Samsung buys 3% of Apple screen supplier Sharp

Sharp's logo is seen at an electronic shop in Tokyo

Apple is Samsung’s largest buyer of components, accounting for 8.8 percent of Samsung’s revenue. The two firms are also bitter enemies when it comes to litigation as they remain entangled in a complicated web of more than 20 lawsuits spanning continents.

As if that weren’t bad enough, now comes the definite confirmation that the Galaxy maker pledged to spend $112 million to buy a three percent stake in Sharp, which has been struggling to stay afloat amid losses and low manufacturing yields.

The investment, a strategic move on the part of the South Korean conglomerate, is meant to give Samsung a steady supply of LCD panels from diversified sources. Apple, too, was rumored to have spent to the tune of $2 billion to prevent Sharp from going under.

Additionally, the iPhone maker is thought to have tried to save the Japanese giant through its preferred contract manufacturer Foxconn, which last year wanted to buy eleven percent of Sharp. The deadline for that transaction closes later this month, but the deal may have already hit the wall after Sharp’s share price tumbled…

According to a statement published on Sharp’s corporate web site, Samsung in fact will purchase 35.8 million shares of Sharp stock at a price of 290 yen per share on March 28, giving the Galaxy maker a 3.08 percent voting rights equivalent in Sharp and becoming Sharp’s largest foreign shareholder.

The companies expect to complete the deal later this month.

Now, Sharp has already been supplying Samsung with LCD panels for some time so the purpose of this deal is to secure long-term shipments of these panels. In addition to Taiwanese vendors, Samsung’s main source of screens is Samsung Display, its own display unit launched in April 2012 as the world’s largest display manufacturer.

The Wall Street Journal writes that Sharp, which has also supplied Apple with screens for iPhones and full-size iPads, by selling more displays to Samsung wants to reduce its dependence on specific customers (read: Apple) or products.

The WSJ blog speculates the Japanese firm will now probably prioritize Apple’s frenemy “as it will ship products to Samsung, whereas it had prioritized supplying components for Apple.”

Samsung’s bid to turn Sharp, once a major competitor, into an ally, shows how serious it is in winning a global battle with Apple for dominance in the lucrative market for mobile devices.

Sounds like a kind of an issue Apple’s CEO and former op-chief Tim Cook should attend to ASAP.

Reuters sheds more light:

The Japanese company, has had to slash production of Apple iPad screens at the facility since the start of the year, sources told Reuters in January, as consumer demand shifts to the smaller iPad mini, for which Sharp is not a supplier.

Chip maker Qualcomm in December 2012 also announced plans to invest about ¥9.9 billion, or approximately $120.4 million, in Sharp. Qualcomm at the time said the investment “is expected to be the first in a series of capital injections to shore up” Sharp’s battered finances and advance its IGZO tech.

Sharp PN-K321

Sharp’s IGZO (indium, gallium, zinc and oxide) is a cutting-edge display tech that consumes a fraction of the energy required by the traditional LCD screens. At the same time, IGZO panels have richer and livelier colors, deeper blacks and overall sharper images while maintaining the thinness of the in-cell display assembly technology featured on the iPhone 5.

IGZO panels are featured on Sharp’s own seven-inch tablet, the Aquos Pad SHT 21, but it’s a Japan-only product and not your typical mass market device. Last November, Sharp unveiled a 32-inch monitor with 4K resolution built around IGZO, depicted above and below.

Sharp PN-K321 (image 002)

Unfortunately, the once agile Japanese giant has been struggling to get these IGZO panels to market in volume due to ongoing yield issues, prompting Apple to scrap its rumored adoption of IGZO panels on future iOS devices for the time being, which in turn has increased Sharp’s exposure and risk.