Sharp, Under Foxconn, Aims to Excel in Phone Displays

SAKAI, Japan—Success for Sharp Corp., newly under the control of Taiwan's Foxconn Technology Group, may boil down in large part to whether it can stay ahead in the fast-changing technology for smartphone displays.

Foxconn chief Terry Gou formally signed the $3.5 billion deal to take a controlling stake in Sharp on Saturday, in a long-delayed conclusion to talks that had left the struggling Japanese electronics maker in limbo for months.

Sharp is known to the public for brand-name consumer goods such as washing machines and televisions, and Mr. Gou said he wanted to expand that business. But the crown jewel at Sharp has been its display business, which supplies screens for smartphones and other devices to the likes of Apple Inc.

"I am committed to make speedy investments in Sharp to help develop the next-generation display technology," Mr. Gou said after the signing ceremony at a display factory near Osaka.

Getting access to ever-sharper, thinner and more energy-efficient screens is critical for smartphone makers. Current models use liquid-crystal displays, but screen suppliers are gearing up for a possible transition to organic light-emitting diode, or OLED, screens, which allows makers to shape phones into flexible designs such as the curved screens on some Samsung Electronics Co. Galaxy phones.

People in the industry say they expect Apple to start using OLED screens for its iPhones as soon as next year. An Apple spokeswoman declined to comment.

Sharp's problem: It is far behind rivals in commercializing the OLED technology. Samsung currently makes more than 95% of the global supply, according to Beijing-based research firm Sigma Intell. LG Display Co. of South Korea also makes the displays, and Sharp's main rival at home, Japan Display Inc., hopes to start mass-producing the newer panels in 2018.

Foxconn, known formally as Hon Hai Precision Industry Co., says it plans to direct ¥ 200 billion ($1.8 billion) of the cash it is committing for the Sharp deal toward developing OLED screens with the goal of providing them by 2019. The Taiwanese company, the leading assembler of iPhones, has long considered a move to making displays as it seeks to diversify further from contract manufacturing.

Analysts call the 2019 target challenging, given Sharp's late start. Former Sharp display engineers say more than half the company's OLED team has left amid job cuts and management turmoil, leaving just a handful of engineers and a small research facility.

Even if everything goes well, "a realistic timeline for Foxconn-Sharp to start supplying OLED displays would be 2020, said Yasuo Nakane, an analyst at Mizuho Securities.

Sharp's chairman, Shigeaki Mizushima, long pooh-poohed the OLED technology in favor of an improved version of traditional liquid-crystal displays. A technology in which Sharp specializes called IGZO, or indium gallium zinc oxide, enables it to make high-definition displays that consume less energy. Apple's iPad Pro uses a panel with the technology, people familiar with the production said.

Mr. Gou said he would also work to maximize the use of IGZO, saying it was superior to OLED in some cases. "I know a lot of people are interested in our OLED strategy. But don't forget IGZO as well," he said.

Even if Sharp-Foxconn is late to the game in OLED displays, one advantage is Apple's desire to have multiple suppliers for key components. Apple is particularly reluctant to lean too heavily on Samsung because the South Korean company might prioritize supplying cutting-edge displays to the Galaxy, its flagship handset that is a fierce competitor to the iPhone.

OLED displays are illuminated through individual pixels rather than through a backlight, which means fewer layers and a thinner screen. The lack of a backlight means they are potentially more energy-efficient, as black pixels are turned off, unlike in LCD displays.

Analysts say it is too soon to call a winner because OLED screens still have some drawbacks such as a fuzzier display in some cases, higher cost and questions about durability. "OLED wouldn't be the best solution for all the display needs," said Hiroshi Hayase, a senior analyst at IHS.

OLED screens are topped with a layer of organic compounds instead of the liquid crystal layer for LCDs. Sharp can springboard off its existing production technology because the first part of the process is similar, said Alberto Moel, a technology analyst for Bernstein Research.

Meanwhile, Mr. Gou is hedging his bets, saying he wants Sharp to keep selling to consumers, not just other companies like Apple.

"My policy is clear. I will provide my full-fledged support for Sharp to become a respected, cutting-edge consumer electronics brand world-wide," he said.

Write to Takashi Mochizuki at [e-mail] and Eva Dou at [e-mail]

(END) Dow Jones Newswires

April 03, 2016 20:55 ET (00:55 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.