Case M.8023 - HON HAI PRECISION / SHARPec.europa.eu/competition/mergers/cases/decisions/m8023_271_3.pdf · 5 Strategic commercial decisions, including decision in relation to budget

EUROPEAN COMMISSION DG Competition

Case M.8023 - HON HAI PRECISION / SHARP

Only the English text is available and authentic.

REGULATION (EC) No 139/2004

MERGER PROCEDURE

Article 6(1)(b) NON-OPPOSITION

Date: 20/06/2016

In electronic form on the EUR-Lex website under document

number 32016M8023

Commission européenne, DG COMP MERGER REGISTRY, 1049 Bruxelles, BELGIQUE Europese Commissie, DG COMP MERGER REGISTRY, 1049 Brussel, BELGIË Tel: +32 229-91111. Fax: +32 229-64301. E-mail: [email protected].

EUROPEAN COMMISSION

Brussels, 20.06.2016

C(2016) 3909 final

To the notifying party:

Dear Sir/Madam,

Subject: Case M.8023 – Hon Hai Precision / Sharp

Commission decision pursuant to Article 6(1)(b) of Council Regulation

No 139/20041 and Article 57 of the Agreement on the European Economic

Area2

(1) On 13 May 2016, the European Commission (the "Commission") received

notification of a proposed concentration pursuant to Article 4 of the Merger

Regulation by which Hon Hai Precision Industry Co., Ltd. ("Hon Hai", Taiwan),

trading as Foxconn, acquires within the meaning of Article 3(1)(b) of the Merger

Regulation sole control of the whole of the undertaking Sharp Corporation

("Sharp", Japan) by way of purchase of shares (the "Transaction").3 Hon Hai is also

referred to as the "Notifying Party". Hon Hai and Sharp are designated hereinafter

as the "Parties".

1 OJ L 24, 29.1.2004, p. 1 (the 'Merger Regulation'). With effect from 1 December 2009, the Treaty on

the Functioning of the European Union ('TFEU') has introduced certain changes, such as the

replacement of 'Community' by 'Union' and 'common market' by 'internal market'. The terminology of

the TFEU will be used throughout this decision.

2 OJ L 1, 3.1.1994, p. 3 (the 'EEA Agreement').

3 Publication in the Official Journal of the European Union No C 184, 21.05.2016, p. 9.

PUBLIC VERSION

MERGER PROCEDURE

In the published version of this decision, some

information has been omitted pursuant to Article

17(2) of Council Regulation (EC) No 139/2004

concerning non-disclosure of business secrets and

other confidential information. The omissions are

shown thus […]. Where possible the information

omitted has been replaced by ranges of figures or a

general description.

2

1. THE PARTIES

(2) Hon Hai provides third-party electronic manufacturing services ("EMS") to

original equipment manufacturers ("OEMs") of electronic products such as

computers, mobile phones, video game consoles and televisions. Hon Hai has

operations across the Americas, Asia and Europe.

(3) Sharp is active in developing, manufacturing and selling multiple electronic

products such as products incorporating thin film transistor (TFT) liquid crystal

display ("LCD") panels, including LCD television sets and LCD monitors, solar

panels, mobile communication handsets, video projectors, multi-function printing

devices, microwave ovens, air conditioners, cash registers, complementary metal-

oxide-semiconductor (CMOS) and charge-coupled device (CCD) sensors and flash

memory. In addition to its own branded products, Sharp produces certain consumer

electronic products including LCD television sets and mobile communication

handsets for third parties, which then sell them under their own brand.

2. THE OPERATION AND THE CONCENTRATION

(4) Sharp is currently not controlled by any entity and it has a very dispersed

shareholder base in which the ten largest shareholders account for less than 22% of

Sharp's total shares (the largest of them, Nippon Life Insurance Company, having

less than 2.8%). Hon Hai will subscribe to newly issued shares and receive a

26.14% direct interest in Sharp. In addition, Foxconn (Far East) Limited, a fully

owned subsidiary of Hon Hai, will also subscribe to new shares and receive a direct

interest of 18.41% in Sharp.

