News&lnsights
time—Balda's displays can sense sev-
The iPhone's
German Accent
Little-known Balda is the likely pick to build
the touch screen for Apple's newest gadget
BY JACK EWING
AND ARIK HESSELDAHL
L
AST YEAR WASN'T EXACT-
ly auspicious for German
mobile-phone components
maker Balda. The company
issued two profit warnings,
shed 70% of its 2,400 Ger-
man workers, and ended the
year with a loss equal to 13% of sales. So
why would a heavy hitter such as Apple
Inc. hand Balda a contract to make the
touch screens that are the most impor-
tant design element of the much-antici-
pated iPhone?
Although neither Balda nor Apple has
actually said the German company is
going to make the displays, it's an open
secret in the industry that Balda has the
job. It's the only company in the world
currently capable of producing the mil-
lions of advanced small-format displays
that Apple will need. And Apple isn't the
only reputable company betting on Balda,
38 I BusinessWeek I April 16, 2007
which is hardly a household name even
in Germany. Nokia, Motorola, and Sony
Ericsson are Balda customers, and lots
of smart investors are grabbing shares of
the company based in the northwest Ger-
man spa town of Bad Oeynhausen. Fund
manager FMR Corp., better known as Fi-
delity, and New York-based Wyser-Pratte
Management Co., have both bought big
stakes in recent months.
They're not crazy. Although Balda was
better known as a maker of plastic shells
for cell phones, a well-timed deal with
a Chinese producer of touch screens
catapulted the German company into
what looks like a profitable new business.
With the Chinese technology, Balda now
makes glass-surfaced screens that are
far more sensitive, thinner, and harder
to scratch or smudge than the plastic
displays that now dominate. They offer
sharper resolution, and unlike conven-
tional touch screens—which get con-
fused by more than one finger at a
eral human digits simultaneously. Apple,
which plans to launch the iPhone in
June, has already patented software that
would allow a user to place thumb and
forefinger on the display, then spread
them apart to magnify an image. What
Balda has done "seems to be far ahead
of the competition," says investor Guy P.
Wyser-Pratte, who has 7% of Balda and
says he's still buying.
Balda's reversal of fortune is remark-
able considering the rough patch it went
through just a few months ago. It got
slammed last year when Taiwanese elec-
tronics maker BenQ Corp., a major cus-
tomer, declared its German handset op-
erations insolvent barely 12 months after
buying the business from Siemens. In
addition, Balda's core business of hand-
set casings suffered as prices plunged.
Overall sales fell 7%, to $482 million,
in 2006, while the company suffered a
pretax loss of $64 million, almost the
same as its year-earlier profit. Balda
shares slumped nearly 60% from April
to October, when management issued a
second profit warning. "It was a year of
turmoil," CEO Joachim Gut told report-
ers on Mar. 28.
It might be more accurate to say that
Balda underwent the corporate equiva-
lent of simultaneous organ transplants.
On Display
How Balda's screens help make
the iPhone cool:
• Surface is harder and more scratch-
resistant than existing screens
• Resists smudging, essential for a
device that's operated with fingers
• The phone housing and display are a
single unit, allowing for extra-thin design
• Capable of sensing taps by several
fingers at once
Data: Balda. BusinessWeek
The company sold five of its six German
factories, then opened new facilities in
China and India. And Balda bought 50%
of TPK Holding, a Xiamen (China) com-
pany that had the crucial touch-screen
technology. Although Balda had no expe-
rience in touch screens, its connections to
blue-chip handset makers will likely open
up new markets for TPK, and Balda says
it may soon double capacity, to 70 million
displays annually.
Initial skepticism about Balda's trans-
formation was huge. Analyst Nicolas
von Stackelberg of German bank Sal.
Oppenheim jr. even flew to China to
make sure that TPK was everything Bal-
da claimed. Stackelberg came away im-
pressed by TPK's modern campus and
Michael Chiang, its Taiwanese founder.
Chiang's family acquired 15% of Balda as
part of the deal and is now the combined
company's biggest shareholder. "He's a
very energetic entrepreneur type," says
Stackelberg, who later upgraded Balda
shares to a "buy."
