Apple may have quietly invested more than $2 billion in display maker Sharp, the struggling Japanese company that is a component rival to Samsung. While Apple also receives display supplies for its products from Samsung, the iPhone maker and the Korean company have been in an increasingly uneasy relationship because of their rivalry in the smartphone market.
Apple's annual capital expenditures for the full fiscal year were $2.3 billion higher than anticipated, which has led Asymco analyst Horace Dediu to believe that the company gave the same amount to Sharp. In an analysis made on Wednesday, Dediu said Apple spent one-third more than it expected in capital expenditures in the 2012 fiscal year. While it had forecast in October of 2011 that it would spend about $8 billion, the final number came in at $10.3 billion. Nearly all of the over-spending related to "product tooling, manufacturing process equipment, and infrastructure," Dediu noted.
"My guess is that these attempts to shore up Sharp are directed by Apple to ensure both continuity of supply and a balanced supplier base (offsetting Samsung, another supplier)," Dediu wrote. "If Sharp were to enter some form of bankruptcy, the key plant[s] used in producing screens for Apple might be ‘up for grabs' by creditors and they might be taken off-line, jeopardizing Apple's production capacity, irrespective of contractual obligations."
According to the analyst, the deal may have included pre-orders for new components for Apple products. Apple also reportedly sources displays from LG Display .
Financially struggling Sharp was set to receive a $1 billion investment from Apple manufacturer Foxconn earlier this year in order to build a new LCD plant and boost production for Apple products. However, the deal fell through. Sharp executives admitted at the end of last month that the company may not recover from its $5.6 billion loss.
A press release went out yesterday saying Samsung Display has acquired a 7.4% stake in the organization in return for giving Corning full charge of the Samsung Corning Precision Materials partnership. Corning also stated the two companies have joined right into a "new lengthy-term Liquid crystal display glass supply agreement" which will last through 2023.
Corning's Gorilla Glass is an essential component of numerous mobile phones because it provides both lightweight and sturdiness that producers search for once they build flagship products.
CORNING, N.Y., October 22, 2013 - Corning Incorporated (NYSE: GLW) announced today that it is entering into a series of strategic and financial agreements with Samsung Display Co., Ltd., intended to strengthen product and technology collaborations between the two companies. These agreements will allow Corning to extend its leadership in specialty glass and drive earnings growth. Corning expects the transactions to close in the first quarter of 2014.
The series of transactions, subject to closing conditions being met, will result in:
- Corning obtaining full ownership of Samsung Corning Precision Materials Co., Ltd. (SCP), an unconsolidated equity venture with Samsung Display that manufactures LCD glass in Korea. Samsung Display currently owns 43% of SCP.
- After redemption of their interest in SCP, Samsung Display's investment in new convertible preferred shares of Corning with an aggregate face amount of $1.9 billion.
- Corning's acquisition of the other shareholders' minority interests in SCP for an expected proportional cash payment.
- Samsung Display's additional $400 million investment in Corning by subscribing to new convertible preferred shares.
- Using Corning's current share count, Samsung Display's combined investment in Corning would result in approximately 7.4% ownership on an as-converted basis.