Foxconn’s sharp pivots to AI after decision to exit TV display production

Japanese electronics maker Sharp said on Tuesday that it will halt work at its unprofitable TV displays factory in Osaka and sell other device businesses as it shifts focus to consumer electronics and artificial intelligence applications.

The company is a subsidiary of Taiwan’s Hon Hai Precision Industry, also known as Foxconn, the world’s largest contract electronics maker.

“We are in a downward spiral … We can’t invest enough on our promising brand business [including consumer electronics], because Sharp’s ability to generate cash is not improving,” President and CEO Wu Po-hsuan said in an online press conference.

Sharp said it will end production at its major display factory for TVs in Sakai, a seaside city in Osaka, by September this year. It will cut production of smaller panels at other factories, and will also consider selling some device businesses, including smartphone camera parts and semiconductors for displays. Sharp is “in talks [with] Foxconn and other companies” to sell these businesses, Wu said.

The Sakai factory, on which the Japanese company spent 430 billion yen ($2.7 billion) in 2009 to build, was the major reason for the two consecutive fiscal years of net losses, the company said, including a loss of 149 billion yen for the 12 months ending in March.

Sharp fell victim to a price war with bigger Chinese panel manufacturers like BOE Technology, which has massive capacity for producing 10.5-generation display technology. The display industry has been undergoing consolidation since the second half of 2022, and Sharp’s Taiwanese peers, like AUO and Innolux, have closed some of their factories or ended production in China, Taiwan and Singapore.

Young Liu, chairman of Foxconn, made a surprise video appearance at Sharp’s press conference, announcing that the Sakai display factory will be “actively transformed into an AI data center,” and that Sharp’s goal is to become “asset light.”

Young said that since July 2023, he has spent around a week every month in Japan to discuss the “strategic transformation” of Sharp. “Foxconn will always walk hand in hand with Sharp,” he added.

Foxconn booked a non-operating loss of 19.7 billion New Taiwan dollars ($608 million) on Sharp in the first three months of last year, and a NT$10.5 billion loss on the company in the quarter ending on March 30 this year, according to Foxconn CFO David Huang.

Neither Sharp nor Foxconn elaborated on plans for the Japanese company, but Wu said it was natural for Foxconn to consider setting up a data center, as the Taiwanese company is a major player in the market for data center hardware. Sharp can also utilize AI capabilities for “a variety of applications,” including for its consumer electronics, and can work with Foxconn in areas from “cloud AI to edge AI, and also for computing technology,” Wu said.

A person close to Foxconn said building an AI data center requires space, electricity supply and water for liquid-cooling solutions, as the advanced computing power will require much more electricity supply than the traditional data center. “Sakai already has sufficient power supply because of the gen-10 [display] production lines, which make it suitable to transform into an ideal AI data center,” the person added.

AI servers are big business for Foxconn, which counts Microsoft, Amazon Web Services, HPE and Dell among its clients. The Taiwanese company’s AI server revenue grew 200% on the year in the first three months of 2024. AI servers accounted for 40% of its overall server business, and its cloud-computing business as a whole accounted for 28% of Foxconn’s total revenue, making it the company’s second-largest business after consumer electronics.

Sharp, for its part, will bolster cooperation with its parent company to carry out its “structural reform and revival plan,” Wu said. He added that the Sakai factory will also be used for “technological support” for a “major Indian company,” without going into details.

The company said it will shift its other display manufacturing facilities, for smaller panels, to serving the booming AI market. “What’s important to us is how to transform and make use of our panel [business],” Wu added. “We want to use it for AI and semiconductor-related business, which the [Japanese] government has been promoting.”