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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 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.

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.

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
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. 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  $40 million
*TOTAL:  $34.332 billion

By comparison:
Apple:  $41.773 billion

Apple's most recent 'disappointing' quarter in context

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.

"If you mod me down, I will become more insightful than you can possibly imagine." -- Slashdot

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