Sharp’s largest shareholder, Foxconn, said it would push for management changes if the Japanese electronics maker fails to provide a satisfactory explanation for a large write-down that has blown a hole in the Taiwanese contract maker’s quarterly profits.
iPhone maker’s threat of 220 billion yen ($1.63 billion) loss in value — as Sharp Thursday noted the value of its display assets in Japan and other manufacturing facilities globally, likely to underscore Japanese companies’ concerns about the risks of foreign ownership.
Foxconn It reported a 56% decline in net profit to NT$12.8 billion ($416 million) for the first quarter on Thursday, which Apple’s biggest manufacturing partner said was mainly due to an investment loss of NT$ 17.3 billion due to the write-down of Sharp.
“Although our operating income and gross margin both increased, our net income decreased due to [Sharp’s writedown]”, said David Huang, chief financial officer. Sharp had blamed the decline in profitability on impairment charges, but Huang added: “We will ask Sharp for an explanation and, if necessary, seek an adjustment of Sharp’s management in the interests of our shareholders.”
Foxconn acquired his stake in the company in 2016. Hon Hai Precision Industry, the group’s flagship listed in Taipei, and a subsidiary hold a combined share of 34.14%. Together with a 13.23% stake held by Foxconn founder Terry Gou’s personal investment vehicle and a 9.96% stake held by an electronic components maker in which Hon Hai is a minority shareholder, the group could obtain the majority in a vote of the shareholders.
Foxconn’s first quarter numbers sharply fell short of expectations, with analysts polled by Reuters expecting net income of NT$29.2 billion. Operating income increased 11% over the same period a year earlier, with revenue rising 4% to NT$1.46 trillion, a new record for the first quarter.
Low demand in Foxconn’s traditional business of assembling smartphones, servers, laptops and other electronic gadgets prompted Chairman Young Liu to put a cautious outlook.
It said revenues in the current quarter would contract, in typical seasonal patterns, while lingering “noises,” such as geopolitical tensions and inflation weighing on the global economy, meant the company was revising its earlier expectation that its server business would grow in the full year. Instead, he forecast flat revenues.
In the EV sector, where Foxconn aims to capture a 5% share of the global manufacturing market by 2025, the company has yet to announce any orders from a major traditional car brand.
“There is internal resistance within traditional automakers against outsourcing and outside alliances, just as there was against outsourcing in the PC industry decades ago,” Liu said. “But we still believe this is our opportunity.”
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