Korea`s Samsung Electronics agreed to a five-year $8.5 billion computer screen supply deal with Dell Computer, insuring Dell`s access to scarce supplies amid a global shortage that has trimmed notebook sales, a Samsung official said Tuesday.
The Samsung official, who declined to be identified, told Reuters in Seoul the deal was expected to be signed Friday.
As part of the expanded ties between the two, Dell, the world`s No. 2 largest PC maker, confirmed it would buy $200 million in convertible bonds exchangeable for less than 1% of Samsung Electronics common stock.
In a statement, Round Rock, Texas-based Dell confirmed the $200 million investment plan but declined to put a value on the supply contract, other than to describe it as "massive."
Samsung plans to use the proceeds to increase its production of liquid-crystal display monitors used in notebook computers and in high-resolution flat-panel displays for desktop machines, ensuring Dell a significantly larger supply.
"We believe that these agreements make us a preferred partner of Samsung`s, and will provide us with a massive stream of LCDs based on leading-edge display technology," Dell Founder, Chairman and CEO Michael Dell said in a statement.
Dell spokesman T.R. Reid said Samsung is already one of Dell`s top screen suppliers: "It is large today and larger going forward." He added that the deal is: "big for Samsung, big for us and big for what Samsung will provide us in total."
He added that the Samsung deal was nonexclusive for both parties. He said the deal had no bearing on mega-supply contracts Dell has signed in the past six months with IBM.
In March, Dell agreed to expand its ties to IBM with a seven-year, $16 billion deal in which IBM will supply key technology components such as data storage disks and computer chips to Dell as part of a drive to expand component sales.
In response to the news, Samsung Electronics stock gained 8500 won, or 4.36%, to close at 203,500 won overnight in trading on the Seoul stock exchange Tuesday.
Shares of Dell closed off 1/16 on the day Tuesday at 45-9/16.
Michael Dell said the five-year computer screen supply deal will help Dell sustain rapid growth in sales of its Inspiron and Latitude lines of notebook personal computers. During the second-quarter shipments of Dell notebook PCs rose 49%, or twice the industry rate, Reid said.
The company also is counting on an expanded supply of flat-panels as an optional display for its soon-to-be introduced Web PC, a small, consumer desktop PC with special Internet features.
Worldwide notebook computer production has been hurt by a series of supply constraints tied a shortage of key components used to make display screens, a general lack of overall screen supplies, and the Sept. 20 earthquake in Taiwan, which crippled some producers of finished notebook PC products tied to Dell.
An ABN AMRO analyst had warned in August that shortages of notebooks could hurt Dell, where such PCs amount to 23% of sales, and at Compaq Computer, the world`s top PC maker, which gets 10 to 15% of sales from notebooks.
In addition to liquid crystal displays, Samsung will continue to provide Dell with other components, including memory chips, newer flat-panel and traditional cathode-ray-tube (CRT) monitors and compact-disc drives, Dell said.
Samsung is the world`s largest computer memory chip maker. Its liquid crystal display screen sales were expected to top $2.1 billion in 1999, against $850 million in 1998, the company has said.
The Dell financing, which would be used by Samsung to build a next-generation liquid crystal display plant, marks the third time this year the South Korean company has attracted capital from a foreign company through sales of bonds.
Intel invested $100 million in Samsung in February as part of its strategy to acquire a steady supply of next-generation memory products. Apple Computer invested $100 million in July to ensure a supply of thin-film liquid crystal display screens for its new notebook computers.
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