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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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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.


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