Samsung group’s unlisted Samsung Display unit could become the biggest shareholder of Corning, maker of scratch-resistant Gorilla Glass used in many mobile gadgets

With Corning deal, Samsung tightens grip on supply chain

Oct 24,2013

Samsung Electronics moved to strengthen its grip on vital electronics parts supplies as it looks to stay ahead of rival Apple Inc with new products in a fast-changing technology industry. The Korean group’s unlisted Samsung Display unit could become the biggest shareholder of Corning, maker of scratch-resistant Gorilla Glass used in many mobile gadgets, as part of a deal in which Corning buys Samsung Display out of a 1995 joint venture making glass for liquid crystal displays.That deal includes a new 10-year LCD glass supply agreement between New York-based Corning and Samsung Display, which makes LCD panels for tablets and TVs for Apple, Sony and Lenovo Group. Corning said the deal would add about $2 billion to its annual sales.
As part of the agreement, Samsung Display will receive new convertible preferred shares in Corning worth $1.9 billion, and invest $400 million by subscribing to new convertible preferred shares. If the preferred shares are converted, Samsung Display would become the U.S. company’s biggest shareholder, with a 7.4 percent stake.
The deal follows a series of bolt-on acquisitions by Samsung Group firms in recent months as the group muscles deeper into key supply chains and positions itself for technology shifts.
Corning, whose Gorilla Glass is used in Samsung’s Galaxy devices, Nokia’s Lumia and Google unit Motorola’s Droid Razr, also produces ceramic substrates, optical fibers and specialty glass solutions.
“By moving beyond a simple glass supply alliance, Samsung is trying to take a longer-term view for its future product pipelines,” said Brian Park, an analyst at Tongyang Securities.
“They’re likely to co-develop and co-test key technologies such as plastic panels, which are critical for making wearable devices. Should they crack such technologies, rivals like Apple [would need to] come to them for parts supplies.”
Corning shares rose as much as 28 percent in extended trading on Tuesday, as investors welcomed the deeper alliance with the world’s biggest maker of smartphones and TVs. Corning also announced a $2 billion share buyback.
Shares in Samsung Electronics, which owns 84.8 percent of unlisted Samsung Display, slipped 0.9 percent in Seoul on Wednesday, while Samsung SDI, which owns the rest of Samsung Display, dropped nearly 8 percent. Some analysts said the deal could cut investment gains booked by Samsung SDI by up to a fifth.
“The deal gives Samsung a further leg-up in components, as they are now partnering at a deeper level, not just low-level joint ventures,” said Soh Hyun-cheol, an analyst at Shinhan Investment. Reuters