Foxconn’s $5.1 billion bid for Sharp could be good for Apple, too

A win-win.
A win-win.
Image: Reuters/Toru Hanai
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Foxconn has made a 600 billion yen bid (about $5.1 billion) to purchase Japanese electronics maker Sharp, Bloomberg reports.

The acquisition hasn’t yet been approved, and is merely the latest in a series of failed investment attempts from the Taiwan-based company. A 2012 offer of $806 million for a 10% stake in Sharp fizzled, but Foxconn founder Terry Gou purchased a minority stake in a Sharp subsidiary for $617 million that same year. Talks were revived in September 2015, when Foxconn bid to acquire Sharp’s LCD business unit. Those discussions have now evolved into a full takeover offer, which would see Foxconn acquiring Sharp’s 48,000 employees across 29 offices.

Behind Foxconn’s eagerness to buy Sharp is a desire to make more money from the companies it assembles phones for—and specifically, its most important customer, Apple.

Most consumers know Sharp as a maker of television sets. But it also makes LCD panels that it sells to other makers of electronic devices, like cameras, smartphones, and other products that require a screen. This business unit has been burdensome for Sharp—it made up 30.8% of its sales in 2015, but profits have consistently been weak, according to its most recent annual report (pdf, pg 6).

LCD screens are expensive. They’re the most costly component in the iPhone 6 Plus, by about three times more than the next part.

Foxconn manufactures many components that make up the iPhone, like its metal casing. It also assembles the parts sourced from other companies to make the device complete—but it doesn’t make the screen. Instead, Apple sources its display panels from companies like LG and Samsung, both of which happen to be direct competitors to Apple because they sell their own phones.

By purchasing Sharp, Foxconn can earn a greater share of the bill of materials for the iPhone, and potentially other devices too. Apple would also benefit, because less money from its component orders will go into direct competitors’ pockets. Thanks to the benefits of bulk purchasing, it is possible Foxconn will cut Apple a deal, and lower the cost of other parts that it supplies to Apple.

This could significantly cut Apple’s manufacturing costs. Of course, there’s no guarantee that those cost-savings will get passed to consumers. Apple’s customers are notoriously price insensitive, and the company could keep what it saves for itself.