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Samsung now has a degree of control over one of Apple's top suppliers

Samsung Electronics Comp., Ltd. (KSC:005930) continued its warpath in the smartphone market this week, announcing plans to buy approximately 3 percent of veteran Japanese display-maker Sharp Corp. (TYO:6753) for $110M USD.  The deal, viewed as a bargain by analysts, relieves the cash-strapped Japanese firm and gives Samsung a tighter grip over the smartphone commodity component market, a sector where it was already a top player.

I. Samsung Joins Pack of Investors in Sharp Bailout

Sharp began seeking major investments late last year.  Stressed by the burden of the continual investments necessary to keep pace with ever-evolving display technologies, Sharp was on the verge of bankruptcy.  But banks pitched in hundreds of millions and system-on-a-chip maker Qualcomm, Inc. (QCOMoffered up $120M USD.  Qualcomm's display subsidiary Pixtronix will be working with Sharp to develop next generation indium gallium zinc oxide (IGZO) display technology.  

Now Samsung has joined that small pack of corporate investors.

Sharp Building
Qualcomm and Samsung are creating new business by bailing out Japan's Sharp.
[Image Source: Reuters]

The deal with Mizuho Financial Group, Inc. (TYO:8411) and Mitsubishi UFJ Financial Group Inc. (TYO:8306) involved a promise by Sharp to mortgage its international facilities and lay off 10,000 employees to cut costs.

The deal sent Sharp shares soaring 14 percent on Wednesday.

Sharp, along with the other members of Japan's display-making "Big Three" (Sony Corp. (TYO:6758) and Panasonic Corp. (TYO:6752)), has been bleeding cash. Sharp shares are down 45 percent on the year (even considering the recent rise); the company bled ¥388B ($4.15B USD) in the past sixth months.  Meanwhile Samsung has been churning record profits.

II. Ties to Apple, Hon Hai Weaken at Sharp

But Sharp remains an important provider of displays, both in the large (over 60 inch) and the small (Retina smartphone displays) categories.  Notably, Sharp is a critical supplier to Samsung's arch-nemesis Apple.  While Samsung's domestic rival LG Electronics, Inc. (KSC:066570) is the largest provider of iPhone Retina displays, Sharp is estimated to be the second largest.

Analysts speculate the purchase could result in Sharp small LCD stock being funneled to Samsung, which is hoping to sell and almost unfathomable 390 million smartphones this year.  That could in turn hurt Apple's ability to stock screens for the iPhone 5, which reportedly is already suffering from shortages in the component chain.


iPhone stock could be hurt by Samsung's investment in Sharp.

Jeff Kang, an analyst at Daishin Securities in Seoul, comments to Reuters, "An investment by Samsung will... prevent Apple from having exclusive access to Sharp."

Samsung also has the potential to invest deeper in Sharp, should the deal prove useful.  With its bond status rated at junk, the company has limited options to raise cash -- stock is the most likely.  Sharp will need ¥200B ($2.14B USD) to cover a bond which will be maturing in September of this year.

Sharp appears to be in danger of losing Hon Hai Precision Industry Comp. Ltd. (TPE:2317) ¥67B ($720M USD) investment.  Hon Hai wanted to buy 9.9 percent of the company for that amount, but slumping share prices have likely deep-sixed the deal.  The pair also had suffered from disagreements on how much control the Taiwanese Hon Hai -- who owns Apple's primary device assembler, Foxconn -- would have over its Japanese investment.  Sharp is the rumored producer of the 60-inch LCD panel for the upcoming Apple LCD TV product, while Hon Hai is reportedly working with Apple on the assembly end.

Tetsuro Ii, chief executive officer of Commons AM, told Reuters that despite the fear of dilution, the investment is very valuable to both companies as it opens the door to technology trading.  He comments, "Rather than the amount of investment, it is the partnership with Samsung that Sharp gains that is important. Sharp has an opportunity to use the Samsung platform."

Sources: Sharp, Reuters



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Meanwhile
By Reclaimer77 on 3/6/2013 7:47:45 PM , Rating: 5
Apple is just sitting on piles of cash, doing nothing while the walls close in. Not investing, not moving forward, not buying up tech firms. Just...nothing. And their legal campaign against Samsung has backfired.




RE: Meanwhile
By RjBass on 3/6/13, Rating: 0
RE: Meanwhile
By Synk556 on 3/6/2013 8:39:07 PM , Rating: 2
They haven't for years. Of course NOW they're 'innovating' the -- gasp! -- watch. For which they'll probably take casio to court. I called it first!


