By Mari Saito
TOKYO (Reuters) - Japan's Sharp Corp, a leading supplier of displays to Apple Inc, said Thursday it will form a $2.9 billion alliance with state-owned China Electronics Corp that includes an agreement by Sharp to license its advanced power-saving IGZO screen technology.
The new venture will be 92 percent owned by China Electronics, also known as CEC, which supplies equipment to China's military. The venture will set up a an LCD plant with the goal of mass-producing panel displays for televisions, notebook PCs and tablets in 2015.
Licensing IGZO, or indium gallium zinc oxide displays, fits into a strategy by cash-strapped Sharp to leverage its technology to bolster its finances. Sharp, in December, signed a pact with Qualcomm Inc, selling the U.S. company an equity stake for $120 million and agreeing to develop new screens based on IGZO technology.
IGZO screens boast power consumption as low as a tenth of conventional LCDs, high resolutions and faster reaction speeds. While an agreement to license the technology to a Chinese military-linked state company may raise eyebrows, Sharp does not exclusively own the technology, only being the first to commercialize it.
The agreement, which is a revised version of one agreed to with CEC in 2009, may instead represent a retreat by the Chinese company to win access to Sharp's more advanced tenth-generation LCD manufacturing techniques. CEC is planning to build an 8.5 generation facility.
Sharp is the only panel maker in the world to have built a tenth generation factory able to fabricate liquid crystal sandwiched in glass sheets thinner than a credit card that are 3.13 meters long by 2.88 meters wide. Smaller 8.5 generation sheets measure 2.2 meters by 2.5 meters.
CEC in November blamed deteriorating ties between Japan and China over their territorial spat in the East China Sea for shelving cooperation with Sharp to build a tenth-generation facility. Sharp, which sold a stake in its advanced LCD plant to Taiwan's Hon Hai Precision Industry last year, says no such agreement ever existed.
Thursday's deal, including the construction of the 8.5 generation factory in Nanjing, represents one of the highest-profile transactions between a Chinese and Japanese company since tensions flared last year over a chain of disputed islands known as the Senkakus in Japan and the Diaoyu in China.
A Sharp spokesman declined to say how much in royalties the company expected to receive for the technology transfer. A portion of those proceeds will be used to fund Sharp's 8 percent stake in the joint venture, the spokesman said.
The new joint-venture will represent a total investment of $2.9 billion for Sharp, which was rescued in October by its banks. To rebuild its business, Sharp has also sought closer ties to Samsung Electronics, selling it a 3 percent stake for $103 million and pledging to supply it with small display screens.
(Additional reporting by Sophie Knight; Writing by Tim Kelly; Editing by Matt Driskill)