(5) Following the issuance of new shares, the shareholding of all current shareholders

will be diluted to 34% (with the current largest ten shareholders holding together

less than 8%). The combined 44.55% interest in Sharp held by Hon Hai directly

and via its subsidiary Foxconn (Far East) Limited results in the acquisition by Hon

Hai of sole control of Sharp because: (i) it allows Hon Hai to be able to pass

shareholder resolutions that have to be adopted by a majority of the votes of the

shareholders present at the meeting4 and, (ii) under Japanese company law, a

shareholding greater than one third (33.4%) (in the hands of a single shareholder)

enables its holder to block approval of special resolutions, which, in this case,

include the appointment of senior management.5

(6) The Transaction therefore constitutes a concentration within the meaning of

Article 3 (1)(b) of the Merger Regulation.

4 The attendance rate of the current shareholders in the last three annual shareholders' meetings has

been no more than 60%. Even if the newly issued shares (66% of the future shareholders) will be

fully represented in future shareholders meetings, an attendance rate of 60% or less of the previous

shareholders that will continue to represent 34% of all shares will result in a likely attendance rate of

86.4% or less. With a shareholding of 44.55% of all shares, Hon Hai will therefore be able to pass

shareholder resolutions that have to be adopted by a majority of the votes of the shareholders present

at the meeting.

5 Strategic commercial decisions, including decision in relation to budget or business plans, are

generally taken by the board of directors. None of Sharp's other shareholders would individually have

the ability to approve or veto the appointment of new directors post-Transaction.

3

3. UNION DIMENSION

(7) The undertakings concerned have a combined aggregate world-wide turnover of

more than EUR 5 000 million (Hon Hai: EUR 127 190.84 million, Sharp:

EUR 21 033.45 million).6 Each of them has an EU-wide turnover in excess of EUR

250 million (Hon Hai: EUR [>250] million, Sharp: EUR [>250] million), but they

do not achieve more than two-thirds of their aggregate EU-wide turnover within

one and the same Member State. The notified operation therefore has an EU

dimension.

4. RELEVANT MARKETS

(8) The proposed transaction combines Hon Hai, mostly a provider of EMS, with

Sharp, an original electronics manufacturer. The Parties' activities overlap in both

EMS since Sharp engages in some EMS activities (notably at the request of other

OEMs) and in the production of some electronic components as Hon Hai produces,

amongst others, camera modules and displays.

4.1. Electronic manufacturing services

(9) OEMs produce electronic devices such as computers, mobile phones, video game

consoles and televisions. EMS can be provided by third party EMS providers to

OEMs and can consist of the many products and services that an OEM requires to

produce its end products, such as component selection and procurement,

prototyping, production, assembly, testing, failure analysis, logistics and

distribution.

(10) Some OEMs also perform EMS for other OEMs. However, according to Hon Hai,

70% of EMS is not outsourced to a third party but undertaken in-house by the

respective OEMs.

4.1.1. Product market definition

(11) In previous decisions, the Commission contemplated a possible segmentation of

EMS according to the final product for which these services are provided (e.g.

mobile phones, TVs, computers) and whether EMS provided by OEMs should be

included in the relevant product market, but ultimately left this issue open.7

(12) Hon Hai states that the EMS production chain is largely identical irrespective of the

final product being produced and that EMS consist of generic production lines that

are able to easily shift equipment, processes and staff. Therefore, the Notifying

Party submits that it would be inappropriate to segment EMS further, either by type

of EMS or by the products being manufactured by the EMS provider.

(13) Concerning EMS conducted by OEMs for their own products (i.e. in-house EMS),

the Notifying Party claims that OEMs can easily outsource EMS and bring them

6 Turnover calculated in accordance with Article 5 of the Merger Regulation.

7 M.5870 - Foxconn / Sony LCD TV Manufacturing Company in Slovakia (2010), M.5765 –

Foxconn/Dell (Products) Poland (2010).

4

back in-house at low cost and on short notice. Therefore, Hon Hai argues that

OEM's in-house EMS should be included in the relevant product market.

