Samsung Throws Lifeline to Sharp as Focus Shifts to OLED

Samsung Electronics Co.’s investment in struggling Sharp Corp. signals that the world’s top seller of TVs is accelerating a shift toward higher-end sets using OLED technology as it tries to widen the gap with Sony Corp.

The South Korean company will acquire 3 percent of unprofitable Sharp for 10.4 billion yen ($111 million) to secure liquid-crystal displays for smartphones and televisions. Samsung is emphasizing organic light-emitting diode technology offering sharper, brighter images while consuming less power.

Samsung, with 37.4 trillion won ($34.4 billion) of cash, is investing in OLEDs in an effort to boost sales of the ultra-thin sets typically costing three times more than LCD models. Samsung and Korean rival LG Electronics Inc. (066570) are depending on the new technology to counter slowing global demand for TVs that helped push Sharp, Sony and Panasonic Corp. into losses.

“Samsung is reducing its LCD production and shifting its focus more to OLED technology,” said Kim Sung In, a Seoul-based analyst at Kiwoom Securities Co. “LCDs aren’t making big money anymore.”

Samsung is paying 290 yen a share for its stake in Sharp, or 15 percent less than yesterday’s closing price. The share sale will close March 28, according to the filing.

Photographer: Kiyoshi Ota/Bloomberg

A pedestrian walks past liquid crystal display (LCD) monitors displaying the Sharp Corp. logo at a train station in Tokyo. Samsung is paying 290 yen a share for its stake in Sharp, or 15 percent less than yesterday’s closing price. Close

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Photographer: Kiyoshi Ota/Bloomberg

A pedestrian walks past liquid crystal display (LCD) monitors displaying the Sharp Corp. logo at a train station in Tokyo. Samsung is paying 290 yen a share for its stake in Sharp, or 15 percent less than yesterday’s closing price.

Separately, Foxconn Technology Group Chairman Terry Gou will meet Sharp executives today and tomorrow to discuss a proposed investment, Taipei-based United Evening News reported, citing a company employee it didn’t identify. The companies haven’t been able to conclude an agreement after almost a year of talks.

Apple, LG

Samsung shares dropped 2.6 percent to 1,520,000 won in Seoul trading while the benchmark Kospi index lost 0.8 percent. Sharp fell 7.9 percent to 314 yen in Tokyo.

Sharp, which makes screens for Apple Inc. iPhones and iPads, will use 6.9 billion yen of the proceeds to purchase new LCD technologies and 3.23 billion yen for capital expenditure related to mobile devices, it said.

Samsung plans to start selling OLED TVs in the first half of this year as sales in the global premium TV market are expected to grow by about 30 percent to 40 percent this year, Kim Hyun Suk, head of the Suwon-based company’s TV operations, said during a briefing last month.

OLED Prospects

Seoul-based LG said Jan. 2 it started selling a 55-inch OLED set in South Korea for 11 million won, giving the company a head start over Samsung in mass marketing the technology. LG will expand OLED TV sales to North America, Europe and other Asian markets in the first quarter, it said at the time.

Photographer: Kiyoshi Ota/Bloomberg

Pedestrians walk past liquid crystal display (LCD) monitors displaying the Sharp Corp. logo at a train station in Tokyo on March 6, 2013. Close

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Photographer: Kiyoshi Ota/Bloomberg

Pedestrians walk past liquid crystal display (LCD) monitors displaying the Sharp Corp. logo at a train station in Tokyo on March 6, 2013.

Samsung sold more than 51 million flat-screen TVs worldwide in 2012, while LG sold about 30 million. Sony, the No. 3 maker, projects selling 13.5 million units this year.

“Samsung is heavily investing in organic LEDs as their next-generation TV panel,” said Fumiyuki Nakanishi, a Tokyo- based senior strategist at SMBC Friend Securities Co. “It’s natural for them to partner with Sharp so that they’d know Sharp’s next move.”

The Osaka-based company is trying to raise funds after forecasting a record full-year loss of 450 billion yen.

Sharp lost 55 percent of its market value last year and warned in November there was “material doubt” about its ability to survive after hemorrhaging 103 billion yen in cash from operations in the fiscal first half.

In December, the company turned to Qualcomm Inc., the biggest maker of mobile-phone chips, for as much as 9.9 billion yen in new capital.

Plan Delayed

Sharp has delayed presenting a turnaround plan to lenders as it tries to revive orders from Apple, two people familiar with the situation said. The iPhone maker faces slowing growth in demand for its handsets amid competition from Samsung and other producers.

“Sharp was the first supplier that was cut out when iPhone demand started to slow,” said Amir Anvarzadeh, Singapore-based manager for Asia equity sales at BGC Partners Inc. (BGCP) “Chances for Sharp to revive as a standalone company are zero unless becoming part of a big group like Samsung or Foxconn.”

Sharp planned to raise 132.5 billion yen from a sale of sharp shares to Foxconn group and a separate offering of a stake in its biggest panel plant to Foxconn founder Gou, the companies said last year. The talks on selling Sharp shares stalled in part because the companies can’t agree on a price, two people familiar with the matter said last month.

Convertible Bonds

Laura Liu, a spokeswoman for Foxconn flagship Hon Hai Precision Industry Co., declined to comment today on the United Evening News report and reiterated yesterday’s company statement that talks on a stake acquisition will continue.

Miyuki Nakayama, a spokeswoman for Sharp, declined to comment.

Sharp has 200 billion yen of convertible bonds maturing this year, according to data compiled by Bloomberg. Its debt was cut to junk by Fitch Rating and Standard & Poor’s last year.

“Sharp is in a very precarious situation,” said Sean Kim, a Seoul-based analyst with Standard Chartered Bank. “The investment size is rather small, but having that strategic alliance with Sharp for only that much money seems like a good deal for Samsung.”

To contact the reporters on this story: Jungah Lee in Seoul at jlee1361@bloomberg.net; Mariko Yasu in Tokyo at myasu@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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