Samsung To Buy Out Sony’s Stake In LCD Venture
Japan’s Sony Corp and South Korea’s Samsung Electronics are dissolving their joint venture in liquid crystal display (LCD) panels, with Samsung agreeing to buy out Sony’s entire stake in the LCD venture for $940 million.
Sony decided to sell out its stake in the partnership as it struggles to reduce huge losses in its TV business. The joint venture was created in 2004 and was called S-LCD. The venture was supposed to help Sony recover from a lack of flat panel supplies, but the seven-year-old venture saw a 15 percent cut in its capital in July, adding to continued losses, leaving Sony looking for cheaper outsourcing of flat screens.
“Under the agreement, Samsung will acquire all of Sony’s shares of S-LCD Corporation, the two companies’ LCD panel manufacturing joint venture, making S-LCD a wholly owned subsidiary of Samsung,” Samsung Electronics said in a statement.
While Sony has continued to struggle in the flat screen TV market, Samsung had gone on to become the world’s largest maker of flat screen TVs. Sony has lost money in the TV market for seven straight years, and is now struggling to return to profitability.
“In terms of direction it is a positive (for Sony),” Keita Wakabayashi, an analyst at Mito Securities in Tokyo, told Reuters about the deal. “But if they are making a loss on the sale, one could ask why they didn’t make this decision sooner.”
“Their biggest problem is that they are not making a profit even though they don’t have many plants,” Keita added.
Sony, the world’s third largest flat panel TV maker, warned that it is on course to achieve another net loss for the financial year, with its TV unit alone set to lose $2.2 billion on lacking demand and on surging yen.
Samsung said Sony will continue to get LCD panels from its company based on prevailing market prices, without having to operate a manufacturing facility. “In order to respond to such challenging conditions and to strengthen their respective market competitiveness, the two companies have agreed to shift to a new LCD panel business alliance,” Samsung said.
For its part, Samsung said the full ownership of the venture will give it “heightened flexibility, speed and efficiency in both panel production and business operations.”
As TV prices and panels made for them continue to fall, it makes perfect sense for Sony to buy panels at the market rate rather than to invest in production.
Getting out of the production venture with Samsung will produce substantial savings for Sony after January 2012, when the deal is fully completed, according to Sony.
It was still unclear how Sony’s profit forecast for the fiscal year through March 2012 will be affected, said company spokesman Takashi Uehara.
Once a symbol of Japan’s high-tech might, Sony has sold off TV factories in Spain, Slovakia and Mexico in the past few years and outsources more than half of its production to other companies. Sony still retains four TV plants of its own — in Japan, Brazil, China and Malaysia.
Samsung has said it expects the flat-panel TV market to grow 10 percent next year, and aims to outperform the market.
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