'MASSIVE POTENTIAL
THERE ARE DOUBTERS who Still won-
der whether Balda can make the acquisi-
tion pay off. The company has promised
to boost pretax profits this year to at least
$65 million on sales of $845 million—a
goal some analysts say is a stretch. On
Mar. 29, Dusseldorf-based bank WestLB
downgraded Balda shares to "sell,"
warning of "significant risk" that sec-
ond-half sales won't be as spectacular as
management expects. Further down the
road, other touch-screen makers such
as California-based Synaptics Inc. may
be able to ramp up production enough
to compete. Although Apple declined
to comment for this story, the company
dislikes depending on one supplier for
important components and typically en-
courages rivals to join the fray.
But most investors are still bullish.
Balda's shares have jumped by 55% since
the November low point. Fidelity has
increased its stake to 10% since disclos-
ing a 5% holding in March, though the
fund company declined to comment.
One likely reason for the optimism: The
iPhone may encourage more creative
use of touch screens in other handsets,
as well as gadgets such as MP3 players,
medical equipment, and perhaps even
appliances like toasters and refrigera-
tors. "This touch-screen technology has
massive potential," says Michael Treichl,
managing partner of London-based fund
Audley Capital, which owns some 8% of
the company. "Balda is in a good position
to take advantage of it." •
WIRELESS WARS
New Music Phones
Without the i
BY CLIFF EDWARDS a two-year contract. In addition, Sprint has
A N D ROGER O. CROCKETT slashed the price of its over-the-air music-
H
ow do you steal the spotlight download service to 99$ a track, from
from Steve Jobs? It's not easy, $2.50. Verizon matched a Sprint offer to give
but with two months to go new customers 30 days to decide whether
until the debut of Apple Inc.'s they want to continue their service. But
iPhone, wireless carriers are Verizon also let dissatisfied customers pay
pinning their hopes on snazzy new devices only for the data they used.
from Samsung, LG, and Nokia. The names The carrier recently rolled out LG's enV
of two of the new phones say it all: UpStage multimedia phone and plans to sell similar
and enV. devices from Samsung and Motorola. In
No one knows whether the iPhone will early April, T-Mobile
be a runaway success when it hits Apple
SAMSUNG'S began selling the $250
UPSTAGE
and Cingular Wireless Nokia 5300 Xpress
stores in June. But the Music at a $150 discount.
combination phone- All these phones
music player got rave have clear, large, color
reviews at its unveiling screens and impressive
in January, and few are sound quality. A couple
willing to bet against CEO of relatively new
Jobs' track record. The Verizon models include
tension is even higher an antenna to grab
because the iPhone is television signals. The
arriving at the same time UpStage even uses a
that Sprint-Nextel, Verizon touch pad for navigation
Wireless, T-Mobile, and that's similar to what
Cingularare trying to sign Apple promises, if
up as many well-heeled, not as easy to use.
data-hungry customers The names of Alana Muller, Sprint's
as possible to offset the
high costs of building two new director of wireless
data programming
third-generation wireless
networks. That explains phones say it and marketing, says
UpStage's timing is
why so many phone
discounts and 30-day
all: UpStage "serendipitous," adding:
"We didn't plan this
"test drives" are suddenly
available.
and enVmmmmmmam •
because of Apple."
Jim Ryan, Cingular's
Industry watchers say vice-president for
such pricing and marketing moves clearly data product management and business
aim to steal the limelight from the iPhone. marketing, calls it an act of "desperation."
They also anticipate a surge in multimedia While each carrier is arming itself with
features, despite phone users' heretofore new gizmos, the victor ultimately must
tepid interest in downloading music or video deliver a great experience as both a phone
to their phones. Sprint may be the most and a media player. The makers of trie new
aggressive of the lot. This month it began Sprint, Verizon, and T-Mobile phones have
selling Samsung's UpStage on an exclusive been criticized in the past for multimedia
basis. The candy-bar-shaped device looks software that is too complicated for average
like a cell phone on one side and flips over users. Elegantly simple software is precisely
to reveal a full media player on the other. the advantage Apple brings to computers
Including an add-on battery and a case, it and music players—and which, Apple fans
will sell for just $149—well below cost—with predict, it will bring to phones.
April 16, 2007 I BusinessWeek I 39