(14) According to the market investigation, cost, efficiency, flexibility and quality are

among the most important characteristics that lead OEMs to decide to use third-

party EMS.8 In relation to the competitive constraint exerted by EMS provided by

OEM's in-house and by EMS provided by other OEMs, the responses from the

market investigation were mixed. For example, some respondents submitted that

OEMs as a third-party EMS provider could exert a competitive constraint provided

they offered a competitive advantage in terms of cost or quality, while others did

not believe that OEMs could exert such a constraint.9 Likewise, some OEMs

considered it possible to bring EMS back in-house at reasonable costs and delays,

while others submitted that it would not be an option as they would lack in-house

equipment or expertise.10

(15) A majority of respondents to the market investigation submitted that the extent to

which EMS providers can switch equipment to produce products for different

OEMs depends on the specific product.11 Some submitted that the typical

equipment can be used for a large range of products and customers. According to

some respondents, the timelines and costs involved for shifting production among

products would span from a few hours to several months and the costs can be

substantial.12

(16) In relation to a further segmentation of EMS, some respondents to the market

investigation argued that looking at specific products would be more meaningful

(hence having different product markets) while others considered that EMS is

provided as a manufacturing service for an overall product market. Some

respondents further detailed that certain products which require more specialised

equipment (such as medical, automotive or defence equipment) are subject to

specialised regulatory requirements and form therefore part of separate markets.

(17) In any event the Commission considers that for the purposes of the present case,

the exact definition of the product market for electronic manufacturing services can

be left open, since no serious doubts as to the compatibility of the Transaction with

the internal market arise under any plausible alternative product market definition.

4.1.2. Geographic market definition

(18) In relation to the geographic market definition for EMS, Hon Hai submits that the

relevant geographic market is worldwide. Hon Hai and Sharp, like many other

major EMS providers and OEMs, have plants and sales offices across the globe. To

satisfy customers' global requirements, both companies continuously sell and

provide services across borders and across continents.

8 Responses to market investigation, question 4.

9 Responses to market investigation, questions 8, 9 and 10.




5

(19) In past decisions, the Commission has considered whether the geographic market

for EMS is EEA-wide or worldwide, but ultimately left this question open. A

majority of respondents to the market investigation that provide EMS submitted

that they typically provide these services worldwide. The majority of OEMs

responded that they also procure EMS worldwide.

(20) For the purposes of the present decision, the Commission considers that it is not

necessary to conclude on the exact geographic market definition as no serious

doubts as to the compatibility of the Transaction with the internal market arise

under any plausible alternative geographic market definition (EEA-wide or

worldwide) for EMS.

4.2. Display panels

(21) Display panels are comprised of screens capable of displaying graphical output of

TV devices, mobile phones, PCs, laptops, notebooks, public displays, and so forth

and include several display technologies, such as liquid crystal display (LCD),

plasma, organic emitting diode (OLED) and others. Displays may come in different

sizes. There are a number of competing technologies as companies are trying to

improve the quality of display panels in terms of contrast, brightness as well as

thickness. For example, thin-film transistor (TFT) technology improves image

quality while requiring less electricity to operate than other display technologies. In

addition, different types of silicon can be used for different display technologies,

such as a-Si (amorphous silicon), poly-Si (polycrystalline silicon), LPTS (low-

temperature poly-Si), high-temperature poly-Si, and so forth. Most recently,

companies have started to sell so-called OLED display panels.


(22) The Notifying Party argues that it is not appropriate to segment display panels by

technology used, size or end application due to strong supply side substitution.

(23) The Commission has examined the display markets in a number of past decisions.

While the Commission has ultimately left open the relevant market definition for

displays, it has contemplated segmentations according to the size of the panel, the

technology used to produce the displays, and the end-use application in which

panels are used.13

(24) In relation to a possible segmentation of display panels based on the technology

used, some respondents submitted that LCD panels constitute a different product

market than other display technologies such as plasma or OLED. A majority of

respondents to the market investigation submitted that all LCD panels based on

different silicon (a-Si, p-Si) or different technologies (TFT, IPS) are part of the

same product market.

