Sharp Seeking to Reduce Reliance on Apple, Regain Control of iPhone Display Plant

Discussion in 'iOS Blog Discussion' started by MacRumors, Jul 11, 2014.

  1. MacRumors macrumors bot


    Apr 12, 2001

    Key display supplier Sharp is reportedly seeking to reduce its reliance on Apple, with sources telling Nikkei the company has offered Apple 30 billion yen ($293 million) to purchase the equipment located in Sharp's Kameyama Plant No. 1 that currently churns out displays for the iPhone. Apple contributed roughly half of the 100 billion yen (~$1 billion) cost to convert the plant from large TV panels to small iPhone displays in 2012, with Apple owning the plant's equipment.
    According to the report, the plant is currently running at 90% capacity producing displays for the iPhone 6, giving Sharp some flexibility in the negotiations until demand from Apple starts to slow down with the natural cycle of iPhone production.

    Apple typically sources its displays from several suppliers, and Apple's main iOS device assembly partner Foxconn has reportedly been looking to partner with Sharp to begin some of its own production of iPhone and iPad displays. It is unclear how willing Apple will be to give up the display equipment, but if it does provide Sharp with some more flexibility there are still a number of display partners that could help fill any void left by Sharp's diversification.

    Reliance on Apple is major issue for many suppliers, both in terms of managing the cyclical nature of the business given Apple's product release patterns and the potential for major disruptions of the companies' revenue streams should Apple suddenly decide to change suppliers. As a result, it's a delicate balancing act for many companies happy to have Apple's business but looking for other opportunities to sustain themselves when Apple's demand wanes.

    Article Link: Sharp Seeking to Reduce Reliance on Apple, Regain Control of iPhone Display Plant
  2. MrXiro macrumors 68040


    Nov 2, 2007
    Los Angeles
    I don't see why Apple would take this deal. Seems like a huge disadvantage to them... They didn't spend $500 million so they can get back less.
  3. lewisd25 macrumors 6502a

    Jul 6, 2007
    I would love to see Apple spread out its product release schedule, this would help suppliers as well.
  4. solamar macrumors regular

    Dec 30, 2008
    How does it being at 90% capacity give them leverage? If anything, Apple wouldn't be inclined because they are USING IT..

    In fact, it would put Sharp at a disadvantage.. If it were sitting and not being used... then I could see Sharp walking up and telling Apple they'd take it over...
  5. nagromme, Jul 11, 2014
    Last edited: Jul 11, 2014

    nagromme macrumors G5


    May 2, 2002
    "Thanks for your investment allowing us to get this high-end plant up and running, Apple! But we'd rather use it to serve your competitors! Is that OK? Here, I found a nickel! You can have it!"
  6. kerrikins macrumors 65816

    Sep 22, 2012
    Maybe it means that they have flexibility to hunt for other people to work with afterwards, as opposed to risking the factory sitting empty if Apple refuses to work with them while they negotiate? Something along those lines...

    That said, I don't know why Apple would want to take a loss like that.
  7. brendu macrumors 68020

    Apr 23, 2009
    I like the other companies trying to spin their inability to use sapphire. I recall an article from maybe a year ago where saying that Apple was actively looking to use their cash hoard in ways that would allow them to create new products that competitors can't easily copy. This is a perfect example of that.
  8. haydn! macrumors 6502a

    Nov 10, 2008
    Apple will have made back the money invested from product revenues about 100 times over by now.
  9. rdlink macrumors 68040


    Nov 10, 2007
    Out of the Reach of the FBI
    Yeah? So? They had a business advantage. They exercised that advantage. They found a willing partner. They're reaping the benefits of the investment. I say don't let Sharp out of the deal.
  10. jayducharme macrumors 68030


    Jun 22, 2006
    The thick of it
    Wasn't Sharp on the brink of bankruptcy not long ago? This seems like a lousy way to thank Apple for helping them.
  11. MrXiro, Jul 11, 2014
    Last edited: Jul 11, 2014

    MrXiro macrumors 68040


    Nov 2, 2007
    Los Angeles
    That's an entirely different matter.

