Sony Corp. will terminate its joint venture with South Korea’s Samsung Electronics Co. for producing liquid crystal display (LCD) panels for TVs, the Japanese electronics maker said Dec. 26.
The companies reached an agreement for Samsung to buy all of Sony’s stake in the venture by the end of January.
S-LCD Corp., based in the South Korean province of Chungcheongnam-do, was established in April 2004 by the two industry giants, with Samsung owning a 50-percent stake plus one share and Sony holding the remainder.
Under the joint project, each of the two companies has bought about half of the LCD panels manufactured at S-LCD.
Around the time the project started, global demand for LCD panels grew rapidly, leading to a shortage in supply. The joint venture was part of moves by Sony, which had lagged behind in the development of LCDs, to secure a stable supply of the panels.
However, LCD prices dropped after other South Korean and Taiwanese rivals began supplying low-priced products. The panel procurement structure under the joint venture ended up costing Sony more in LCD-related costs instead of lowering them.
Moreover, the resulting oversupply of LCD panels worldwide has significantly pushed down TV unit prices.
Sony outsourced part of its TV manufacturing and scaled back production, but its TV business still recorded operating losses for the seventh straight year in fiscal 2010.
The Japanese maker also expects its TV operations to post 175 billion yen ($2.24 billion) in losses for fiscal 2011.
The demise of the joint venture will allow Sony more flexibility in selecting panel suppliers, which should cut costs by about 50 billion yen a year, the Japanese company said. However, Sony expects to record 66 billion yen in losses in fiscal 2011 from valuation losses of S-LCD shares and other expenditures.
Sony will also likely see a full-year operating loss for fiscal 2011, despite the 20 billion yen in operating profits currently projected. With the company also expected to post net losses this fiscal year for the fourth consecutive year, a significant makeover of its lackluster TV business appears to be its only option.
Kazuo Hirai, executive deputy president who was put in charge of Sony’s TV business this spring, said in November that he would demonstrate unwavering resolve to bring the TV sector into the black in fiscal 2013.
Another company official, however, said, “It is unclear by what elements (of services or products) our company intends to differentiate Sony brands from our rivals.”
Amid the current global economic slowdown, unit prices of TVs will likely continue to fall.
Samsung will soon begin producing LCD panels in China as well and also make a foray into large TVs with organic electroluminescence panels.
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