made. Through a Japan–Taiwan alliance, the rehabilitation of the PC business abandoned by Toshiba has become possible.

Sharp reports that the acquisition was an attractive proposition for the possibility of developing a new business and for the 400 some IT-related engineers of Toshiba Client Solutions. These engineers can be expected to collaborate with Sharp’s AI and IoT businesses. The acquisition is likely to have an effect many times larger than the payment of ¥4 billion the broader this collaboration becomes.

Prior to its recent announcement, Sharp had already indicated a path toward full rehabilitation. The main pillars of its medium-term management plan to the fiscal year ending in March 2020 are high-definition 8K televisions and the development of products incorporating AI and IoT.

Sharp’s plans are progressing at a rapid pace. The company began selling the world’s first 8K television in China in October 2017 and then in Japan two months later in December. Sharp is also planing to launch 8K TVs with built-in tuners in time for NHK (Japan Broadcasting Corporation) starting 8K broadcasting in December 2018. A Foxconn-affiliated sales company is said to be behind the lead taken by 8K TV sales in China. Here again we see the results of a Japan–Taiwan alliance.

Toshiba Divests Itself of Former “Golden-Egg” Businesses

The PC business was once a stellar operation for Toshiba. Applying its advanced technological prowess, the firm launched the world’s first notebook computer in 1985 and eventually achieved peak sales of more than ¥700 billion. By fiscal 2017, however, sales had plunged to ¥160 billion, resulting in an operating loss of ¥10 billion.

The person driving Toshiba’s PC business forward during its golden age was Nishida Atsutoshi. Building on his successes as head of the PC unit, Nishida rose to the very top of Toshiba management, becoming president in 2005 and chairman in 2009. Ironically, the PC business also became the epicenter of an accounting scandal that led to Toshiba’s downfall.

The discovery of the accounting scandal in 2015 was a serious blow for Toshiba, and Nishida, a senior advisor at the time, took responsibility and retired. He died a disappointed man in December 2017. Had he continued to live, he might have wept over the sale of the PC business he had nurtured for only ¥4 billion to Sharp.

Toshiba’s rehabilitation is facing many difficulties. Having just issued ¥600 billion in stock in December 2017, Toshiba announced on June 13 that it would buy back about ¥700 billion of its shares. This buyback using part of the proceeds from the sale of its prized memory chip business is intended to reward shareholders who responded to the stock issue. It would have been better if Toshiba had invested the huge sums it raised from the sale in businesses that would support its future growth. The company, however, has been unable to develop a new growth strategy and, perhaps from the lack of effective investment targets, it has decided to share sale proceeds with foreign investment funds that cooperated with the stock issue. Toshiba might have taken a different turn if it had a partner like Foxconn to provide support in moving jointly toward rehabilitation rather than merely rewarding investment funds seeking short-term gains.

The Overseas Chinese Network Promotes Southeast Asian Businesses

With Sharp as a model case, corporate alliances between Japan and Taiwan have many successful examples not just for large corporations but also for small and medium-sized companies. Japanese firms entering the Chinese market in past years have frequently depended on Taiwanese companies to guide their way. More recently, examples are multiplying of alliances to develop the Southeast Asian market made attractive by its stable growth. An advantage held by Taiwanese companies is their ability the utilize the overseas Chinese network extending through Southeast Asia.

I frequently hear from the leaders of Taiwanese companies I meet that they understand and respect Japan’s manufacturing ethos. Foxconn Chairman Terry Gou is no doubt also one such person. With the rehabilitation of Sharp offering a positive example, I hope that new corporate alliances will be formed between Japan and Taiwan.

(Originally published in Japanese on June 27, 2018. Banner photo: Sharp President Tai Jeng-Wu [front row, center right] and others gather in Tokyo on December 7, 2017, to celebrate Sharp’s return to the First Section of the Tokyo Stock Exchange. © Jiji.)

  • [2018.07.19]

Lead economist and head of China research at the Japan Center for Economic Research. Expertise in Asian economies. Worked for the Nihon Keizai Shimbun in such capacities as Shanghai Bureau chief, editor of the Business News Department of the Tokyo Office, and general manager of the International Business Bureau before assuming his current position in 2018.

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