As a measure to control losses from its television business, Sony Corp. (SNE) recently announced that it would sell its television factory situated at North America to Hon Hai Precision Industry. As per the purchase agreement, 90% of Sony’s Tijuana plant will be taken over by the Hon Hai group of Taiwan, although the financial terms of the deal are not yet disclosed.
Sony is in the process of increasing its outsourcing facility as a means of saving costs. The company cited the recession as a key factor behind this restructuring process. Apart from the transfer of the Tijuana plant, the company also announced the closure of the TV assembly plant in the U.S. city of Pittsburgh and the imminent closure of another plant in Mexico. These are measures taken to achieve its fixed cost reduction target of 300 billion yen this year.
The company has been badly affected by the increase in prices of 32-inch LCD TV panels. A 32-inch LCD panel is currently priced at around $215 compared to $180 in the middle of June. The rise in price of the LCD panels can be attributed to shortage of specific type of glass required for the panels, coupled with excess demand from Chinese manufacturers. To combat this situation Sony entered into a definitive agreement with Sharp to produce and sell large-sized LCD panels and modules. We expect this process to take some time to materialize.
Although this is a good strategy to reduce cost but after all these closures, any Sony television sold in North America will not really be manufactured by the company itself. So it may hamper the quality of the products manufactured by the outsourced units. Although these cost cutting measures may help the company to return to operating profit in 2010, but it cannot be denied that the television business of Sony will face tough challenges and will take time to revive.
Read the full analyst report on “SNE”
Zacks Investment Research
