By DAISUKE WAKABAYASHI, The Wall Street Journal - August 18, 2009
TOKYO -- Sony Corp.'s next-generation television, an ultrathin model hailed by executives as a symbol of the company's technological comeback, is now a symbol of another kind: the dilemma facing its TV business.
Sony will delay the launch of its next organic light emitting diode, or OLED, television because mass producing the new displays would exacerbate losses at its TV division, according to people familiar with the matter.
The company had been targeting a 2009 release for a larger successor to a model with an 11-inch screen released in late 2007, which is the first and only OLED TV to reach stores so far. That model's screen is three millimeters thick. But Sony has decided to push back the new model until at least next year, these people said.
The decision sends a message to Sony's engineers that returning its TV business to profitability is a priority. The business is on track to lose money for the sixth straight year. In the past, Sony's engineers could push the company to roll out products that were technological marvels but struggled to turn a profit.
The postponement opens the door to competitors such as LG Electronics Inc. and Samsung Electronics Co. to assume leadership in a promising technology, touted as a potential replacement to liquid-crystal displays.
Already found on smaller devices like mobile phones and digital media players, OLED displays are thinner, consume less power, offer better color contrasts and respond faster to moving images than LCDs.
However, as is often the case with new display technology, producing an OLED television is expensive and the product can cause sticker shock. For example, Sony's first model, the 11-inch XEL-1, sells for $2,500 -- a price reserved for the latest TVs with screens of 50 inches and above. Sony declined to say how many OLED units it has sold so far.
In May 2008, Sony Chief Executive Howard Stringer said a 27-inch OLED television would be available within 12 months. But six months later, Sony's electronics business was awash in losses and Mr. Stringer was crafting a restructuring plan to stop the bleeding.
Sony's TV division lost 127 billion yen ($1.34 billion) last fiscal year, representing more than half of the company's operating losses for the year, which ended March 31. Televisions accounted for 16.5% of Sony's 7.73 trillion yen in revenue.
In an interview earlier this year, Mr. Stringer sounded less gung-ho on the idea of a larger and more expensive OLED. "We got great praise for [OLED], but then you don't sell any. So then, all of a sudden, you have a different problem," said Mr. Stringer.
The challenge thus far has been driving down manufacturing costs, because materials are hard to procure and production systems remain a work in progress.
Research firm DisplaySearch estimates Sony's production yield for its 11-inch OLED panel is below 60%, meaning at least four of every 10 panels its factories produce aren't up to par and can't be sold. Larger panels would likely introduce more difficulties. Sony declined to comment on its production yields.
The company needs to hit it big with OLED. It was slow to embrace the shift from cathode-ray-tube televisions to LCDs. Once the world's top TV maker, Sony now trails both Samsung and LG in terms of revenue, according to DisplaySearch.
Fixing the TV business is at the core of revamping Sony's electronics division, a task now overseen by Mr. Stringer. He replaced Ryoji Chubachi as Sony's president and electronics head in April.
Mr. Chubachi, a respected engineer who helped develop Sony's successful eight-millimeter video camera, was a vocal cheerleader for OLED and declared in 2007 that the XEL-1 was a "symbol of Sony's comeback."
Mr. Stringer has tapped Yoshihisa Ishida, an executive from its Vaio computer business who, in the CEO's words, "understands a cost-conscious world," to run the television business.
As part of Sony's restructuring measures, the company closed a TV-production facility in Japan, started to focus on cheaper LCD TVs for emerging markets and increased outsourcing of production.
Eric Lee, an analyst at Barclays Capital, said delaying a new OLED TV would be the latest indication of a more disciplined approach to the business. "It's probably better for Sony to hold off for now," said Mr. Lee. "I don't know who would be buying it."
Meanwhile, Sony's rivals are closing the gap. Later this year, LG plans to one-up Sony with a 15-inch OLED TV for the Korean and overseas markets. Pricing hasn't yet been determined. Samsung showcased a 31-inch OLED model in January but said it is a few years away from release. Panasonic Corp. has also said it is developing an OLED TV.
The biggest threat to OLED's future could be LCDs. Prices are falling rapidly even as LCD quality improves.
Newer LCD models are thinner, use less energy and can offer brighter colors.
"It's always going to be a race for a new display technology to reach an acceptable price point before LCD or plasma reaches the new technology's performance levels," said DisplaySearch analyst Paul Gagnon.
A differentiating feature of an OLED display is that it doesn't need a backlight behind the screen, allowing it to be thin enough to bend.
Earlier this year, Sony showcased a flexible OLED screen. It was a first step into a futuristic world of clothes with video screens, identification cards displaying video or foldable digital e-readers.
Write to Daisuke Wakabayashi at Daisuke.Wakabayashi@wsj.com
I'm still waiting for a 37-inch LCD TV that fits into a 34.5 inch wide space. Why do the TV manufacturers think they have to make the bezels wide? Bigger is better?