13 M.6603 – Hon Hai / Sharp / Sharp Display Products, decision of 22 June 2012, paragraphs 16-21;

M.3459 – Seiko Epson / Sanyo / Sanyo Epson Imaging Devices JV, decision of 22 September 2004,

paragraphs 7-11; M.3693 – TPV / Philips (Monitors), decision of 5 August 2005, paragraphs 6-15;

M.5414 – Samsung SDI / Samsung Electronics / SMD, decision of 23 January 2009, paragraphs 10-

24; M.5589 – Sony / Seiko Epson, decision of 22 September 2009, paragraphs 9-22; M.5762 – Innolux

/ Chi Mei / TPO, decision of 25 February 2010, paragraphs 9-20.

6

(25) In relation to the size of the display, the Commission has considered in the past a

possible segmentation of small- and medium-sized displays (up to 10 or 11 inches)

and large displays. Small- and medium-sized displays are used inter alia for

cameras, mobile phones, game consoles, while large displays are used for computer

monitors and TVs.14 A majority of respondents to the market investigation agreed

that distinguishing between small and medium, on the one hand, and large panels

on the other hand, is necessary and sufficient.15

(26) In any event, the Commission considers that for the purposes of the present case,

the exact definition of the product market for display panels can be left open, since

no serious doubts as to the compatibility of the Transaction with the internal market

arise under any plausible alternative product market definition.


(27) The Notifying Party submits that the relevant geographic market is worldwide

because Sharp, and other major providers have plants and sales offices across the

world sell products and provide services across borders and across continents and

barriers to trade and shipping costs remain low relative to price.

(28) In past decisions, the Commission considered that the geographic scope of the

market for display panels is worldwide, based on low transportation costs,

homogeneous prices, and the large volumes of display panel products traded

globally across borders.16

(29) For the purposes of the present decision, the Commission considers that it is not

necessary to conclude on the exact geographic market definition as no serious

doubts as to the compatibility of the Transaction with the internal market arise

under any plausible alternative geographic market definition for display panels.

4.3. Camera modules

(30) Camera modules are small digital camera units which typically include an image

sensor, a lens and other components. Camera modules are typically built into

mobile phone, PCs and gaming devices.


(31) The Notifying Party submits that it is not necessary to segment the product market

for camera modules into further segments. Even though camera modules can be

distinguished based on a number of factors, such as auto-focus speed, image

formats supported and waterproof and shockproof capability, the Notifying Party

argues that the manufacturing process does not vary significantly.

14 M.5762 – Innolux / Chi Mei / TPO, decision of 25 February 2010, paragraphs 12 and 15.

15 Responses to market investigation, questions 28 and 29.

16 M.5414 – Samsung SDI / Samsung Electronics / SMD, decision of 23 January 2009, paragraph 27;

M.5589 – Sony / Seiko Epson, decision of 22 September 2009, paragraphs 23-25; COMP/M.5762 –

Innolux / Chi Mei / TPO, decision of 25 February 2010, paragraph 21.

7

(32) Some respondents to the market investigation are of the view that not all camera

modules are interchangeable, as different characteristics are needed depending on

the final product (e.g., camera modules for smartphones may need to be smaller or

thinner). Others submitted that the basic functions and specifications are similar

across applications and the material and the manufacturing equipment required is

also broadly similar.

(33) In any event, the Commission considers that for the purposes of the present case,

the exact definition of the product market for camera moduls can be left open, since

no serious doubts as to the compatibility of the Transaction with the internal market

arise under any plausible alternative product market definition.


(34) In relation to geographic market segmentation, Hon Hai submits that the relevant

geographic market is worldwide.

(35) The Commission considers that the presence of global manufacturers of camera

modules, such as Sharp, suggests that the geographic scope of the market could be

global, or at least EEA-wide.

(36) However, for the purposes of the present decision, the Commission considers that it

is not necessary to conclude on the exact geographic market definition as no

serious doubts as to the compatibility of the Transaction with the internal market

arise under any plausible alternative geographic market definition for camera

modules.

5. COMPETITIVE ASSESSMENT

5.1. Horizontal assessment

(37) The business activities of the Parties overlap in the provision of EMS as well as in

the production of camera modules.

