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Ken S 05-27-2010 09:48 AM

Sony Ready To Invest In LCDs Via Samsung
 
From The Wall Street Journal - May 27, 2010

By DAISUKE WAKABAYASHI

TOKYO—To reach a targeted surge in flat-panel television sales, Sony Corp. may invest in future liquid-crystal-display panel production lines as part of its joint venture with Samsung Electronics Co. if the demand warrants it, a top executive said.

Sony Chief Financial Officer Nobuyuki Oneda said in an interview with The Wall Street Journal that the company expects panel supply to be tight this year at its television operations, although he expects to meet Sony's own forecast for a 60% sales increase to 25 million units in the fiscal year ending March 2011.

After two straight years in the red, dragged down by heavy restructuring and losses at its television and videogame units, Sony is forecasting a return to profit during this fiscal year. It is also looking at new products, including a device similar to Apple Inc.'s iPad tablet computer, according to Mr. Oneda, who is retiring from Sony in June after 41 years at the company.

Sony also expects its TV operations to return to profit this fiscal year after seven years in the red, with a strategy to increase its production outsourcing to meet its ambitious sales target. However, a tight market for major components could hinder Sony's sales targets, especially the critical screen panels that the company buys from Samsung Electronics Co., Sharp Corp. and others.

One potential source of additional panels is S-LCD, its 50-50 LCD-panel making joint venture with Samsung, but the company has remained quiet about the partnership after it decided not to invest in the venture's second eighth-generation LCD panel plant.

"The generation eight second line, we're not investing in it," Mr. Oneda said.

"Depending on our demand, we'll decide whether to invest in future production lines or just simply buy the output from the Samsung side."

Sony had invested 50% in the venture's two previous factories, a seventh- and an eighth-generation line. Each new generation of LCD panel production turns out screens from larger sheets of glass, allowing the manufacturer to lower costs.

Howard Stringer, Sony's chief executive, traveled to Seoul on Monday to meet with Samsung Chairman Lee Kun-hee. While both companies declined to disclose the agenda of the meeting, Mr. Stringer, according to a person familiar with the matter, was there to discuss the S-LCD venture and other areas of cooperation.

Sony has made an initial investment in Sharp's latest LCD panel production plant in Sakai with an agreement to eventually take a one-third stake in the 200 billion yen ($2.21 billion) joint venture. Building a new LCD panel plant is extremely expensive, requiring an investment of several billion dollars. It is the type of hefty investment Sony tried to avoid as it looked to rebuild its profitability after the global financial crisis.

But a tight market for LCD panels has TV makers scrambling to secure the key component for LCD televisions, a market expected to grow more than 24% in 2010, according to research firm DisplaySearch.

David Rubenstein, director of equity research at MF Global FXA Securities, said there is more production capacity coming online soon and any tightness in the market could be short-lived.

"At some point you are going to see a correction in the supply-demand balance, because the capacity ramp-up is pretty strong," said Mr. Rubenstein.

While TVs have been the centerpiece of its consumer electronics business, Sony also has an eye toward the portable-devices market dominated by Apple. Mr. Oneda said the iPad represents a new product category, which is slightly different from its existing electronic reader.

Sony has to develop a device similar to the iPad because it already has investments in Vaio computers, videogame devices and mobile phones.

"The question is how to combine those products into one attractive personal device," said Mr. Oneda who declined to comment on when Sony may unveil such a product. "In the case of the iPad, we are a little behind."

Sony is developing a portable device that shares characteristics of netbook computers, e-book readers and hand-held game machines, according to people familiar with the matter.

Mr. Oneda said one important criterion for any new multipurpose device is to make a profit on the hardware. In the videogame industry, companies often sell the console for a loss, intending to make money off the software, but Mr. Oneda's comments suggest Sony will be looking at a different type of business model.

He noted that when he joined Sony in 1969, it was solely an electronics company and now it has a financial business along with movies and music. The 65-year-old Mr. Oneda said the biggest change has come in recent years, as the company has become less focused on standalone hardware devices.

"Many executives have started to understand the importance of the combination of contents and hardware to help stave off declining profitability," said Mr. Oneda, who says with a chuckle that his retirement goal is to make the senior professional golf tour.

Write to Daisuke Wakabayashi at Daisuke.Wakabayashi@wsj.com


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