Samsung Invests in Sharp

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 [e-mail] and Min-Jeong Lee at [e-mail]

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