Market Overview

Apple May Have Wasted $2 Billion Trying to Save Sharp

When Apple (NASDAQ: AAPL) quietly revealed that it wanted to stop using Samsung supplies, many wondered if the company could survive without its South Korean partner.

According to Horace Dediu, the analyst behind the Asymco blog, Apple may have increased its 2012 expenditures by more than $2 billion to give Sharp -- a rumored Apple supplier -- a helping hand. AppleInsider takes this speculation one step further by surmising that Apple poured $2 billion into the ailing display maker.

This news comes only days after Sharp executives admitted that they may not recover from the company's $5.6 billion loss. It also raises a lot of questions.

Historically, Apple does not make big investments. It may spend millions on advertising and billions on manufacturing, but it is unlikely to spend $2 billion just to help an ailing supplier.

Dediu speculates that Apple would do this to "ensure both continuity of supply and a balanced supplier base (offsetting Samsung, another supplier)." He believes that if Sharp entered into some form of bankruptcy, the company's plants could be up for grabs by creditors, who may take the plants offline. This could jeopardize Apple's production capacity, "irrespective of contractual obligations," he said. "I believe that Apple's late and unprecedented expenditure was to secure this asset."

Apple is unlikely to confirm or deny the validity of these claims. As one of the most secretive companies in the world, Apple won't even talk about its suppliers. Many have speculated that Sharp displays are in the iPhone 5, but that hypothesis has yet to be proven.

While Apple cannot afford a supply disruption, the company can always look elsewhere. LG and Sony (NYSE: SNE) are among the many manufacturers who produce high-quality, high-resolution displays. They could easily fill the void left behind Sharp if and when the company goes into bankruptcy -- or worse.

The real problem is timing. If Sharp is indeed the supplier of the iPhone 5, Apple may have been forced to keep the company going long enough for it to support the device through Christmas. Once the new year comes and sales begin to decline, Apple will be free to switch suppliers again.

In doing so, the Cupertino, California-based tech giant could face new challenges. Before the iPhone 5 was released, numerous reports suggested that the company's new display manufacturer was struggling to meet Apple's specifications.

Those specifications are not likely to change much with the iPhone 6. While Apple may upgrade the device with an improved camera and a faster processor, the next iteration is expected to maintain the current form factor.

Follow me @LouisBedigianBZ

Posted-In: Apple AppleInsider Asymco Horace Dediu SharpNews Rumors Tech Best of Benzinga

 

Related Articles (AAPL + SNE)

Around the Web, We're Loving...

Partner Network

Get Benzinga's Newsletters