TOKYO The future of Apple Inc's (AAPL.O) supply chain for its flagship smartphones has come under industry scrutiny as people familiar with the matter said Apple is in talks to buy control of a Japanese venture that makes key semiconductors for its iPhone screens.
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. That makes the advanced chips made by the Renesas Electronics Corp (6723.T) 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 Electronics Co Ltd (005930.KS) makes a compelling case for Apple to seek a deal, industry officials and analysts said.
"It (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.
The Nikkei business daily, which was first to report on the talks, said Apple could buy the Renesas stake for 50 billion yen by summer. It added that Sharp Corp (6753.T) 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 Electronics in the last decade.
Renesas, formed from struggling chip units at conglomerates Hitachi Ltd (6501.T), Mitsubishi Electric Corp (6503.T) and NEC Corp (6701.T), has racked up nearly 650 billion yen 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 (6740.T) and South Korea's LG Display Co Ltd (034220.KS).
"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 Electronics 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 centre 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, emphasising its strength in high resolution and power-saving features.
(Additional reporting by Sophie Knight in TOKYO and Sruthi Ramakrishnan in BANGALORE; Writing by Edmund Klamann; Editing by Kirti Pandey, Christopher Cushing and Kenneth Maxwell)