(38) There is also a minimal overlap in the production of television sets. However, since

the Parties' combined market share for TVs or LCD TVs is below 5% for 2015 and

2014 on a worldwide level and the increment is only [0-5]%, this overlap is not

discussed any further as it does not give rise to an affected market.

5.1.1. EMS

(39) Both Parties provide EMS. As further explained below, the Commission considers

that the Transaction does not raise horizontal concerns in any of the potential

markets for EMS irrespective of the product and geographic market definition.

(40) According to the Notifying Party, in case in-house EMS are not regarded as part of

the market for EMS, they act as strong competitive constraints for third-party

providers of EMS, as has been recognised in previous cases.17 In any event,

whether or not in-house EMS are regarded as part of the product market for EMS

does not affect the assessment of horizontal concerns caused by the Transaction.

17 Form CO, paragraph 83.

13

(66) Given that the market shares of Sharp on almost all potential markets for LCD

panels are limited, it is unlikely that Hon Hai would have a significant degree of

market power in the upstream market. Therefore, it would not have the ability to

pursue a foreclosure strategy since its downstream competitors would likely be able

to source LCD panels from competitors of Sharp. Moreover, most respondents to

the market investigation stated that Sharp has no "must have" products.26 On the

potential (sub-)market where Sharp has high market shares, that is, LCD panels for

smart watches, Hon Hai is not active as a provider of EMS on the downstream

market and therefore has no ability to engage in input foreclosure.

(67) Furthermore, such foreclosure strategy would be premised on the assumption that

EMS providers source LCD panels directly from LCD manufacturers. However,

according to the majority of respondents to the market investigation, these are the

OEMs and not the EMS providers who chose the manufacturers of displays.27 Of

all providers of EMS only one replied that it is typically free to determine from

whom to source displays.28 Similarly, most of the OEMs responded that they

themselves decide which LCD panel to use in products for which they procure

EMS by third parties.29 One OEM explained that it often decides and negotiates the

terms and conditions for the sale of display panels but leaves it up to the EMS

provider to decide through which supplier/ distributor to source the selected

component.

(68) The Commission also considers that even if some OEMs currently do not decide

which LCD panels are to be used, the strong competition on the EMS markets,

together with the fact that most OEMs currently decide the supplier of LCD panels,

indicate that even those OEMs who do not make the decision themselves could

influence that decision.

(69) Finally, the fact that OEMs often choose the displays to be used by providers of

EMS, is likely to influence Hon Hai's incentives to pursue an input foreclosure

strategy. Vis-à-vis OEMs that are actual or potential customers and not competitors

of Hon Hai, the merged entity would likely not be in a position to pursue an input

foreclosure strategy.

(70) For these reasons, the Commission considers that the Transaction does not give

raise to concerns based on potential input foreclosure of LCD panels.

5.2.1.2. Customer foreclosure

(71) The Commission also assessed the potential foreclosure of access to the

downstream market for competing upstream producers of LCD panels. Given the

strong position of Hon Hai in certain downstream EMS markets, the merged entity

could in theory pursue such strategy in particular in the potential downstream EMS

market for mobile phones.





14

(72) In assessing the likelihood of an anticompetitive customer foreclosure scenario, the

Commission examined (i) whether the merged entity would have post-merger the

ability to foreclose access to downstream markets by reducing its purchases from

its upstream rivals; (ii) whether the merged entity would have the incentive to

reduce its purchases from its upstream rivals; and (iii) whether a foreclosure

strategy would have a significant detrimental effect in the downstream market.30

(73) In order to have the ability to foreclose competing producers of LCD panels, the

merged entity would have to be able to select the producer of LCD panels for the

mobile phones for which it provides EMS to the respective OEMs. However, as

discussed in paragraph (67), typically the OEMs decide which LCD panels are used

in their products. In such cases, the merged entity would not have the ability to

foreclose competing manufacturers of LCD panels.