RE: Meanwhile
By majorpain on 3/7/2013 11:15:56 AM , Rating: 3
They will probably sue Swatch, Tecnos, Lorus, etc, etc for using pointers and numbers.


RE: Meanwhile
By Mitch101 on 3/7/2013 12:22:42 PM , Rating: 2
The 4th Dimension was invented by Apple.


RE: Meanwhile
By Tony Swash on 3/7/13, Rating: -1
RE: Meanwhile
By bsd228 on 3/7/2013 2:22:44 PM , Rating: 2
Tony, "innovation" is not what you seem to think it is. Releasing a hit product is not innovation, just successful business.

What was innovative about the iMac? OSX was just another unix with a GUI. Consider it a refinement on NextStep + bsd. Having the monitor and cpu together was done more than a decade earlier.

The ipod was a prettier looking version of products from Creative and Archos and others. OTOH, the first nano and the gumstick shuffle were quite impressive for the minaturization factor, but that's an accomplishment in engineering/manufacturing.

Smart phones existed before the iphone. Again, just a successful implementation.

The iPad, unlike the others, created a market that barely existed before. They were the first to be successful at overcoming the problems the tablet presented. A triumph, no question, but at the heart of it you have a larger itouch/iphone. Another case of refinement on prior work...yet when others do it they suddenly get possessive about intellectual "property."

The iWatch, though potentially very useful to me if it results in a water proof gps sports watch that delivers music over bluetooth, will not be the same success, in part because smart phones like their's killed the main reason for wearing a watch.


RE: Meanwhile
By karlostomy on 3/7/2013 7:58:11 PM , Rating: 2
That's a great post, bsd228.

Tony Swash seems to suffer from the delusion that Apple's successes are a result of innovation.

If anything, Apple successes are a result of better implementation , rather than innovation. This has been proven by product history.

It's a major difference, yet it's lost on so many Apple fans.


RE: Meanwhile
By testerguy on 3/9/2013 7:46:30 AM , Rating: 2
You two guys are ridiculous. Validating each others ignorance.

quote:
Tony, "innovation" is not what you seem to think it is. Releasing a hit product is not innovation, just successful business.


Incorrect statement. Hit products can either require innovation or not require innovation. Just like you can't prove that a product was innovative just because it was a hit, you can't state that it wasn't either.

quote:
The ipod was a prettier looking version of products from Creative and Archos and others. OTOH, the first nano and the gumstick shuffle were quite impressive for the minaturization factor, but that's an accomplishment in engineering/manufacturing.


Oh right, that's just 'an engineering / manufacturing accomplishment'. I wonder what on earth you think is precisely the thing which needs innovation in order to achieve. Do you think having an idea is innovative? Or is it innovative to be able to engineer and manufacturer something unlike anyone else has done before .

quote:
Smart phones existed before the iphone. Again, just a successful implementation.


Again, this is an unbelievably ridiculous statement. According to your logic, every single phone which came out after the first smartphone had and required absolutely zero innovation? Just take a step back and realise how plain stupid that is. The innovation that Apple offers is in optimising both the UI and the hardware, and that remains to this day. The iPhone 5, for example, is still to date the fastest phone in the thinnest package with the longest battery life. An unbelievable package. Yet you are somehow so deluded that you think it requires no innovation. I wonder how you justify that nobody else has been able to match or keep up with Apple on that front. Look at Samsung, the GPU in the American SG3 was slower than the 7 month older iPhone 4S.

quote:
The iPad, unlike the others, created a market that barely existed before. They were the first to be successful at overcoming the problems the tablet presented. A triumph, no question, but at the heart of it you have a larger itouch/iphone. Another case of refinement on prior work...yet when others do it they suddenly get possessive about intellectual "property."


Again, it's unbelievably stupid to think that solving 'the problems' didn't require innovation. Again, I question if you know what innovation is, or are you so naive that you think engineering is just something which happens and doesn't involve any technology?

quote:
If anything, Apple successes are a result of better implementation , rather than innovation. This has been proven by product history.


To repeat myself, better implementation REQUIRES innovation . If it didn't, everyone would be able to do it.


RE: Meanwhile
By FITCamaro on 3/6/2013 8:29:04 PM , Rating: 3
Yeah they could buy Sharp outright if they wanted to.


RE: Meanwhile
By Synk556 on 3/6/2013 8:34:21 PM , Rating: 2
Monetarily they could...but I doubt Sharp'd ever sell outright. Japanese are pretty insular.

