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Qualcomm needs to tread carefully with Sharp venture

Sit in the corner looking miserable for long enough and someone will eventually ask you to dance. That is what Qualcomm is doing for Sharp. The U.S. maker of chips for mobile phones said on Tuesday that it would invest up to ¥10-billion ($120-million) in the struggling Japanese electronics maker. That would give Qualcomm a 5-per-cent equity stake in Sharp and represent a vote of confidence in the future of a company that did not appear to have one.

The investment represents barely 1 per cent of Qualcomm's cash – but it might struggle to earn a return. It and Sharp are indeed in the same ecosystem – Sharp buys Qualcomm's chips for its smartphones and is a licensee of its intellectual property. The two companies plan to develop energy-saving mobile phone displays. Sharp is already working with Qualcomm's subsidiary, Pixtronix, to build new displays.

The question, though, is why Qualcomm wants to push further into a business where even the mighty Samsung struggles to eke out a profit. The company is no stranger to dud investments. Investors will not have forgotten mobile technology venture MediaFlo, into which it put money into in 2010 only for the venture to later fold.

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The other question, of course, is whether Qualcomm's backing will help to save Sharp. The Japanese company is undergoing a savage restructuring, shrinking its loss-making television-panels and solar-cell units while betting its future on the mobile display business. The trouble is that the cash injection from Qualcomm is barely 2 per cent of Sharp's short-term debt, ¥360-billion of which is due to be repaid in June next year. Sharp is currently burning cash as it concentrates on its restructuring. Its net loss for the year ending next March is expected to jump by a sixth, to ¥450-billion. Yet funding is getting harder to secure – creditors have put revolving liens on its property assets.

Qualcomm's investment suggests that it sees a future for Sharp's display business. But it needs to steer clear of the mess that is the rest of Sharp. If Qualcomm gets pricked, it will certainly bleed.

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