Apple in talks to buy Japan chip venture to secure iPhone supply chain

TOKYO Wed Apr 2, 2014 3:14pm EDT

Renesas Electronics Corp's chip is pictured at the company's office in Tokyo in this October 23, 2012 file photo. REUTERS/Yuriko Nakao/Files

Renesas Electronics Corp's chip is pictured at the company's office in Tokyo in this October 23, 2012 file photo.

Credit: Reuters/Yuriko Nakao/Files

TOKYO (Reuters) - Apple Inc, seeking to secure its mobile supply chain, has opened discussions to buy control of a Japanese venture that makes key microchips for its iPhone screens, sources familiar with the matter say.

The talks on what would be a rare acquisition in Japan for the U.S. technology giant come as competition heats up in the smartphone industry, with pressure to produce larger, sharper and less battery-draining screens.

Apple's once undisputed command of the global mobile electronics supply chain has diminished in past years as Samsung Electronics Co and other manufacturers that make smartphones powered by Google Inc's Android began to dominate the market.

That makes the advanced chips made by the Renesas Electronics Corp division all the more valuable in future.

Renesas, a loss-making Japanese chipmaker that is restructuring to focus on its core auto business, is also in talks with other companies on selling its 55 percent stake in the chip division, known as Renesas SP Driver, people familiar with the matter said on Wednesday.

The people did not name the other companies, nor indicate the current status of the talks.

Desire for control over a venture that makes all the display control chips for the iPhone as Apple battles rival products from the likes of Samsung makes a compelling case for Apple to seek a deal, industry officials and analysts said.

Apple "certainly might not be happy that someone else might want it (the venture)," said Damian Thong, analyst at Macquarie.

"Apple routinely buys in key technology components and software which they feel are important for the development of their products. It's not new. What is unusual is that they're doing it in the context of a Japanese firm."

Renesas said on Wednesday it was considering selling the Renesas SP Driver unit, but declined to comment further.

Apple did not respond to an email seeking comment.

'GRAVE SIGNIFICANCE'

The Nikkei business daily, which was first to report on the talks, said Apple could buy the Renesas stake for 50 billion yen ($483 million) by summer. It added that Sharp Corp could also sell its 25 percent stake if requested to do so by Apple. Taiwan's Powerchip owns the remaining stake.

Shares of Renesas surged after the report by as much as 19 percent to 934 yen, their highest in more than three years. They pared those gains to end up 6 percent at 831 yen, compared with a 1 percent rise in the benchmark Nikkei average.

A deal by Apple would be a rare foray into a Japanese technology industry that has suffered from aggressive competition by ambitious rivals like Samsung in the last decade.

Renesas, formed from struggling chip units at conglomerates Hitachi Ltd, Mitsubishi Electric Corp and NEC Corp, has racked up nearly 650 billion yen ($6.28 billion) in net losses over the last eight years.

Sharp has also posted heavy losses in recent years.

Renesas SP Driver, the largest maker of chips used to control mobile device screens, supplies all three of the companies that make displays for the iPhone, industry sources say: Sharp, Japan Display Inc and South Korea's LG Display Co Ltd.

"There's no doubt that, for Apple, the question of who buys Renesas SP is a matter of grave significance," said one Japanese display industry source, who asked not to be identified due to the sensitivity of the matter.

Control over the supply chain has become increasingly crucial among smartphone makers. While up to now Apple has relied on outside suppliers for many key parts, Samsung makes vital parts for its Galaxy smartphones, from screens to chips to capacitors, in-house. That gives it greater control over costs, production schedules and specifications, as well as product information.

The business at the center of the talks has its admirers, industry watchers say,

"Renesas SP Driver is strong in technology for LCD (panel drivers," said one industry analyst, who declined to be named. "Other driver makers can't catch up to its technology," he said, emphasizing its strength in high resolution and power-saving features.

($1 = 103.5750 Japanese Yen)

(Additional reporting by Sophie Knight in Tokyo and Sruthi Ramakrishnan in Bangalore; Writing by Edmund Klamann; Editing by Kirti Pandey, Christopher Cushing, Kenneth Maxwell and Lisa Shumaker)

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Comments (4)
annaarron wrote:
Renesas SP is a joint venture between Renesas Electronics, with a 55% stake, Japan’s Sharp Corp., with a 25% stake, and Taiwan’s Powerchip Technology Corp, with a 20% stake which Apple Inc. wants to acquire in upcoming months, but for more info http://goo.gl/tQ5JVR

Apr 02, 2014 7:21pm EDT  --  Report as abuse
VernonDozier wrote:
More likely, Apple is buying the components manufacturer so it can wield more control.

A search online gleems additional light- Renesas has an LTE modem chip. They describe it as “the best quality multistandard LTE modem that exists in the market — after Qualcomm”

So if Apple is going after Reneasas so it doesn’t have to pay Qualcomm, and it’s a lower-quality chip than the one they have right now, then Apple isn’t really placing quality products as a high priority.

The interesting thing is that AT&T has already approved the chip, even though it’s never been in a phone, and able to be tested.

Remember– Apple executives apparently didn’t perform adequate testing for the iPhone 4 either. That resulted in a botched unveiling, and AntennaGate. The undocumented “feature” was called “iPhone Death Grip”. Apple PR and Marketing teams saying “Your Holding It Wrong” and “Just avoid holding it in that way”.

If you must get an iPhone, you may want to get the iPhone 5. It may very well be the last reliable iPhone if this acquisition occurs.

Apr 03, 2014 3:32am EDT  --  Report as abuse
VernonDozier wrote:
Sorry, my last comment was incorrect. It appears the LTE chip designs.

see:
http://renesasmobile.com/news-events/news/2013/completion-transactions-transfer-certain-assets-shares

More likely, Apple is considering purchasing the components manufacturer so it can wield more control in the industry it once was a leader, and also prevent other companies from being able to compete with Apple, and Apple will be able to continue to charge more than other options in the marketplace.

Apr 03, 2014 3:50am EDT  --  Report as abuse
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