    Essentially Apple invested money into a company, that doesn't mean they received their LCD parts for free. Also Sharp making a portion of an Apple Product (and even then they don't make all of that portion) does NOT mean that they are the key to the success to those devices. Apple spent multiple millions of dollars to make the iOS devices a success and if Sharp didn't exist they would have just sourced the LCD part from someone else.

    From my point of view this is an insult of a deal.

    It's like if I asked you for 1000 bucks so that I could remodel my house... I remodeled my house and sold it for 1 million bucks. Then I made you an offer of repaying you $600 of the $1000 you gave me... does that sound fair to you?
  12. SockRolid macrumors 68000


    Jan 5, 2010
    Almost Rock Solid
    They were. But evidently now they have enough money to buy back some of the (used) production line equipment from Apple.

    Of course, none of us know the exact details. Maybe Sharp wants to make screens for a next-gen 4K version of their own Aquos line of televisions. Might be hard to do if Apple owns (some of) their means of LCD production. Could be that Sharp wants to buy back some of the LCD manufacturing machinery after their deal with Apple ends. Presuming that it's not an open-ended deal for all time. I'm sure plenty of LCD (and OLED) screen makers would climb over each other to get that deal if and when they get the chance.
  13. mabhatter macrumors 6502a

    Jan 3, 2009
    These big Japanese companies aren't used to being the date, they're used to bing the one in charge. Two years in wanting to jump ship is pretty reckless. They seem to have a problem "dancing with the date that brought you to the prom" .

    I'm certain their margins are thinner than they'd like... Because when Apple Paid UP FRONT for the equipment Apple doesn't want to pay you "profit" for running it. Sharp is seeing Samsung willing to pay triple the profit margin on that 10% downtime from Apple. But that's not how these dates work.
  14. krravi macrumors 65816

    Nov 30, 2010
    Please... you seriously think deals are made based on your *selling my house* analogy?

    Do you even know what is involved in setting up the most advanced LCD panel factory in the planet?

    Do you know even know under what circumstances Apple agreed to lend the money to Sharp?

    Arm chair CEO's and CPA's sure are plenty around here.

    Apple is the worst consumer to actually have and this is a popular sentiment amongst suppliers. They lowball the prices so much they are known as the Wal-Mart of component buyers.

    So why the companies do business you say? Most of them look for profits in volume but some do it to barely stay afloat.
  15. haydn! macrumors 6502a

    Nov 10, 2008
    A few things to consider:

    • Apple likely secured a hefty discount on components as part of the original commitment to invest. So they will have already made a hefty profit from the deal themselves.
    • Apple owns the equipment, not the factory or shares in Sharp. The equipment will/has depreciate in value rapidly as trends change, regardless of how succesful it was for either company.
    • Sharp are proposing to buy the equipment to give them more control over who they work for. It doesn't mean they'll stop working for Apple overnight, meaning Apple likely still has a secured supplier, with discounts, for some time.

    Apple got what they wanted out of the deal, preferential treatment from a component supplier. Unless the deal included Apple owning a share in Sharp or the factory itself, then they are only entitled to the value of the equipment.

    Example, you spend £15k buying a car for a friend so they can give you rides to work. The friend also choses to start a taxi business with the car and makes themselves £200,000 over 2 years. Great for them, but your car is still only worth £7k after 2 years.
  16. kdarling macrumors demi-god


    Jun 9, 2007
    Cabin by a lake
    It's not much different than what Apple has done with GTAT for sapphire.

    Apple has spent a half billion dollars procuring and outfitting that sapphire factory in Arizona, but GTAT still owns and operates the equipment, and gets to pay back Apple over five years.
  17. mabhatter macrumors 6502a

    Jan 3, 2009
    The main issue is that Apple FRONTED the money for the machines. That means Sharp is "borrowing" them to make stuff. Sharp is more of a "manager" and not an OWNER in this case.

