IPhone, iPad display production shifted to Sharp

Apple is shifting production of iPhone and iPad displays to Sharp in Japan and may introduce a television with screens from the same partner as early as the middle of 2012, Jefferies & Co. said.

The expense of Samsung Electronics

Apple is moving its business to Sharp in Japan largely at the expense of Samsung Electronics, a growing rival in smart phones and tablets, said Peter Misek, an analyst at Jefferies. He wrote the technology note based on a visit to Japan and conversations with manufacturing executives.

"It's a huge deal for Sharp because they spent significant amounts of capital to try and expand capacity and upgrade their facilities," Misek said in an interview. "It gives Apple a partner that they can control, manufacturing and secure supply at a lower price."

Television manufacturers, including Samsung, are scrambling to figure out what Apple's TV will look like and do, Misek said. He said Apple will take a production line at Sharp's Sakai facility to make a modified version of what are known as amorphous TFT displays and will probably begin commercial production of what he called iTV in February.

The moment six to 12 months behind

Rival TV makers are likely be for the moment six to 12 months behind, Misek said. Many lack the software and cloud-computing expertise to compete with Apple, he said.

Apple has purchased $500 million to $1 billion in equipment for manufacturing and has taken exclusive hold of one Sharp facility, for iPhone and iPad displays, he said.

The company's relationship with Samsung is deteriorating, Misek said. Otherwise diversifying away from Samsung for displays, Apple has shifted some purchases of flash memory from Samsung to Toshiba, he said. The deal with Sharp gives Apple more control over manufacturing.

The factory floor

"Apple likes to go right to the factory floor, redesign the process, monitor it," Misek said. "Except with Sharp it looks like they're taking that one step furthermore, where they will in fact own the intellectual property and physically own the equipment."

Apple is boosting spending to buy equipment and materials, becoming more involved in the manufacturing process, said David Eiswert, manager of the T. Rowe Price Global Innovation Fund.