Sony Samsung Relationship At Breaking Point


Sony, who is fed up playing second fiddle to its LCD TV manufacturing partner Samsung, is considering a proposal to merge with a Taiwanese maker of LCD screens.

Makoto Kogure, head of Sony’s TV group, was recently quoted  as saying that Sony is considering using Taiwanese Company M&A to secure panel supply, as opposed to continuing to invest in S-LCD, its joint venture with Samsung Electronics.

Sony currently manufactures its large LCD screens via its joint venture partner  S-LCD however the relationship between Sony and Samsung has beome strained. Samsung has its own LCD TVs and recently overtook Sony to become the top TV brand worldwide. Internal memo’s at Sony claim that Samsung production needs are being priotised ahead of those of Sony. Other Sony executives claim that Samsung is “deliberatly” slowing down production of Sony branded LCD TV’s as they both fight for market share. S-LCD is 51% owned by Samsung with Samsung management being responsible for the day to day management of the S-LCD plant.

A senior Sony executive in Japan told SHN that the relationship was doomed from day one. “Trying to get the Koreans and the Japaneses to work together while also competing against one another was never going to work. The quicker sir Howard Stringer gets out of the relationship the quicker Sony’s LCD business will grow”.

In the overall TV market Samsung overtook Sony last quarter with Sony falling to the third position as it lost share in most TV segments, DisplaySearch said. To be effective Sony needs to secure a regular supply of smaller-size LCD TV panels (20- to 32-inch), as the main segments supplied by its seventh-generation (7G) plant (overseen by S-LCD) are 40- and 46-inch panels. In recent weeks Sony placed orders with two Taiwanese manufacturers.

Digi Times in Taiwan claims that Sony needs to forge relationships with companies that have 5G, 5.5G or 6G plants, which include Japan-based IPS Alpha Technology, a joint venture between Hitachi, Matsushita Electric Industrial and Toshiba, Taiwan-based panel makers and China-based Shanghai SVA-NEC Liquid Crystal Display (SVA-NEC) and Beijing BOE Optoelectronics Technology (BOE OT).

However It is unlikely that Sony will cooperate with IPS Alpha, as the joint venture was established to meet the needs of the three investors for 32-inch LCD TV panels and Sony is a competitor to these home appliance makers. Nor is it likely that it will partner with the two China-based makers, as the makers are not as experienced as their Taiwan-based counterparts.

AU Optronics (AUO) and Chi Mei Optoelectronics (CMO) are currently the only two panel makers in Taiwan able to supply large amounts of LCD TV panels and they are already shipping TV panels to Sony. However, it will be difficult for Sony to acquire the companies, as the scale of the two Taiwan-based companies is too big.

In addition, the 6G plants from Chunghwa Picture Tubes (CPT) and Quanta Display are still in their initial stages, while HannStar Display’s 5G technology is from its partnership with Hitachi.Sony insiders now claim that it is far more feasible, for Sony to  purchase a Taiwanese LCD plant rather than merging with an entire panel maker.

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Sony Corp. Executive Deputy President Katsumi Ihara unveils Sony Corp’s new Bravia brand LCD TV models in Tokyo Wednesday, Sept. 14, 2005. Electronics was once Sony’s mainstay. Now it’s a huge money-loser. Sony has fallen miserably behind in televisions, watching Samsung Electronics Co. rake in profits from popular flat-panel TVs. Apple Computer Inc.’s iPod players now dominate the handheld music market Sony’s Walkman once ruled. Such are the challenges facing the sprawling Japanese technology and entertainment company as it prepares to announce a far-reaching turnaround strategy Thursday, Sept. 22 in Tokyo. (AP Photo/Katsumi Kasahara)

Sony has fallen miserably behind in televisions, watching Samsung rake in profits from popular flat-panel TVs. Apple’s iPod players now dominate the handheld music market Sony’s Walkman once ruled. Such are the challenges facing the sprawling Japanese technology and entertainment company as it prepares to announce a far-reaching turnaround strategy today  in Tokyo.

