backtop


Print 49 comment(s) - last by testerguy.. on Mar 9 at 8:02 AM

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



Comments     Threshold


This article is over a month old, voting and posting comments is disabled

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.


"Nowadays you can buy a CPU cheaper than the CPU fan." -- Unnamed AMD executive














botimage
Copyright 2014 DailyTech LLC. - RSS Feed | Advertise | About Us | Ethics | FAQ | Terms, Conditions & Privacy Information | Kristopher Kubicki