According to the Financial Times, in an effort to lower cost, Sony Corp. (SNE) is expected to sell its liquid crystal display (LCD) plant, located in Japan to its competitor Kyocera Corp. (KYO).
According to sources, Kyocera will purchase the Yasu plant, which manufactures small LCD panels used in mobile phones from Sony. However, neither Sony nor Kyocera provided any comments on the sale.
The sources said that Sony will not sell the rest of its small-size LCD operations. Sony had acquired the Yasu factory from Chi Mei Optoelectronics of Taiwan in 2005. Chi Mei originally bought the plant from International Business Machines (IBM) in 2001.
Sony also announced to sell 90% of its LCD television factory of its Nitra, Slovakia to Hon Hai Precision Industry Co. The company also announced to produce its televisions for the European market with the help of Taiwanese contract manufacturer.
Tough conditions in TV market
On one hand, the company is witnessing sluggish demand in its key markets and increased competition, which is intensifying pricing pressure, while on the other, it is facing increasing costs. The combination of these factors is squeezing margins at Sony.
The worldwide economic downturn and increased competition in Flat Panel TVs (FPTVs) from the likes of Vizio and Westinghouse has forced Sony to cut prices to maintain market share. Sony’s LCD FPTV sets are sold at premium prices, which consumers are not willing to pay in the current economic environment.
Resultant Restructuring
Instead of relying on other manufacturers for its flat-panel displays, Sony had taken the LCD production in-house. However, the difficult macroeconomic conditions and falling prices of small sized LCDs led the company to restructure and sell off its plants to other companies. The company decided to exit the LCD TV due to shrinkage of the market.
Under a restructuring plan, Sony closed one of its TV design and manufacturing facilities. Sony ceased LCD TV operations at Sony Technology Center, Pittsburgh in the U.S. in 2009. Sony moved and consolidated its small and mid-sized LCD panel operations to Sony Mobile Display Corporation (located in Aichi, Japan), and its battery operations to Sony Energy Device Corporation (headquartered in Fukushima, Japan).
Sony closed its TV design and manufacturing operations at Sony EMCS Corporation’s Ichinomiya TEC in mid-2009, with the Japanese operations to be consolidated at Inazawa TEC.
In fiscal 2009, Sony entered into an agreement with Seiko Epson Corporation for the purchase of certain Epson business assets relating to small and medium sized thin film transistor (TFT) (excluding high-temperature polysilicon TFT LCDs) LCDs. With this agreement Sony planned to enhance LTPS-TFT LCD and sell small and medium-sized LCD TVs to generate profits.
Thereafter, it was planned that certain manufacturing-related assets for businesses owned by Epson Imaging would be transferred to Sony Mobile Display Corporation on Apr 1, 2010, following which they would be operated by the Sony group. However the exit of the Yasu plant shows that the company is not making enough profits and this deal could be scrapped.
The New OLED Technology
The exit of the Yasu plant also raises questions on Sony’s expansion of display technology called organic light-emitting diodes or OLEDs as low-temperature polysilicon is manufactured at the Yasu plant, which is used in the production of OLED televisions.
Sony added a new category to its TV business with the launch of “XEL-1”, the world’s first organic light emitting diode (OLED) TV in December 2007. But last month the company stopped sales in Japan of the world’s first OLED television.
OLEDs are a new lighting technology which is still being developed and will be more expensive in days to come. If Sony closes in-house production, it will have to procure from outside sources. This would further increase costs for the company.
Conclusion
According to DisplaySearch, strong demand for TV’s particularly in China is projected for the next few years and panel makers are reacting by building new fabrication plants. LED backlighting in TVs is expected to grow from 3% the market in 2009 to 20% in 2010 and by 2016, all LCD TVs will use LED backlights.
Although LED TVs are expected to grow strongly this year, it will be largely driven by China. Even in the markets where Sony still has a strong presence, such as flat screen television, it has become increasingly price competitive as PC makers and inexpensive Chinese competitors commoditize the market with the release of low-end entry models. While Sony maintains strong marketing and distribution channels, it has limited presence in many new markets.
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