Market Insight

Samsung purchase three percent share in Sharp

March 08, 2013

Tom Morrod Tom Morrod Research Director | Consumer, Displays, Media, Security & Telecoms

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Samsung Electronics purchased shares in Sharp amounting to a three per cent ownership stake in the company for ¥10.4bn ($112mn). The announcement instigated an 18 per cent rise in Sharp's share price after opening at ¥301, accompanied by a 309 per cent spike in volume immediately following the announcement. The share price closed at ¥341 ($3.66) following the end of the day's trading.

The culmination of this agreement appears to be one that may prove mutually beneficial for both parties. For Samsung, this purchase presents the prospect of a valuable supply partnership, especially given the technological areas Sharp has pioneered in the panel display market.  In particular, Samsung would gain access to Sharp's 10th generation LCD TV panel production line, through which Sharp have become a market leader in the production of 60" and larger screens with a 42.4 per cent share of total shipment volume as of the third quarter of 2012 - presenting significant large scale, cost effective production capabilities.   

On the other hand the deal is also timely for Sharp, in line with the firm's current strategic objectives. Over the past year Sharp have undertaken a string of measures to reinforce their business foundations and resolve cash-flow problems. This has included a reduction of capital expenditures, the sale of inventories and non-current assets, debt reduction and staff layoffs with the aim of streamlining the organisation's assets and production improving operational profitability.

In addition, the company has also prior engaged in the diversification of its share ownership including the recent ¥9.9bn purchase agreement reached with Qualcomm in December last year, as well its on-going negotiations with Hon Hai Precision Industry Co. Ltd who last year purchased half ownership in Sharp's 10th generation LCD plant. Hon Hai also reneged and stalled in February on a separate, ¥66.9bn arrangement originally reached last year to purchase a 9.9 per cent stake in Sharp.

What this may mean going forward is a better utilization of Sharp's technological assets and a better exploitation of its comparative advantage in high tech panel display production. The deal may help ensure increased demand for Sharp's panel display production thereby better ensuring the utilization of factory capacity while furthering its ongoing aims of reducing its inventory to sales ratio. Sharp's bulk IZGO (Indium Zinc Gallium Oxide) LCD display production launched in April last year may also become more cost effective considering the stabilization of Indium prices over the last few months, while this deal again opens up a new potential source of demand for these products. Sharp's continued persistence in pursuing these projects may support in reducing operating losses, which amounted to ¥166bn ($2bn) at the end of nine months on the 31st of December 2012.

Samsung Electronics Sharp
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