The big story of last week was, without doubt, the planned Samsung investment in Sharp. The symbolism is more important than the substance. The deal indicates that Samsung wants to have an on-going relationship with its Japanese rival and that would have been very surprising in the past. However, the stark economics of the future of LCD making mean that everything is about making the most of what you’ve got even if you’re as big a company as Samsung. It has always been the case for the smaller players.
At a briefing to the CEO of a major panel maker at IFA a couple of years ago, I remember saying “I don’t know how you have the conversation with your finance department to justify the investment needed for your next LCD fab”. The fundamentals of low profitability, low revenue growth, but increasing volume demand have not gone away and have maybe even got worse since then. As David Barnes has said in talks, more than once, companies and countries get into the panel making business for reasons that are not just about profits. For China, it’s about capturing value in the supply chain. That makes it hard to justify investments in capacity, when the profit ‘upside’ is very limited.
When Sony and Samsung started their LCD joint venture, I remarked in Display Monitor that I could see what was in it for Sony, but couldn’t see what was in it for Samsung. Ross Young, then of DisplaySearch, said in his editorial at the same time that he could see what was in it for Samsung, but wasn’t sure why Sony had done it! As it turned out, there were reasons for both sides.
In the current deal, the advantages for each side are pretty clear and straightforward. Sharp gets a big customer, and endorsement from a core brand in the critical tablet and smartphone markets, as well as support from a leader in TFT LCD technology. Samsung gets access to Sharp’s G10 for cost effective 60″ and 70″ panels, to another source for panel supplies for its smartphone and tablet business and access to Sharp’s oxide-based displays (although I doubt that it will get access to Sharp’s Oxide technology knowledge – that would take a lot more cash).
The deal also makes it look more reasonable for Dell and Intel (widely rumoured to be interested in a deal) to go ahead with an investment in Sharp. Furthermore, it gives Sharp a counterbalance in its on-going discussions with Foxconn.
Let’s hope it proves to be a ‘win/win’, although given the comments we’ve heard about being a panel customer of Sharp and about being a supplier to Samsung, there may be some strained moments!
