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Sharp to sell shares to Qualcomm for partnership on displays

Sharp Corp., the Japanese TV maker that warned last month about its ability to survive, plans to raise as much as 9.9 billion yen ($120 million) selling shares to Qualcomm Inc. for a partnership to develop displays.

Sharp will sell 30.12 million shares at 164 yen apiece to San Diego-based Qualcomm (Nasdaq: QCOM) this month for a 2.6 percent stake, and then may sell another 4.94 billion yen of stock in a second tranche if certain conditions are met, the TV maker said in a statement. This month’s sale is at a discount of 5.7 percent to Sharp’s closing price in Tokyo Tuesday.

Japan’s largest liquid-crystal-display maker turned to Qualcomm, the biggest maker of mobile-phone chips, after failing to secure a planned 67 billion-yen investment from Taiwan’s Foxconn Technology Group. The Osaka-based company needs funds to restore its balance sheet after hemorrhaging 103 billion yen in cash from operations in the fiscal first half amid dwindling demand and competition from Samsung Electronics Co.

An investment of 10 billion yen “is too small,” said Mitsushige Akino, Tokyo-based chief fund officer at Ichiyoshi Asset Management Co. “Even if 10 companies invested 10 billion yen each in Sharp, it would still only be 100 billion yen. It’s meaningless.”

The second share sale is based on certain conditions, including securing the resources needed for research and development, according to the statement. Other targets include Sharp posting an operating profit in the six months to March 2013, and holding 125 billion yen in cash and 100 billion yen in net assets as of March 31, according to the statement.

Foxconn talks

Shares of Sharp rose 1.2 percent to close at 174 yen before the announcement, compared with a 0.3 percent drop in Japan’s benchmark Nikkei 225 Stock Average. The company has declined 74 percent this year, making it the world’s second-worst performing major stock.

The companies plan to develop displays using Sharp’s IGZO technology and Qualcomm’s Micro Electro Mechanical System, or MEMS, display technology, according to the statement.

Sharp initially agreed in March to sell a 9.9 percent stake to Taiwan billionaire Terry Gou’s Foxconn, the assembler of Apple Inc.’s (Nasdaq: AAPL) iPhones and iPads, at 550 yen a share. Sharp’s forecast for bigger losses caused the shares to plunge after the Foxconn deal, prompting the two to renegotiate the terms by a March 2013 deadline.

Record loss

Sharp assumes a deal with Foxconn can be reached, President Takashi Okuda said Nov. 1. He also said he was considering various partnership options.

The second share sale with Qualcomm, scheduled in March 2013, would total $60 million and the yen denomination figure may change subject to the currency rate, according to the statement. The two companies may postpone the second deal until June 30, according to the statement.

Sharp said last month there was “material doubt” about its ability to survive after forecasting a record 450 billion-yen, full-year loss because of sluggish demand for its panels.

Sharp, the 100-year-old inventor of mechanical pencils, is selling assets and cutting jobs to revive profit after posting a record 376 billion-yen loss in the fiscal year ended March 31.

The company will book a 25.3 billion-yen, one-time charge in the quarter ending Dec. 31 to eliminate 2,960 jobs, it said Nov. 20. Sharp’s turnaround plan includes seeking voluntary retirements, cutting salaries and reducing capital investments, it said Nov. 1.

Qualcomm deals

Qualcomm has announced 21 acquisitions, mostly minority stake purchases, in the past 12 months, totaling $289 million, according to data compiled by Bloomberg.

The company, which has gained 16 percent in New York trading this year, had $3.8 billion in cash and near-cash as of Sept. 30, down 30 percent from a year earlier, according to the data. It had more than $20 billion in retained earnings, up 28 percent from a year earlier, the data show.

Sharp is counting on a new display technology called IGZO, which consumes less power than conventional panels, to recover from its losses. The company has lined up customers for the displays, a senior executive said last month, after saying earlier this year it was struggling to find buyers.

Sharp began making computer panels using the IGZO technology at its Kameyama No. 2 plant in central Japan in March and expanded the operation for smartphones at its plant in Tenri, near Osaka, in October.

The company will start offering the Aquos smartphone using 4.9-inch IGZO displays and the Aquos Pad using a 7-inch IGZO panel in Japan by the end of this month, it said Oct. 23.

Qualcomm sells baseband chips, which connect phones to cellular networks, to wireless device makers including Samsung, Apple and HTC Corp. Those companies account for more than a quarter of Qualcomm’s sales, according to a Bloomberg supply- chain analysis.

The company is also expanding into the market for application processors, the chips that run programs in phones and tablet computers, and will be supplying its Snapdragon processors to computer makers using the new version of Microsoft Corp.’s Windows software.

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