Sony has been facing deep losses in televisions and is struggling to come out of it. In a move to reduce its huge losses, Sony has decided to sell of its entire stake in an LCD manufacturing joint venture with Samsung Electronics for US$934 million (1.08 trillion won).
Both the companies signed a contract according to which Samsung, the world leader in flat-panel TVs, will turn the company, S-LCD, into a completely-owned subsidiary which will provide panels for Sony televisions. Samsung, the Korean-based LCD manufacturer, was established in April of 2004, with Sony holding merely below a 50 percent share.
On the current deal, Keita Wakabayashi, an analyst at Mito Securities in Tokyo commented, “For Sony, it is positive in terms of direction.” The exit from the joint venture with Samsung Electronic will allow Sony to switch to outsourcing options that are less expensive and allow it to bring around its struggling TV business again. Keita Wakabayashi also added, “But if they are making a loss on the sale, one could ask why they didn't make this decision sooner.”
The Samsung- Sony Joint Venture Story So Far
In November Sony, the world's third largest flat panel TV maker, expected fourth straight year of net losses in the current fiscal year through April. Sony was expecting remarkable losses with its TV unit alone set to lose $2.2 billion on tumbling demand and a surging yen.
In a press release, Sony said, “This deal will allow Sony to acquire LCD panels from Samsung Electronics in a stable way based on market prices, without the responsibility or costs that come with operating a factory.”
Sony said, “A further impairment loss of 66 billion yen, or $856 million, for the last three months of 2011is expected as a result of its break up from the Samsung joint venture.” Sony will slash costs in its LCD business by 50 billion yen a year. Sony also mentioned that it “aims to secure a flexible and steady supply of LCD panels from Samsung, based on market prices and without the responsibility and costs of operating a manufacturing facility.”
Samsung Electronics, on the other hand, would not have any rein in producing its gen next displays with all its control over the S-LCD’s. Sony now has plans to outsource Taiwanese LCD makers if they offer cheaper prices.
Sony has had a history of selling off its TV factories in Spain, Slovakia and Mexico in the past few years and outsources more than half of its production to companies including Hon Hai Precision Industry. Analysts forecasted a drop in the $100 billion LCD TV market by 3 to 4 percent. Global TV manufacturers are restructuring their businesses and outsourcing production as cut-throat competition and weak demand squeeze margins.
Analysts have criticized Sony for not being able to snuff on the competition in the TV market from South Korean rivals Samsung and LG Electronics Inc, the largest and second-largest players, respectively.
While Samsung is happy about the deal, analysts believe that it could really be difficult for Samsung to find another buyer for Sony’s stake. Samsung is expecting the flat-panel TV market to grow 10 percent in the coming year aiming to smash the market.