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In less than twenty years, Samsung has risen from a “who’s that?” manufacturer of cheap electronics to the pre-eminent CE brand, dominating the worldwide market for smart phones and televisions, and leading the charge for adoption of organic light-emitting diodes through its subsidiary, Samsung Mobile Display.

The rise in Samsung’s fortunes has paralleled the decline of the Japanese CE industry. Samsung ships roughly 25% of all TVs worldwide and manufactures better than 90% of the OLEDs used in handheld displays. In contrast, the three largest Japanese TV brands combined (Sony, Panasonic, and Sharp) captured less than 20% of the worldwide TV business in 2012 and lost billions of dollars while doing so.

It was one of only two companies to be profitable in televisions for 2012 (LG was the other) and invented a new product category – the “phablet,” or phone with a large (>5”) screen – that has surprised veteran analysts with rapid consumer acceptance.

To give you an idea of Samsung’s clout, it spends a great deal of time in patent courts, suing and being sued by Apple, the second-most-powerful CE brand in the world. (In a Bizzaro twist, Samsung has also partnered with Apple to bid on Kodak patents related to digital imaging.)

And now Samsung is making history: The company announced last week that it will invest $111 million in struggling Sharp Corporation, taking a 3% ownership stake in the manufacturer that has been on the verge of bankruptcy for several months now.

Having a Korean company acquire such a strong position in a legendary Japanese brand is unprecedented, but this action may have staved off a possible majority acquisition by Taiwan-based Hon Hai Precision (Chi Mei, Foxconn Group). And that would have been unthinkable in the Land of the Rising Sun.

Why is Samsung taking this step? The answer was foreshadowed over a year ago, when the company reorganized its unprofitable LCD panel manufacturing business as part of SMD. This move showed the company was shifting its R&D resources away from LCDs to OLEDs, a technology that is scalable to displays large and small, and offers numerous image quality and power consumption advantages over LCDs. (That is, if and when OLED yields on larger screens can be increased to workable levels. )

When you control 25% of the global TV market and make money doing it, why throw money away manufacturing LCD panels, which are now unprofitable commodities? Especially when the world’s largest LCD panel fab lies just across the Sea of Japan (or Korea, depending on your version of history) and you can buy inexpensive access to the next-generation of LCD (and OLED) backplane technology, IGZO?

According to a story on the Bloomberg Web site, Sharp is looking at 200 billion yen of convertible bonds that will come due later this year. But cash is hard to come by these days in Osaka, and Apple cut back much-needed orders for smaller LCD glass when iPhone demand began to tail off. A $140M investment by Qualcomm last December helped, but only to keep the vultures at bay for a few months.

In the meantime, Sharp is anticipating a record 450 billion yen ($4.7B) loss for the current fiscal year, which ends this month. Their stock price has dropped 55 percent in the past year, partly because the talks with Foxconn Group have dragged on so long. Sharp has mortgaged its corporate headquarters in Osaka and continues to look for more investors as red ink cascades from their balance sheet.

Amir Anvarzadeh, a manager for Asia equity sales at BGC Partners Inc. (BGCP) was quoted in the Bloomberg story as saying, “Chances for Sharp to revive as a standalone company are zero unless becoming part of a big group like Samsung or Foxconn.”

Speaking of Hon Hai, they’re apparently still in the game. Even though Foxconn Groups’s Terry Gou announced he would buy a nearly 10% stake in Sharp one year ago, the deal still hasn’t been consummated. (The two companies are still in talks, meeting one day after the Samsung announcement.)

This is indeed a new game with new rules. And no one is quite sure how it will play out. One thing we do know is that Samsung, with market-leading positions and $34B in cash, has the strongest hand in the world of consumer electronics right now.

And when you run the game, you get to make the rules…

This article originally appeared at Display Central.

Posted by Pete Putman, March 12, 2013 7:52 AM

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About Pete Putman

Peter Putman is the president of ROAM Consulting L.L.C. His company provides training, marketing communications, and product testing/development services to manufacturers, dealers, and end-users of displays, display interfaces, and related products.

Pete edits and publishes HDTVexpert.com, a Web blog focused on digital TV, HDTV, and display technologies. He is also a columnist for Pro AV magazine, the leading trade publication for commercial AV systems integrators.