South Korean electronics giant Samsung has paid 10.4bn yen ($112m) for a 3 percent in Sharp to bolster certain lines of the company's liquid crystal display business.
The deal is designed to ensure that Sharp, which has suffered financial difficulties of late, can continue to supply LCD screens to its customers: Samsung in particular is looking to safeguard the future of certain screen sizes after changes in hardware buying patterns — the rise of the tablet and the resulting effect on PC and laptop sales — have caused turbulence in the market.
Samsung's alliance with Sharp, also a key display supplier for Apple, aims to guarantee a "stable and timely" supply of Sharp's LCD panels for large-sized TVs and smaller LCD screens for mobile devices, such as laptops.
The funds from the deal, announced on Tuesday, will allow Sharp to introduce "new technology for LCDs with high-definition features" while rationalising facilities that manufacture mobile LCD high definition screens for tablets and notebooks, according to Sharp. The moves will take place betwen April 2013 and March 2015.
The shift in demand for tablets over PCs is causing havoc in the LCD display manufacturing sector, according to IHS iSuppli analyst Ricky Park.
Increased competition for a slice of the tablet market has inflated supplies and forced prices down to between $0.50 and $1.00 per unit. Tablet display prices for 7.0-, 9.7-, and 10.1-inch screens continued its decline in January, with 7.9-inch displays the only size where prices held steady, according to Park.
Meanwhile, lower demand for traditional notebook displays has caused inventories to build up, alongside growing inventories of LCD panels for TVs.
Samsung's investment in the display maker follows a similar alliance between Sharp and US mobile device chip-giant Qualcomm announced in December to shield Sharp components used in Qualcomm's low-powered smartphone displays.
Apple's main iPhone supplier Hon Hai, also known as Foxconn, has also been considering extending an alliance with Sharp, however that has been delayed. In March last year Hon Hai agreed to procure up to 50 percent of the LCD panels from a mutually managed Sharp facility in Japan.
After Wednesday's expected announcement, Sharp stock was up 14 percent to 341 yen higher at the close of trading on the Tokyo exchange.
The new alliances were flagged last November when Sharp doubled its full-year net loss forecast to $5.6bn and raised doubts about its ability to survive.