TOKYO--Sharp Corp. (6753.TO) is in discussions with U.S.
technology companies to bolster its battered balance sheet and has
offered a stake to Dell Inc. (DELL), among others, in return for a
stable supply of breakthrough display technology, according to
people familiar with the discussions.
The Japanese electronics manufacturer has turned to U.S.
business partners as its negotiations with Taiwanese contract
manufacturing giant Hon Hai Precision Industry Co. (2317.TW) for an
equity stake continue to drag on with little indication that a deal
will be completed deal before a March deadline.
Other than Dell, Sharp is also talking to Intel Corp. (INTC) and
Qualcomm Inc. (QCOM) about a capital injection, the people said.
Sharp is eyeing an investment of as much as Y20 billion, or $240
million, from both Dell and Intel, while discussing a smaller
investment from Qualcomm, the people said. The investment may come
in the form of equity or debt, one of the people said.
Local media have reported Sharp's discussions with Intel and
Qualcomm, but the capital alliance talks with Dell haven't been
reported before. The talks are ongoing and may not result in a deal
or the terms may change, the people said.
Officials at Dell, Intel and Qualcomm declined to comment on the
report. Sharp spokeswoman Miyuki Nakayama said the company can't
comment on "whether we are in talks with any companies."
Sharp's financial condition is fragile. The company is
forecasting a second straight year of record losses and it is
burning through cash. Its credit rating has been downgraded to
below investment grade, or junk status, and there are questions
about whether it can survive without additional capital. It has
sold off assets such as overseas TV assembly factories to raise
money.
The sale of assets and technology is a prevailing theme across
Japan's embattled electronics sector. In addition to Sharp,
Panasonic Corp. and Sony Corp. are aggressively pursuing deals to
raise money and streamline operations to focus on core businesses.
While most of the deals, thus far, involve the sale of factories or
capital-intensive businesses, the next wave of deals may include
once-coveted technologies to Asian rivals.
The situation may be more serious at Sharp, which warned earlier
this month that it is facing conditions that may raise
uncertainties about its future as a going concern. In a subsequent
statement, Sharp said it had taken countermeasures to resolve such
conditions.
Sharp is banking on strong demand of a new liquid crystal
display technology called IGZO to help fuel its turnaround. IGZO
derives its names from a new material--indium gallium zinc
oxide--used to manufacture the display. Sharp has said the IGZO
displays hold several advantages over today's amorphous
silicon-based screens.
According to Sharp, the displays don't consume as much power,
extending the battery life of mobile devices. Sharp said the new
displays also increase the number of pixels per inch to allow for
sharper resolution, while it enables touchscreens to be more
accurate and sensitive.
While the technology holds great promise to solve many of the
limitations of today's smartphones, tablet computers, and laptops,
the displays are not easy to manufacture. Sharp has struggled with
low production yields for the IGZO displays, limiting the
availability and increasing the manufacturing costs of the screens.
So far, Sharp is the only company manufacturing displays using
IGZO.
Sharp President Takashi Okuda has said it is counting on IGZO to
save the company. In negotiations for capital alliances, Sharp
executives are promoting the displays as a potentially
game-changing technology, one of the people familiar with the talks
said.
Last week, a senior Sharp executive said it is open to
concessions in its negotiations with Hon Hai, admitting that it's
unrealistic to think the Japanese firm can reclaim the original
deal agreed upon in March for Hon Hai to take a 9.9% stake at Y550
per share for a total investment of Y66.9 billion.
Hon Hai retreated from the agreement in August as Sharp's shares
sank after the Japanese company posted declining results amid a
slowdown in demand for its liquid-crystal-display television sets
and the panels used to make the TVs. At the time, a Taiwanese
regulator balked at the potential investment by Hon Hai, saying the
expected return of a capital injection in Sharp wasn't reasonable
enough.
The two sides are continuing to talk, but the Sharp executive,
who the company asked not to be identified, said the
unpredictability of its earnings are hindering the talks with Hon
Hai.
-Ian Sherr and Don Clark in San Francisco contributed to this
article.
Write to Atsuko Fukase at atsuko.fukase@dowjones.com and Daisuke
Wakabayashi at daisuke.wakabayashi@wsj.com.
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