Samsung Electronics Co. came to the rescue of struggling Sharp
Corp. by investing 10.4 billion yen ($111 million), a move that
allows the South Korean electronics conglomerate to diversify panel
supply and help prevent its rival Apple Inc. from securing
preferred access to Sharp's advanced screen technologies.
As displays play a central role in differentiating smartphones,
tablets and notebook computers--a key factor in determining the
battery life, form factor, and price of products--Sharp's
high-resolution, energy-efficient screens are attractive to mobile
gadget makers despite the company's financial woes, analysts
said.
The 3% stake in Sharp makes Samsung the fifth-largest
shareholder after four major Japanese financial institutions.
The investment, a drop in the bucket for cash-rich Samsung, will
help the Korean company outsource liquid crystal display production
more and focus on another display technology that it uses for
smartphones called organic light emitting diode, or OLED.
The deal, unveiled Wednesday, will likely also reshape Sharp's
existing and future alliances, industry observers say, at a time
when the Japanese company is seeking stable partners for an
additional credit line from banks to stay afloat.
"For Samsung, this could be a move to prevent its competitors,
particularly Hon Hai and Apple, from gaining too much control over
Sharp, which is financially struggling but still has good
technology," said Sanford C. Bernstein analyst Mark Newman.
Osaka-based Sharp, which makes the Aquos brand TVs, had planned
to receive an investment from Taiwan's Hon Hai Precision Industry
Co., which assembles Apple products.
But Hon Hai's agreement in March last year to buy a 9.9% stake
in Sharp for Y66.9 billion later fell through after the Japanese
company's stock plunged. The absence of Hon Hai's investment has
forced Sharp to look for other investors.
In December, U.S. chip maker Qualcomm Inc. agreed to invest up
to Y9.9 billion in Sharp but with continued losses, debt-ridden
Sharp still needs more investors. A Hon Hai spokesman said
Wednesday that it continues to talk with Sharp about a potential
investment.
One technology edge Sharp can bring to the table is a display
technology called IGZO, which, according to Sharp, helps make
screens more energy-efficient. Sharp has been a supplier of iPhone
screens to Apple for many years, and it has also supplied iPad
screens, according to people familiar with the display industry.
Partnerships with a client as large as Samsung could help Sharp
reduce its dependence on specific customers or products, analysts
said.
As part of the deal, Samsung, which already buys some LCD
screens from Sharp, will get more stable, long-term supply of
screens for TV sets, laptop PCs and tablets.
The Japanese company is the only LCD manufacturer that currently
operates an advanced manufacturing facility--in a separate
partnership with Hon Hai--capable of turning out TV panels from the
industry's largest sheets of glass. This allows Sharp to lower the
manufacturing costs of TV screens larger than 60 inches.
"The investment is set to fortify the partnership between
Samsung and Sharp and also lay a firm foundation for Samsung to
secure a steady supply of LCD panels from diversified sources," the
South Korean company said in a statement.
Samsung said it will have no involvement in Sharp's management.
The two companies expect to complete the deal later this month.
The latest lifeline for Sharp from its major overseas competitor
also marks a historic shift in the balance of power in the global
electronics market, where Samsung, along with Apple, have largely
replaced Sharp and other Japanese players such as Sony Corp. and
Panasonic Corp. as the industry's dominant forces.
Buoyed by robust smartphone sales, Samsung said in January that
its net profit for the fourth quarter through December rose 76% to
a record high of 7.04 trillion won ($6.5 billion). Sharp, by
contrast, posted a net loss of Y36.7 billion, while Sony reported a
net loss of Y10.8 billion for the quarter.
Sharp said in a statement that Samsung's investment will not
only help shore up its balance sheet but also bring a stable source
of revenue for its LCD business.
Daisuke Wakabayashi in Tokyo contributed to this article.
Write to Juro Osawa at juro.osawa@wsj.com and Min-Jeong Lee at
min-jeong.lee@dowjones.com
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