Tokyo — Japanese electronics giant Sony Corp. facing huge losses in its TV business, has agreed to dispose of its stake in a joint venture with Samsung Electronics Co. to make liquid-crystal displays to the South Korean company after assessing an eighth consecutive year of losses from TVs amid sluggish demand, the two companies said Monday.
The two companies endorsed a pact under which Samsung Electronics will acquire all of Sony’s stake in S-LCD Corp., for $940 million, or approximately 1.08 trillion in cash, transforming it into a wholly owned subsidiary of the Korean company, which will still provide panels for Sony televisions, they said in a statement.
The Asian electronics titans have collaborated together since the 1990s in the semiconductor and LCD fields. The duo established S-LCD in South Korea in 2004 to jointly produce LCD panels mainly used for televisions. Samsung had a stake of 50 percent plus one share with Sony holding the remainder.
Back in November, Sony, the world’s third biggest flat panel TV maker, notified of a fourth straight year of net losses for the financial year to next March, with its TV unit alone facing a loss of $2.2 billion on declining demand and a surging yen.
The electronics giant hopes that sloughing off its LCD manufacturing business will stem some losses with its struggling TV biz. The seven-year-old venture reduced its capital by 15 percent in July and industry sources had said Sony was negotiating an exit, aiming to switch to cheaper outsourcing for flat screens for its TVs while Samsung pushes ahead with next-generation displays.
“In terms of direction it is a positive (for Sony),” said Keita Wakabayashi, an analyst at Mito Securities in Tokyo, about the deal. “But if they are making a loss on the sale, one could ask why they did not make this decision sooner,” he added.
“Their biggest problem is that they are not making a profit even though they do not have many plants,” he said.
A sales assistant walks past Samsung Electronics Co. light-emitting diode (LED) televisions and liquid-crystal display (LCD) televisions at an electronic store in Seoul. Photographer: SeongJoon Cho/Bloomberg
Sony, which shelled out 1.65 trillion won in the venture, will take a charge of about 66 billion yen ($846 million) in the quarter ending Dec. 31 after the deal, Japan’s biggest consumer- electronics exporter said in its statement. Besides, the company said on Monday it would reassess its earnings forecast to reflect 66 billion yen in impairment losses from the transaction, as well as expected future cost savings.
The move comes as Sony suffered heavy losses for the past seven years in its television businesses and faces questions as to whether it can revive the once-core business. Also, the shift is meant to bring some relief to Sony’s continuing struggle with its TV business, which has posted a loss over eight straight years.
Apart from Samsung taking helm of the company, which manufactures LCD panels for consumer electronics like televisions and mobile phones, Sony will still continue to source some of its LCD panels from S-LCD.
Meanwhile, moving forward with deal, Samsung has gone on to become the world’s largest maker of TVs and flat screen panels.
“According to the terms of the agreement, Samsung will purchase all of Sony’s stake of S-LCD Corporation, the two entities LCD panel manufacturing joint venture, making S-LCD a wholly owned subsidiary of Samsung,” Samsung Electronics said in a statement.
“This deal will also allow Sony to purchase LCD panels from Samsung Electronics in a more balanced way depending on market prices, without the responsibility or costs that come with operating a factory,” Sony said in a press release.
Samsung expects “heightened flexibility, speed and efficiency in both panel production and business operations,” it said.
Once a symbol of Japan’s high-tech heavyweight, Sony during the past few years has disposed off TV factories in Spain, Slovakia and Mexico and outsources more than half of its production to companies including Hon Hai Precision Industry, the contract electronics maker that also counts iPhone maker Apple Inc as a key customer. The electronics giant now only retains four TV plants of its own — in Japan, Brazil, China and Malaysia.
Like domestic associates, Sony has long strived to make its TV business profitable against foreign rivals like Samsung and Vizio in the U.S., but executives have repeatedly said they would not abandon the product. The iconic Japanese behemoth has said it is focused on a “four-screen strategy,” which aims to offer content and interconnect smartphones, laptops, tablets, and televisions. But, the firm’s latest action calls for a focus on profitability over the number of units sold, and shifting to acquiring panels from outside manufacturers.
While the sale is seen as a move in the right direction for Sony, it will not be good for Samsung, analysts said.
“Sony may move over to Taiwanese LCD makers should they tender cheaper prices,” Song Myung-sup, an analyst at HI Investment & Securities, said in Seoul.
As for Samsung, hunting another buyer for Sony’s share would have been “difficult,” said Jeff Kang, an analyst at Daishin Securities Co.