The expected shake-up also marks the first major test for Sony’s new leader, Howard Stringer, a dual American and British citizen who took over as chief executive earlier this year — the first foreigner to ever head Sony. Whatever Stringer may have in mind, analysts say it better be quick and decisive.

Battered by the plunge in prices of electronics products that experts say have turned once fancy gadgets into mere commodities, Sony has lost money in its electronics operations for two years straight and has relied on hits from its movie division such as the “Spider-Man” series to bail out its earnings. “Sony has to get out of the cycle of making things for its own self-satisfaction and then having to sell them at bargain prices,” says Mitsuhiro Osawa, analyst with Mizuho Investors Securities in Tokyo.

But Osawa hasn’t given up hope on Sony because of its historical technological finesse and is expecting new management to come up with a convincing revival plan — although no one is expecting an overnight cure. “All they have to do is show us enough to give us a good feeling about future prospects for Sony,” he said.

The Tokyo-based company has fallen behind in TVs to South Korea’s Samsung as well as domestic rivals Matsushita Electric, creator of the Panasonic line, and Sharp. It’s been slow in developing new types of TVs with liquid-crystal and plasma displays that are proving a hit worldwide. Sony also fell behind Apple’s iPod in players that handle the popular MP3 music files, choosing to stick to its own more proprietary format, fearing copyright violations of products dear to its music division, which includes artists such as pop singer Beyonce and cellist Yo-Yo Ma.

Sony, which built its fame over the last half-century with first the transistor radio and later the Walkman portable, has fallen into troubled times in recent years. In the last five years, its stock price has lost about two-thirds of its value, and in recent months has been hovering at about 4,000 yen (A$42).

In July, Sony lowered its group profit forecast for the fiscal year through March 2006, citing tumbling television prices and higher than expected restructuring costs at the ailing electronics unit.

Sony projects a 10 billion yen (US$89.3 million) profit, compared with an April forecast for 80 billion yen (US$715 million) profit.

Sony, which employs more than 151,000 people worldwide, has been carrying out cost cuts and other restructuring for years.

But it’s only in recent months the results are starting to show in products, such as the recently announced Bravia TVs, including liquid-crystal display and rear-projection models, some co-developed with Samsung that Sony says marks a break from its older-style CRT, or cathode ray tube, TVs known as Wega.

And after brushing off the iPod for years, Sony is now coming out with various MP3 players, including the Walkman Bean that’s round and shaped like a lima bean, unlike the rectangular Walkman models of the past.

Some analysts say Sony has spread itself out too thin.Japan’s top business daily said Sony is considering discontinuing its esoteric and extremely expensive Qualia brand products. It also said Sony may shrink its Aibo and Qrio robot operations, which may be eye-catching but don’t bring much profits. Sony declined comment, saying the plan was still being hammered out.

But it denied a report in the same paper that Sony will sell off its financial businesses, such as its bank and insurance companies, to better concentrate funds on developing electronics products. Yuji Fujimori, analyst with Goldman Sachs (Japan) Ltd. in Tokyo said Sony needs to do more. And there’s no question Sony faces an uphill battle.

“The reform contents would appear an extension of strategies pursued thus far and leave an impression of not going far enough,” he said in a report, adding that Sony should expand investment in entertainment and software businesses because electronics profitability is bound to be low. Sony has promised a powerful computer chip called “Cell” that will drive its next-generation video-game console PlayStation 3, scheduled to go on sale in spring next year, as a way it will one-up rivals.

The Cell, codeveloped with Japan’s Toshiba Corp. and IBM Corp. of the U.S. will also power new digital home gadgets although no one has yet to see any specifics. That’s causing some skeptics to doubt its potential beyond video games.

Meanwhile, Sony continues to face the challenge of a wide range of rivals, all of which would love to see the company stumble further. Fumio Ohtsubo, a senior managing director who oversees Matsushita’s TV business, is determined to keep Sony at bay for good. “Our mission is to do our utmost to prevent Sony’s Bravia offense from beating us,” he said at a party with Matsushita executives this week in Tokyo.

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