iPhone’s Component Ecosystem: Balda

One of the most important features of the iPhone is its touch screen that is highly flexible and allows rotating, zooming, panning, scrolling and flipping using multi-finger gestures on the screen. The German company Balda is the supplier of this glass-surfaced touch screen that has sharper resolution, better resistance to scratches or smudges, and better sensitivity than the plastic displays. Estimated to cost around $27, the touch screen accounts for 10.8 % of the 8 GB iPhone model’s cost.

Balda AG (DE: BDGA) was earlier known to develop and manufacture plastic components for mobile telephones, mobile fixed line telephones, and base stations. In 2006, it acquired 50% of the shares in the TPK holding (TPK) in Xiamen in China for €59.5 million. TPK is a manufacturer of innovative touch screen solutions. In our components series, we look at Balda next.

This joint venture reversed the fortunes of the company. Balda was going through a tough time in 2006 with the insolvency of its major customer Ben-Q, a setback in its core business due to price declines, and the relocation of production for mobile telephones to Asia. For fiscal 2006, revenues for the Balda Group were €370.9 million, a 6.6 % decline from the previous year’s figures of €397.2 million. The company reacted to the situation by selling five of its six German factories: Albea, Balda Surface, Balda-Heinze, HeRo, and SMK, as well as by reducing workforce. It also reorganized itself from a regional supplier of plastics to a global technology venture. Apart from the TPK venture, these include acquisition of a further 50% in Balda-Thong Fook in Malaysia, launch of a joint venture with Motherson in India and the buyback of a 25% holding of Everskill.

In the first quarter of 2007, Balda AG reported revenues of €63.083 million and pre-tax loss (EBT) of €4.9 million. This is a year-over-year decline of 38.1 % compared to revenues of €81.271 million in the first quarter of 2006. For fiscal 2007, the company expects consolidated revenues of €600 to €650 million, a pre-tax profit (EBT) of €50 to €55 million, and earnings per share of more than €0.9.

Though the stock picked up well on the launch of the iPhone (it shot to 11.85 euros on July 3rd), it has slumped again and is currently trading at €8.01.

From Business Week: “And Apple isn’t the only reputable company betting on Balda, which is hardly a household name even in Germany. Nokia (NOK), Sony Ericsson, and Motorola (MOT) are Balda customers, and lots of smart investors are grabbing shares of the company based in the northwest German spa town of Bad Oeynhausen. Fund manager FMR Corp., better known as Fidelity, and New York-based Wyser-Pratte Management Co., have both bought big stakes in recent months.”

However, the question remains, what is really proprietary Intellectual Property in the touchscreen and who owns the patents?

From EE Times: “The real breakthrough here, displaywise, is Apple’s use of multitouch technology using a projective capacitive design,” said Paul Semenza, VP for displays at iSuppli Corp. “What we suspect they did was to use an algorithm within NXP’s ARM-based controller chip to measure the finger touches over the display and adjust the screen content accordingly.” Apple was assigned patent application number 20060097991 for the multitouch screen technology—one of some 200 iPhone-related patents for which Apple applied.”

Presumably, Balda’s competitors will catch up, since I don’t see what is defensible in their story. However, as I said before, the biggest question mark in the iPhone’s adoption is its UI, and the display and multitouch screen have certainly won high marks so far. Looks like, the winner on that front is Apple itself, since it has managed to protect the IP. [For the records, I don’t like the iPhone’s keyboard, but people who don’t have to write as much as I do may not mind it.]

This segment is a part in the series : iPhone’s Component Ecosystem