(74) In addition, even if the merged entity could and would pursue such foreclosure

strategy, it appears unlikely that competing producers of LCD panels for mobile

phones would raise their prices as a result of less competition in the provision of

camera modules, which would in turn, in the medium and long run, affect

competition downstream and lead to increases in the prices for mobile phones.31 In

particular, respondents to the market investigation took the view that the

competitors of Sharp currently selling LCD panels for mobile handsets to […]* are

likely to be able to sell their display panels to other customers for different end-

products.32 Such ability suggests that a foreclosure strategy would cause

competitors of Sharp to shift selling their panels to other end-uses but not to reduce

their ability to compete with the merged entity.

(75) Taking these elements into account together with the overall competitive situation

on the EMS market, the Commission finds that the Transaction does not give raise

to concerns of customer foreclosure of competitors of Sharp producing LCD

panels.

5.2.2. Camera modules

(76) The Transaction would combine Sharp's upstream provision of camera modules

and Hon Hai's downstream EMS, which use these camera modules as an input in

the manufacturing processes of several electronic devices. In 2015, Hon Hai used

EUR […] billion worth of camera modules sourced from Sharp. The Notifying

Party submits that this only represents [<15]% of the global sales of camera

modules and [<70]% of Sharp's production. According to data from the Fuji

Chimera Research Institute, Sharp and Hon Hai only had a combined market share

of [10-20]% by volume in 2015 on a potential market for camera modules for

mobiles.

30 See Non-Horizontal Merger Guidelines, paragraph 59.

31 When considering whether the merged entity would have the ability to foreclose access to

downstream markets, the Commission examines whether there are sufficient economic alternatives in

the downstream market for the upstream rivals (actual or potential) to sell their output. See Non-

Horizontal Merger Guidelines, paragraph 61.

* Should read Hon Hai.


15

(77) The Commission therefore assessed the potential foreclosure of Sharp's camera

modules to Hon Hai's downstream competitors in EMS service provision (input

foreclosure). It also assessed potential customer foreclosure: a scenario where the

merged entity would source camera modules exclusively from Sharp for the

merged entity's EMS activities, thereby foreclosing Sharp's competitors from

selling to the merged entity, a large buyer of camera modules.

5.2.2.1. Input foreclosure

(78) Input foreclosure concerns would arise if the merged entity would have the ability

and incentive to foreclose downstream competitors of the EMS business of Hon

Hai from camera modules produced by Sharp and if such foreclosure strategy

would have a significant detrimental effect on effective competition in the

downstream market.

(79) The Notifying Party submits that the presence of Sharp in the production of camera

modules is limited, with the presence of large competitors including LG, Samsung

or Japan Display. As a result, there would be no credible prospect that the

Transaction would give rise to input foreclosure of camera modules.

(80) The Commission considers, first, that Sharp's camera modules do not appear to be a

must-have product. According to the respondents to the market investigation, there

seem to be a number of alternative suppliers of camera modules, such as LG,

Samsung, Sony or Lite-On.33 The merged entity would only produce some [10-

20]% of the total camera modules and, therefore, a very large share of the camera

modules market would still be served by competitors.

(81) Moreover, in order to have the ability to foreclose competing producers of camera

modules, the merged entity would have to be able to select the producer of camera

modules for the mobile phones for which it provides EMS to the respective OEMs.

However, as discussed in paragraph (67), these are the OEMs and not the EMS

who typically decide which camera modules are used in their products. The merged

entity could therefore only foreclose competing manufacturers if it could decide

which camera modules to source.34

(82) The Commission also considers that even if some OEMs currently do not decide

which camera modules are to be used, the strong competition on the EMS markets,

together with the fact that most OEMs currently decide the supplier of camera

modules indicate that even those OEMs who do not make the decision themselves

could influence that decision.

(83) Finally, the fact that often OEMs choose the camera modules to be used by

providers of EMS, is likely to influence Hon Hai's incentives to pursue an input

foreclosure strategy. Vis-à-vis OEMs that are actual or potential customers and not

competitors of Hon Hai, the merged entity would likely not have an incentive to

pursue an input foreclosure strategy.


34 For example, the Notifying Party submits that only EUR […] out of EUR […] worth of camera

modules used by Hon Hai in its assembly factories are purchased directly by Hon Hai (Form CO,

Table 66).

