Hon Hai in talks on Hitachi Display stake

Hon Hai is in talks to acquire a majority stake in Hitachi’s flat-panel display business in a deal that would lift the Taiwanese contract electronics maker to the very top tier of producers of small and medium-sized liquid crystal display panels, according to people familiar with the negotiations.

The acquisition, which could be worth $1.2bn, would give Hon Hai an equal or slightly bigger market share than Sharp, the current leader.

Hon Hai is already the world’s biggest contract electronics maker overall. But this could lead it to producing screens for mobile devices and tablets in Japan, and would bolster its ability to make advanced components for smartphones and tablet computers, such as Apple’s iPhone and iPad.

Hon Hai is the largest manufacturer of Apple devices but faces competition for assembly contracts.

Hitachi Display, the business in which Hon Hai is seeking to invest, is a loss-making joint venture between Hitachi, which owns 75 per cent, and Canon.

Since combining their display operations in 2005, the Japanese groups have been unable to turn a profit, a failure analysts blame on a lack of scale. Hitachi Display’s biggest customers are Japanese mobile phone makers, which make virtually no sales outside Japan.

The company controls desirable technology, however. Its IPS liquid crystal screens are known for producing clear and bright images, even when viewed at oblique angles – a weak point of many small LCD screens.

Hon Hai is “interested in the wide-angle technology”, a person close to the talks said.

Hon Hai, part of the Foxconn electronics group, has bought two television factories from Sony outside Japan – in Slovakia and Mexico – but the Hitachi Display acquisition would be its first big foray into the country that long dominated consumer electronics production.

Most new manufacturing capacity for large-size LCD panels used in television sets is being built in China, as the country boasts the world’s largest market for flat-panel TVs. But intricate small panels are an area in which Japan retains a competitive advantage, industry insiders said.

Japan’s Nikkei newspaper reported that Hon Hai would pay Y100bn ($1.2bn) in two instalments, one next year and one in 2012, for a controlling stake in Hitachi Display. The funds would be used to add a second plant to Hitachi Display’s LCD factory north of Tokyo, which would begin production in 2012, it said.

Hon Hai last year acquired Chi Mei Optoelectronics, a Taiwan panel maker, and TPO Displays, a company which specialises in small panels. As a result, it overtook AU Optronics as Taiwan’s largest panel maker.