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Could Sharp's Troubles Affect the Next iPhone?


The electronics manufacturer could delay the next iPhone if it does not get its finances in order.

MINYANVILLE ORIGINAL Sharp Corp.'s (SHCAY) shares fell 13% this morning and ratings agency Standard & Poor downgraded the Japanese electronic manufacturer's debt to junk in response to worries that the LCD TV panel maker won't be able to pay its debts, according to an article on Reuters. The company must refinance billions of dollars in debts that will mature in the near term.

Another factor contributing to the decline is that a planned deal with Hon Hai Precision Industry may be in peril after the abrupt resignation of the chairman of the company that is more commonly known as Foxconn. Standard & Poor's, which had already downgraded the company's debt to BB+, said that its current rating assumed that Sharp would reach an agreement with Hon Hai and that any further delay would result in a further downgrade.

A Hon Hai executive said that any deal was predicated on Sharp turning itself around. Sharp has achieved some success by being the manufacturer of Apple Inc.'s (AAPL) iPad and iPhone, but the company's production of screens for the latest iPhone is behind schedule. As a result, Apple is offering Sharp more "financial incentives" to encourage Sharp to speed up production in order to meet its shipping goals for Apple's product launch on September 12. It is heavily rumored that Apple will finally announce the iPhone 5 on this date.

The company has been struggling in other areas, namely its core TV business, due to fierce competition and sluggish demand. Adding to its woes, Sharp has said it is facing increasing manufacturing costs overall.

But things might not be as bad as they appear.

Earlier this year, Sharp delayed shipments of screens for Apple's latest iPad, but that did not result in shortages for the tablet -- however, the situation seems different for the iPhone.

Apple is feeling pressure from rival Samsung (SSNLF), which piqued consumer interest in new phones by unveiling the Ativ S, first-ever Windows 8 phone at its tradeshow in Berlin, Germany, on Thursday. Despite its recent legal victory over the Android (GOOG) manufacturer, Apple still has to compete with Microsoft (MSFT), which will be pushing Windows 8 aggressively.

In short, the stakes are high for Apple, but the company is hoping that its investment in the next iPhone's in-cell LCD panels, scheduled to be manufactured by Sharp, will help Apple stay ahead of the curve with consumers. The new technology allows for thinner screens by integrating touch sensors into the LCD panels, eliminating a separate touchscreen layer. However, experts say that these screens are more difficult to produce than traditional LCD panels, and Sharp may have underestimated the rate at which the company could make them.

A deal with Foxconn, which would grant the company a 9.9% stake in the LCD maker, would go a long way toward helping Sharp. Foxconn says there is no timetable for the deal.
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