Sharp Promotes Purchasing Reform with "Hon Hai Style" and Moves toward Reconstruction

【Global Technology Reporter Wang Huan】 Sharp has made progress in the reconstruction of the business. According to "Nihon Keizai Shimbun" reported on February 21, on the 17th, Sharp announced that it raised its 2016 fiscal year (as of March 2017) expected earnings, and consolidated regular profit and loss will achieve a profit of 9.9 billion yen (previous year was 192.40 billion Yen loss). Of the photovoltaic battery business with the only operating loss in the major departments, the purchasing reform implemented by Hon Hai Precision Industry in Taiwan has achieved results. However, the competitive environment for photovoltaic cells and liquid crystal panels is still very severe. There are still issues in Sharp's overall reconstruction.

"Solved a long-term financial problem", an executive Sharp Sharp explained the purchase adjustment to the customer.

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In the photovoltaic cell business, long-term contracts for the purchase of silicon materials at higher than market prices have become Sharp's “negative heritage” and have been losing money for two consecutive years in fiscal 2015. In the most recent period of October-December 2016, an operating loss of 7.9 billion yen also occurred, of which 7.6 billion yen was a reserve for procurement materials.

In the fall of 2016, Hon Hai, the president of the Hon Hai-based company, pointed out that there are many items that need to be adjusted, such as unfair terms of contracts and high price conditions. I hope everyone will negotiate with perseverance.

Sharp's consolidated sales are only about 3.5 trillion yen. Dai Zhengwu believes that continuing to face business crisis is the main reason for other companies to seize the weaknesses and take advantage of unfair contracts.

Dai Zhengwu firmly stated that he will exert the power of the world's largest electronic equipment foundry service (EMS). He pointed out that through the backing of Hon Hai, which has a combined sales value of more than 15 trillion yen, Sharp is now more powerful than Sharp.

In fact there are indeed such examples. The minister of a certain business once reported to Dai Zhengwu that “this is a customer that has never promised to reduce costs, it is impossible to achieve”, but Dai Zhengwu still makes it to negotiate again and eventually cut costs by 11%. This inexorable cost-cutting measure has become the driving force behind the loss. Although the overall sales in October-December 2016 decreased by more than 10%, all of the seven major businesses except for photovoltaic cells achieved operating profit.

Hon Hai’s business is also evident from Sharp’s pillar business LCD panel and TV division.

In December 2016, Hon Hai Display Products Co., Ltd., which is operated jointly by Sharp and Hon Hai, told South Korea’s Samsung Electronics that it will stop supplying TV panels with large panels. This practice reflects the rapid operation of Hon Hai, which responds to the recovery of panel demand, and improves profitability by adjusting trading conditions.

Nissan Motor Co., which was caught in an operating crisis in the 1990s, also achieved a V-word recovery through the procurement reform implemented by president Carlos Ghosn, who was transferred from the parent company Reno in France. Contrary to previous trading practices, Ghosn placed great importance on prices when selecting objects for purchases and drastically reduced costs. This has many similarities with Hon Hai’s approach.

However, Sharp's resurrection still has many issues. Although the profit and loss of photovoltaic cells have also been improved through this procurement adjustment, the business environment in Japan is still severe. In addition, overseas sales are not yet on the right track.

In October-December 2016, the profit and loss of the LCD business also turned profitable after a lapse of eight quarters, but the fluctuations in the market conditions were very severe. China's panel makers are building new factories, and the Hon Hai Alliance also plans to build new factories in Guangzhou and the United States. If the price falls due to oversupply, the profitability of the LCD panel business may deteriorate immediately.

Mizuo Sato, senior analyst at Mizuho Securities, said that “(cost reduction, etc.) current measures are commendable, but the main business strategy for LCD panels is not yet clear”.

"From the structural reforms to the expansion of business," Sharp has often heard such momentum in the company recently. But how do you specifically expand your business? There is currently no overall strategy.

Compared with Toshiba, which is operating at a time of crisis, Sharp, which is also caught in an operating crisis, is gradually moving toward reconstruction. In the top-down approach of reform, Sharp employees have been trying repeatedly.

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