Sharp Hangs Up On Chinese Smartphone Plans
Reports suggest that Sharp Corporation is to end a partnership with Hon Hai Precision Industry under which the two companies would have jointly developed and manufactured smartphones for the Chinese market. Increased competition from domestic handset manufacturers as well as the dominance of global brands such as Samsung have rendered the putative venture's business model non-viable. Although the decision will be a major blow for Sharp's ailing handset business, BMI believes the capital earmarked for the venture would be better utilised by its recovering LCD panels unit, among others.
In March 2012, it was reported that Hon Hai (which trades as Foxconn) was preparing to acquire 10% of Sharp as part of an alliance that would have seen it increase production of LCD television panels for sale in China. It was expected that smartphone panels would be included in this strategy and that the companies would work together to develop handsets for the Chinese market. With domestic sales of its handsets falling rapidly as Japanese consumers switched to global brands and with international sales in terminal decline, the deal appeared to represent a much-needed lifeline for Sharp's handsets business.
However, as BMI remarked at the time, the proposal bore considerable potential downside risks from the start, as data from China's three mobile operators indicated that consumers increasingly favoured low-cost 'smart enough' handsets from local brands such as Xiaomi, Lenovo, Huawei Technologies and ZTE, among many others. This, we felt, left little room for Sharp and we believed that the venture would realise little tangible benefits for the Japanese company. The trend for local brands continues unabated and, with anti-Japanese sentiments riding high (relating to still-sensitive territorial disputes), it is likely that Sharp has missed whatever window of opportunity it may have had. Foxconn, meanwhile, is hardly short of work, given that it is one of Apple's main device manufacturers and is benefiting from closer relations with the increasingly popular Xiaomi. Foxconn is a major contributor to the Chinese handset market, where BMI forecasts unit shipments to rise from 261.3mn in 2012 to 372.2mn in 2017.
|A Missed Opportunity For Sharp|
|China Smartphone Shipments ('000), 2010-2017|