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Changing Partners

March 4, 2008 | Author: sysadmindgs

Sony is one of the largest flat panel HDTV companies in the world, but they don’t make the LCD panels used in these sets. They get many of their panels from a Korean company called S-LCD, which is a 50/50 joint venture with Samsung that was created in 2004. (Samsung actually owns 50% plus one share, so it has the controlling ownership.)

But all that is changing. Sharp has already announced its plans to build a Gen 10 LCD manufacturing facility, which will use the largest sheets of glass ever for LCD production. And last week, Sony signed a non-binding agreement to create a joint venture with Sharp. The terms of the agreement call for Sony to cover about a third of the investment in the new plant, and in return, Sony will get about a third of the plant’s output.

Why do these companies need a joint venture in the first place? The trend in LCD production is to use larger and larger sheets of glass in order to make larger panels more efficiently. These plants require billions of dollars in capital investment, so by taking on a partner, Sharp reduces the risk and guarantees a customer for a portion of the output. And for Sony, they get a guaranteed supply of panels for the HDTV business. This could be a critical detail if demand should outstrip production in the LCD panel market; only companies that make their own glass will be assured of getting the panels that they’ll need to survive.

So why did Sony decide to team up with Sharp? There has been increasing pressure in both Japan and Korea to get domestic companies to consolidate and collaborate, increasing efficiencies and helping insure future success. The Sharp/Sony deal clearly strengthens the Japanese LCD industry, and it remains to be seen what will happen next in Korea. This new arrangement does put some significant pressure on the smaller LCD panel companies in Taiwan. Samsung and Sony have been major customers for their products, especially in the smaller sizes. If these two giants become more self-sufficient, and the lower tier brands continued to get squeezed out of the competition, the Taiwanese factories could be left without a market for their products.