Samsung (NASDAQOTH: SSNLF) recently secured a small stake in Sharp in order to have constant and stable access to display panels. Sharp supplies LCD display panels to leading smart phone and tablet developers such as Apple Inc. (NASDAQ:AAPL) and Samsung. Apple now faces a serious threat, as it sources nearly 30% of display panels from Sharp. This may lead to Apple losing control over its supply chain, thus jeopardizing its profit margins in the long run. Apple is making a conscious effort to widen its supplier base and move away from Samsung in order to reduce dependence on its fiercest rival in the smartphone and tablet space. Nonetheless, this strategic move by Samsung has left Apple thinking, thus it is imperative for potential investors to comprehend the impact of this move on Apple Inc. (NASDAQ:AAPL).
Impact on Apple
The recent investment in Sharp by Samsung can pose a serious threat to Apple in the long run. Apple is considering to trim down its dependence on Samsung for supplies, as Samsung is also one its prime competitors. However, Samsung’s investment (3% stake) in Sharp that also supplies display panels to Apple, will force Apple Inc. (NASDAQ:AAPL) to re-think the entire supply chain strategy.
Samsung’s stake in Sharp will enable it a stable access to display panels. Apple, being the largest player in the industry controls a tight ship over its suppliers; however, having to struggle with Samsung over production capacity and volume will relinquish its hold. As the smartphone industry grows and diversifies with new entrants, existing players will strive hard to diversify the supply chain to sustain competitive advantage. Samsung’s growing smartphone business and the recently announced backward integration will force Apple to re-strategize in order to avoid losing further control over its vendors. A 3% stake is not very threatening; however, it now pushes Apple Inc. (NASDAQ:AAPL) to think out of the box to establish new supply chain partnerships for a steady and reliable access of display panels.
More Pressure on Apple
It is imperative to highlight the long-term impact of this move. Apple is already considering diversifying its supply chain as, Samsung is gaining huge momentum in the smartphone space. Samsung, also being a supplier to Apple Inc. (NASDAQ:AAPL) will always favor to keep its own factories loaded in case of a shortage. Apple in the past pressured several suppliers by investing in production to control the cost structure, nonetheless such a strategy could never work with a massive player like Samsung. Smaller suppliers such as Sharp could always be manipulated by Apple to insure stable supplies at a low cost; however, with Samsung buying a stake in Sharp has once again restrained Apple from a diversified supplier base.