I do rather hope that Samsung buys up all apple's vendors though, lol.


RE: Meanwhile
By MadMan007 on 3/6/2013 8:42:15 PM , Rating: 2
Hmm, well, maybe for a straight out acquisition you're right, but I don't think there's much love lost between Koreans, Chinese and Japanese either. There's just a bit of history there, and Asian cultures have longer memories than the West.


RE: Meanwhile
By tng on 3/7/2013 8:07:17 AM , Rating: 2
So true.

Of course Sharp and Samsung have a history as well. A few years back Sharp took Samsung to court in TX as I remember for patent infringement. Sound familiar?

I know that most of Apple's lawsuits against Samsung and other makers are complete crap, but as someone who has had to deal with Samsung on a number of levels, yes they will rip off designs in an instant if they think it will give them leverage into a market. Once they have a market share, they will put money into their own designs.


RE: Meanwhile
By tng on 3/7/13, Rating: -1
RE: Meanwhile
By mike66 on 3/6/2013 8:41:00 PM , Rating: 2
Sell your apple shares now, I predict that in 18 months they will be worth nothing.


RE: Meanwhile
By Donkey2008 on 3/6/2013 11:27:35 PM , Rating: 3
Is that when the big piece of that Russian meteor will hit earth? Otherwise keep dreamin hater.


RE: Meanwhile
By majorpain on 3/7/2013 11:19:05 AM , Rating: 4
Pretty sure Apple will disappear with its the original structure, and someone like Intel will buy it and keep using the brand. Apple greatness died with Jobs.


RE: Meanwhile
By Tony Swash on 3/7/2013 12:10:43 PM , Rating: 2
Apple are doooooomed!!

Some people are so silly I am sure that must be just making a very subtle surrealistic joke.


RE: Meanwhile
By momorere on 3/7/2013 12:32:45 PM , Rating: 2
Just a few of my 100s of articles. It is ashamed that most are considered "spam" so can only post a few per comment.

http://arstechnica.com/apple/2013/03/ios-apps-are-...

http://finance.yahoo.com/news/math-doesnt-lie-tim-...

http://www.forbes.com/sites/ciocentral/2013/02/25/...


RE: Meanwhile
By Tony Swash on 3/7/2013 12:52:10 PM , Rating: 1
So presumably you too believe that Apple is doooomed!!

This insanity is clearly infectious :)

Let's revisit this issue in a year or so and see how things actually pan out. In the meantime here’s a bit of advice. When your theory conflicts with reality, you should create an alternative theory, not an alternative reality.


RE: Meanwhile
By momorere on 3/7/2013 1:09:59 PM , Rating: 2
I'm sure you said those exact words a year ago and look where they are at now. It is only getting worse but you blindly follow them as they are your light in these dark times. Here are a few more articles. BTW, I as well as everyone else knows you NEVER read articles others point out that are negative towards crApple yet, I still post for those who would like to read.

http://news.yahoo.com/apple-hipsters-lament-compan...

http://news.yahoo.com/forbes-apple-may-planted-iwa...

http://www.forbes.com/sites/greatspeculations/2013...


RE: Meanwhile
By Cheesew1z69 on 3/7/2013 1:12:48 PM , Rating: 2
Of course he doesn't read them, they aren't biased towards his precious.


RE: Meanwhile
By Tony Swash on 3/7/2013 2:56:46 PM , Rating: 1
quote:
I'm sure you said those exact words a year ago and look where they are at now.


OK where are Apple now compared to a year ago?

Still taking 70% of the profits of the entire global handset business, still growing sales, still growing installed user base, still crushing Android in platform performance and utilisation's using any metric, iOS is still generating many times Android' developer revenues, still dominating the tablet market. Average weekly revenue was $4.2 billion in the quarter compared to $3.3 billion in the year-ago quarter.

Apple made $44 billion in profits in the last year and Apple did $54.5 billion of business in the last quarter, it's best ever.

statista.com compared Apple’s profit to that of the combined total for the world’s leading Internet companies for the 12 months ending Sept. 30, 2012. Here’s how they stacked up—first, the various Internet-industry leaders:

Microsoft: $15.706 billion
Google: $10.556 billion
Yahoo: $3.969 billion
eBay:  $3.839 billion
Facebook:  $223 million
Amazon.com:  $40 million
*TOTAL:  $34.332 billion

By comparison:
Apple:  $41.773 billion

Apple's most recent 'disappointing' quarter in context

https://d28wbuch0jlv7v.cloudfront.net/images/infog...