    Sure they'd love to BUY the machines after usenet them efficiently for two years, and they'd love to sell panels to other phone better prices than other suppliers (because they have paid off equipment) . But why would APPLE let that happen? Apple put up $500m and the machines are working for Apple full-tilt that's typically a 4-5 year commitment.
  18. alexgowers, Jul 12, 2014
    Last edited: Jul 12, 2014

    alexgowers macrumors 65816

    Jun 3, 2012
    I don't really have a strong opinion either way but I'm sure the deal will let sharp do what but they might need to pay for the privilege

    I can only assume apple is squeezing the plant dry and sharp just wants out, 10% is enough extra to turn a profit so they want to spread that out to other people wanting panels.

    I'm sure sharp was one of the ineffective low yield guys though so maybe apple might want to try building their own panel factory instead.

    I personally think apple should pay out sharp as the only deal, take all the equipment and setup a new factory to compete and then maybe sharp might end up back where they were on the brink of bankruptcy.
  19. MrXiro macrumors 68040


    Nov 2, 2007
    Los Angeles
    This "pay back" is slightly more than half of what Apple put in. If they were to pay back the roughly $500 million it would make sense. This does not.


    What does that make you... an Armchair Analyst?
    Well we'll know when Apple accepts the deal or not won't we?


    Apple invested money into Sharp to convert a portion of their factory to make mobile device displays. 3 years of making displays for Apple and they want to pay back 60% of that money. We do NOT know what the deal between Sharp and Apple is. But any deals made prior to this "out" that Sharp is proposing should be completely fulfilled or they can buy back out of their previous deal with a 100% pay back as if this were a loan. But just because they received a discount for the service doesn't mean it's right for them to low ball an offer to buy out the equipment.
  20. macgabe macrumors regular

    Dec 29, 2012
    My guess is Sharp would only propose such a deal if Apple were likely to take it.

    And Apple would only be likely to take it if it was a good deal for them.

    Maybe, this is equipment which would otherwise have to be written off at a much lower price in a few years' time.

    Maybe it won't be used on the newer Apple models, but Sharp could use it for cheapo Chinese phones.

    Or maybe Sharp has told Apple that if they can increase year round capacity with other clients then they'll reduce prices for Apple, and will be less supply constrained (hiring staff etc) at major launches, which would be a major benefit to both Apple and Sharp.

    I wouldn't worry about Apple being diddled in a negotiation!

    This is not your great aunt selling a Renoir for a couple of thousand bucks to a wily art dealer.
  21. iOSaddict macrumors regular

    Jun 3, 2014
    I hope after Apple recoups their investment they will dump Sharp. Let these companies "escape" to Samsung and see if their future is gonna be brighter :rolleyes:
  22. kdarling macrumors demi-god


    Jun 9, 2007
    Cabin by a lake
    Exactly. We have no idea how much Apple has already gotten back in tax write-offs, how much the equipment is still worth, and so forth.

    Heck, we don't even know for sure that Apple actually helped out with half of the original cost, as that percentage was speculation.

    Samsung and Qualcomm had already invested over two hundred million dollars in Sharp to keep them going, which probably helped Apple as well.
  23. roadbloc macrumors G3


    Aug 24, 2009
    Machines lose their value over time. It's a fact of life.
  24. Glideslope macrumors 601


    Dec 7, 2007
    Your such a realist !!!! However, it does work well. :apple:
  25. Nunyabinez macrumors 65816


    Apr 27, 2010
    Provo, UT
    Imagine if you had a bakery and I came to you and asked you to supply me with cupcakes. You tell me that you don't have the right equipment. I say, I'll buy the equipment if you sell me the cupcakes at a discount.

    After years of this arrangement you realize that you can make more cupcakes than I need, but can't sell them because of our deal. And the people you would sell them to will pay more than me, because they didn't front you money.

    You tell me you would be willing to pay back part of my investment if you could use the capacity that I'm not taking up. You'll still supply me with cheap cupcakes, but will sell to others what you can make with the capacity I'm not taking up.

    Now, I might say, no, because I don't want cupcakes to compete with mine, but offering me half of what I originally invested is not an insult, in fact it seems quite reasonable, maybe even generous if you don't raise the prices to me. And maybe your offer would be that you use that capacity to make regular cakes that won't actually compete with my cupcakes.

    As has been said, we'll have to see what happens, but I wouldn't paint Sharp as jerks in this.

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