Japan's Sharp has secured a $110 million lifeline investment from Samsung Electronics, and agreed to become a major supplier of screens for the South Korean company's growing electronics empire.
The deal gives Samsung a steady supply of screens and deals a possible blow to chief rival Apple, which has long been a major customer of Sharp. Sharp gains a massive customer in Samsung, the world's largest maker of mobile phones and smartphones.
The agreement will give Samsung a 3 percent share in the struggling Japanese display maker when the investment is completed at the end of this month. Sharp is in the midst of a restructuring as it heads for a nearly $5 billion loss this fiscal year, but is still one of the world's largest LCD panel makers and possesses many cutting-edge technologies.
Analysts and industry observers praised the deal.
"Sharp already has Apple as a customer, and with this deal they add another very stable customer in Samsung," said Hiroshi Hayase, an analyst for DisplaySearch. "Samsung is a very fitting partner for Sharp as they move away from TVs and expand their business for smaller screens."
The Japanese firm's shares soared Wednesday as news reports of an imminent deal ran in the local press. Sharp shares were up 14 percent in trade, versus a 2 percent rise in the Nikkei index.
Samsung said in a statement the deal will help it "secure a steady supply of LCD panels from diversified sources" and emphasized it would be a passive investor in Sharp.
"As this investment is for strengthening our partnership, Samsung will have no involvement in Sharp's business management in any way or form," it added.
Sharp has endured job cuts, leveraged its major properties, faced credit downgrades and admitted last year it is facing financial collapse if it can't turn around its business. While the cash infusion will help its short-term prospects, the company stressed its future with Samsung.
"We have supplied Samsung Electronics with LCD panels in the past, but with this capital partnership we will strengthen our business relationship, providing Samsung with a long-term, stable and timely supply of large-screen LCD panels, as well as medium and smaller LCD panels for laptop computers and mobile devices," Sharp said Wednesday in a statement.
As well as large production capacity, Sharp also has advanced technology such as its IGZO A (Indium Gallium Zinc Oxide) panels, which allow for higher resolution displays that use less energy than traditional LCD screens.
In December, Sharp announced a major investment from Qualcomm, worth up to $120 million. The two companies said they would team to develop low-power displays for mobile devices, as Sharp works with Qualcomm subsidiary Pixtronix to further develop its MEMS (microelectromechanical system) display technology.
Earlier last year Sharp sealed a deal with Foxconn Electronics parent Hon Hai Precision Industry for a roughly $800 million investment in one of Sharp's main factories to produce large LCD screens. The companies now run that factory together, but a separate deal for Hon Hai to invest in Sharp fell through as Sharp's shares plunged.
The sudden gain in Sharp's stock price Wednesday has already given Samsung a substantial boost on its investment. Sharp's shares ended the day at AY=341, while Samsung's purchase price for its allotment of about 36 million shares is AY=290 per share.