While LG Displays advances with its OLED innovations, Samsung is making competitive market moves of its own. Samsung on Monday announced plans to acquire all of Sony's shares in S-LCD, a joint venture that manufactures LCD screens. Samsung will pay Sony $934 million for the assets.
Under the terms of the deal, Samsung and Sony entered into a new strategic agreement that aims to increase the competitiveness of both companies. Specifically, Samsung will provide LCD panels for Sony televisions. The agreement makes way or the companies to continue working together on engineering projects that forward LCD technology.
"Samsung has been executing better than Sony and Sony is in dire need of cash because it's had poor financials for too long of a period of time," said Rob Enderle, principal analyst at Enderle Group. "Sony is forced to get out of the joint venture, which probably should never have happened anyway since they are such close competitors."
Sony's Poor Fortunes
Indeed, Sony's decision to exit the joint venture comes at a time when the Japanese electronics giant is looking at growing losses in its TV business. Once a key division for Sony, the company may be exploring its future in televisions. In November, Sony predicted it would lose more than $1 billion in its current fiscal year in TVs.
Selling off the assets in the joint venture will help Sony offset some of those losses while still securing access to a supply of LCD panels as it weighs its future in TV manufacturing. Sony will purchase the panels at market prices without the responsibility or cost of operating a manufacturing facility. With the price of LCD panels falling, it may be a strategic time for Sony to exit.
"As fortunes worked out Samsung was more successful than Sony. Sony needs the cash and Samsung will get the control," Enderle said. "It's a tactical move on Sony's part to be more viable. It's strategic for Samsung because it's going to put them in a much more powerful position against Sony in TVs and TVs are a key component in Sony's waning empire."
LCD Growth Continues
LCD TVs clearly have become the dominant segment in the flat-panel TV market and will continue to drive growth of the flat-panel TV industry. From the 2010 to 2015 period, LCD TV shipments are projected to rise at a compound annual growth rate of 10.6 percent, expanding from 179.8 million units to 297.6 million units, IHS predicts. In comparison, plasma television shipments will decrease from 19.6 million units to 8.6 million units, equivalent to negative 16.5 percent compound annual growth rate during the same period.
"The continued growth of the LCD TV industry during the last couple of years, in spite of the economic downturn, has further intensified the competition among television brands and contract manufacturers," said Jeffrey Wu, senior analyst for EMS and ODM at IHS. "However, even amid this growth, prices have fallen, causing profit margins to dwindle and prompting brands to increase outsourcing to achieve greater cost efficiency."
Among the leading Japanese brands, Toshiba has been the most aggressive in outsourcing, IHS reports. But Sony also has been active on this front, initiating rounds of restructuring efforts in 2009 and divesting its LCD manufacturing facilities in Mexico and Slovakia, contributing to the increased use of contract manufacturers in the LCD TV industry.