So I simply don't get it, by using what metric is Apple's performance in the last year anything less than stellar?

And still numbskulls like you prattle on about Apple's 'dark times'. I know you so desperately want Apple to fail or falter but sadly for you just saying it's so doesn't actually make it so.

When actual observations over a period of time contradict predictions based on a given theory, that theory is wrong!

Richard Feynman


RE: Meanwhile
By nikon133 on 3/7/2013 4:12:40 PM , Rating: 2
I'm sure Nokia, RIM and others were using same arguments a few years back. Oh look, we are making more money/selling more devices than anyone else in the industry. Why should we be worried about iOS and Android?

There is strong inertia in the industry. Apple is doing fine right now, but it seems more and more people thinks they are entering down-spiral. Some of their core products, like iOS, are stagnating. Some are losing functionality for cosmetics (new thin iMacs without ODD, card reader moved to the back etc.). New iP5 is thin and light, but I'm jet to see any ofmy 4 or 4s friends even thinking of upgrading. I am still using 3Gs and I am not inspired to upgrade, not because iP5 is not a sweet device, but because it runs the same software as my 3Gs, and that software has hardly changed since I purchased my 3Gs back in 2009. When I upgrade, as it is, it is more likely to be WP8 or Android this time.


RE: Meanwhile
By testerguy on 3/9/2013 7:50:42 AM , Rating: 2
You would have a point if the iOS user base wasn't increasing.

If you look more closely you will see that Androids growth has mainly been at the expense of Blackberry, Nokia, etc. Apple and Android are both growing currently.


RE: Meanwhile
By txDrum on 3/7/2013 3:58:54 AM , Rating: 2
That's a bit drastic you know. Apple isn't going anywhere for a while. They certainly aren't maintaining their top spot, but they aren't going to go the way of RIM, as long as they know how to release a phone once a year.


RE: Meanwhile
By MadMan007 on 3/6/2013 8:40:35 PM , Rating: 3
In fifteen years when business students are reading about the second rise and fall of Apple, the failure by Apple to meaningfully deploy their massive cash pile (they have made acquisitions, but they are small and ancillary software companies) will be a major focus.

The whole fabless/contract manufacturer model is great, but when the contractor can jump ship, supplies competitiors, or be bought out it shows the pitfalls.


RE: Meanwhile
By seamonkey79 on 3/6/2013 10:31:55 PM , Rating: 2
Or, as in the case with the CPUs, a core supplier is your largest competitor... you have issues.


RE: Meanwhile
By aegisofrime on 3/7/2013 12:53:43 AM , Rating: 2
Well, Apple is reportedly jumping over the TSMC, so they are doing something about that.

Apple had better hope that TSMC sorts out their supply issues. TSMC has TONS of customers: nvidia, Mediatek, Qualcomm etc...


RE: Meanwhile
By tng on 3/7/2013 8:10:46 AM , Rating: 2
quote:
TSMC has TONS of customers: nvidia, Mediatek, Qualcomm etc...
Well Even Qualcomm is having Samsung make some of it's processors. It seems that TSMC could not keep up with demand.


RE: Meanwhile
By Totally on 3/7/2013 11:30:06 AM , Rating: 2
They have so many problems. Sometimes, I believe the only fact that they've managed to stay afloat is because they've been for the longest time they were the only name in the game. If you weren't large enough to own your own fabs and weren't on friendly enough terms to someone elses, you only had TSMC.


RE: Meanwhile
By bsd228 on 3/7/2013 2:38:50 PM , Rating: 2
> In fifteen years when business students are reading about the second rise and fall of Apple, the failure by Apple to meaningfully deploy their massive cash pile (they have made acquisitions, but they are small and ancillary software companies) will be a major focus.

I think it will be the source of many lectures, yes, on many topics.

Part of Apple's success on the second Jobs go around was their focus on a small number of products. They avoided the drag of selling too many things, thereby having oversupply (and need to clear out cheap) of less popular items. Keeping the SKU count low, focusing on the higher premiums translated to good cash, and abruptly in the past couple years, a huge amount of cash. They're just not built to use it.

What they did for the past few years to good advantage is use cash to lock up supply of new products, like the higher resolution displays, and earlier, the emerging solid state memory sources. This let them reveal products with higher specs than the competition, and let them not have to compete on par for the next year. But as they got more litigious and suppliers saw the risk in losing the customer for their entire supply, cash may no longer be enough to get an exclusive.

and then there's the issue around 'what next?' The iPad was their answer to that last time around, but here we are again. Is the watch the answer? It gets upgraders from the ipod and iphone, but that's just maintaining current position at best. The TV? Low margin business, and people don't upgrade every year or two...closer to 5+.