16

(84) For these reasons, the Commission finds that the Transaction does not give raise to

concerns based on potential input foreclosure of camera modules.

5.2.2.2. Customer foreclosure

(85) The Commission also assessed whether the merged entity could foreclose the

access to the downstream market for competing upstream producers of camera

modules, in particular in the potential downstream EMS market for mobile phones

given the strong position of Hon Hai in this potential market.

(86) In assessing the likelihood of an anticompetitive customer foreclosure scenario, the

Commission examined (i) whether the merged entity would have post-merger the

ability to foreclose access to downstream markets by reducing its purchases from

its upstream rivals; (ii) whether the merged entity would have the incentive to

reduce its purchases from its upstream rivals; and (iii) whether a foreclosure

strategy would have a significant detrimental effect in the downstream market.

(87) In order to have the ability to foreclose competing producers of camera modules,

the merged entity would have to be able to select the producer of camera modules

for the mobile phones for which it provides EMS to the respective OEMs.

However, as discussed in paragraph (67), the OEMs typically decide which camera

modules are used in their products. The merged entity could therefore only

foreclose competing manufacturers if it can decide which camera modules to

source.35

(88) In addition, Hon Hai currently incorporates only EUR […] worth of camera

modules into its EMS activities, out of a global market for camera modules

estimated at EUR […] in 2015.36 Therefore, competing EMS providers and OEMs

already source camera modules from Sharp's competitors, which would likely

continue to be the case post-Transaction.37

(89) Furthermore, even if the merged entity were to pursue such foreclosure strategy, it

appears unlikely that competing producers of camera modules for mobile phones

would raise their prices as a result of less competition in the provision of camera

modules, which would in turn, in the medium and long run, affect competition

downstream and lead to increases in the prices for mobile phones.38 In particular,

most respondents to the market investigation took the view that the competitors of

Sharp currently selling camera modules for mobile handsets to Hon Hai are likely

to be able to sell the camera modules to other customers using them for other end-

35 For example, the Notifying Party submits that only EUR […] out of EUR […] worth of camera

modules used by Hon Hai in its assembly factories are purchased directly by Hon Hai (Form CO,

Table 66).

36 Form CO, Table 27 and Table 66, USD 1=EUR 0.90 (average 2015).

37 Form CO, Table 27 and Table 66.

38 When considering whether the merged entity would have the ability to foreclose access to

downstream markets, the Commission examines whether there are sufficient economic alternatives in

the downstream market for the upstream rivals (actual or potential) to sell their output. See Non-

Horizontal Merger Guidelines, paragraph 61.

17

products.39 Such ability suggests that a foreclosure strategy would cause

competitors of Sharp to shift selling their panels to other end-uses.

(90) […]*, the Commission notes that Hon Hai, already today, uses the majority of

Sharp's camera module production ([>50]%) in its EMS. Therefore, if the merged

entity were to pursue a customer foreclosure strategy, Sharp's manufacturing

capacity of camera modules would need to increase considerably in order to replace

camera modules that Hon Hai currenly buys from Sharp's competitors.40

(91) In light of the above and given the overall competitive situation on the EMS

market, the Commission finds that the Transaction does not give raise to concerns

of customer foreclosure of competitors of Sharp producing camera modules.

6. CONCLUSION

(92) For the above reasons, the European Commission has decided not to oppose the

notified operation and to declare it compatible with the internal market and with the

EEA Agreement. This decision is adopted in application of Article 6(1)(b) of the

Merger Regulation and Article 57 of the EEA Agreement.

For the Commission

(Signed)

Margrethe VESTAGER

Member of the Commission


* Should read Moreover.

40 Hon Hai currently uses EUR […] billion worth of camera modules from Sharp, out of a total of EUR

[…] billion (for EMS for mobile handsets and other products), see Form CO, Table 66.

Documents

Case M.8023 - HON HAI PRECISION / SHARPec.europa.eu/competition/mergers/cases/decisions/m8023_271_3.pdf · 5 Strategic commercial decisions, including decision in relation to budget