That all said...if they go back to where they were 4 or 5 years ago, making solid money and being a top 10 or 20 company (by market cap), is that an actual failure? Or just a company that enjoyed a gold rush for a few years? I'm not sure what they can do with 100B to grow their business that doesn't change their character away from what worked for them.


RE: Meanwhile
By Spuke on 3/6/2013 10:38:40 PM , Rating: 2
quote:
Apple is just sitting on piles of cash, doing nothing while the walls close in.
I just don't understand why they're not making that money work for them. Are they planning to go private like Dell?


RE: Meanwhile
By Reclaimer77 on 3/6/2013 11:01:02 PM , Rating: 2
Yeah I mean look, I don't run a multi-billion dollar company. Fair enough. And obviously I don't mean to say that Apple is crumbling before our very eyes. They are extremely profitable.

But why don't strike the iron while it's hot? They have the money to make some serious moves...but are strangely silent. They aren't even shoring up their supply line. Why sit there and let Samsung make this move first, for example.

quote:
Are they planning to go private like Dell?


lol good luck. You have investors and shareholders who, frankly, are starting to resent Apple sitting on all that money. They want a bigger payoff for their investment, and I can't say I blame them. If Apple wanted to go private, they would have to pay dearly for it. Dearly.


RE: Meanwhile
By tng on 3/7/2013 8:43:44 AM , Rating: 2
quote:
They want a bigger payoff for their investment...
Right, most institutional investors want almost instant payoff and typically get rowdy if they don't get it. The Greenlight Capital push is the first sign of this.

The obvious answer is that if you have owned the stock for several years that you sell and invest elsewhere. If more private and institutional investors voted by selling their stock instead of complaining at the shareholders meetings, Apple would listen when share price dropped.

Right now Apple upper management gives lip service to investors at the meetings but nothing happens.


RE: Meanwhile
By testerguy on 3/9/2013 7:55:18 AM , Rating: 2
quote:
They aren't even shoring up their supply line


They have been diversifying their supply line for a number of years now, since well before the whole Samsung saga. That's why they design their own processors now, meaning that is 100% their own IP, and they have numerous suppliers manufacturing screens, DRAM, etc and have long been in talks with TSMC (and now Intel too) to manufacturer their own designed processors.

Having money in the bank doesn't necessarily mean that there is a good technology for Apple to invest in right now. You don't spend because you have money, you spend because something you want costs money.


RE: Meanwhile
By Mint on 3/7/2013 6:37:03 AM , Rating: 2
Just what do you think they should use it for?

They can't build manufacturing plants that are more efficient than any of their suppliers overseas. They don't have process IP or display IP.

They saw a couple of golden opportunities and made some mad bank, but it's unreasonable to expect the market to keep leaving them for Apple to take over.


RE: Meanwhile
By Solandri on 3/7/2013 7:06:22 AM , Rating: 4
I said it back in November (when AAPL was still around $600). Apple needs to diversify. Use that huge nest egg. I suggested starting up different Apple product divisions, but buying/investing in other companies works too.
http://www.dailytech.com/article.aspx?newsid=29144...

While I think they're highly unlikely to go bankrupt, they have too much of their profit tied up in two products - the iPhone and iPad. While those may seem ironclad safe right now, remember that once upon a time Blackberry, Myspace, and AOL seemed ironclad safe. You want to diversify so that a downturn in one of your bread and butter products doesn't hurt your overall bottom line as much.


RE: Meanwhile
By DanNeely on 3/7/2013 9:02:55 AM , Rating: 2
It's institutional trauma from when a cash shortage nearly bankrupted them in the 90s. Steve's reaction was to create a giant moneybin when they bounced back, and his views still dominate internal thinking.


RE: Meanwhile
By mondo1234 on 3/7/2013 12:32:19 AM , Rating: 2
Never been to AI, but this was based on the WSJ, the reference is behind the paywall....

http://appleinsider.com/articles/11/11/25/wsj_appl...


RE: Meanwhile
By Tony Swash on 3/7/13, Rating: 0
"We are going to continue to work with them to make sure they understand the reality of the Internet.  A lot of these people don't have Ph.Ds, and they don't have a degree in computer science." -- RIM co-CEO Michael Lazaridis














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