(By Darrel Whitten) A front-page article in Japan's Nikkei is reporting that arch-rivals Sony (
SNE) and Panasonic (PC) who lost billions of yen on their respective TV businesses in FY2011, are negotiating a tie-up to develop organic electro-luminescent flat (organic EL) screen TVs, with a goal of developing next-generation TV mass production by 2015. This after both firms have seen their stock prices plunge to 30-year lows.
South Korean Producers Eating the Japanese Producers' Lunch
Japanese flat screen producers are having their lunch eaten in flat screen TVs by their South Korean rivals Samsung Electronics (005930.KS) and LG Electronics (066570.KS), who have grabbed 23.8% and 13.7% of the world market for flat screen TVs, with Sony and Panasonic lagging far behind with shares of 10.6% and 7.8% respectively, and Sharp (6753.T) as well as Toshiba (6502.T) even farther behind with shares of 6.9% and 5.1% respectively. Sony was actually the first to commercialize organic EL TVs in 2007 with an 11-inch model priced at JPY200,000 that was too expensive to gain widespread consumer support, which forced Sony to drop the product for the Japanese market. Sony currently sells 25-inch commercial monitors using the technology.
The edge that Panasonic think it has to make an end-run around their South Korean rivals is a new way of coating the panels using printing technology. If successful the new method will not require elaborate facilities and reduce production cost versus the South Koreans by as much as half, and Panasonic plans to spend JPY30 billion on a new plant in Hyogo prefecture to establish a prototype line. Sony's new president, on the other hand , who has based his reputation on turning around the company's loss-ridden consumer electronics hardware business, is spreading its bets, working with AUO in Taiwan on organic EL technology and promoting joint overseas production. This after dissolving a flat panel J-V with Samsung Electronic that was established in 2005. Sony desperately needs to get it right, as they have lost a cumulative JPY600 billion over the past 8 years in their TV business.
Panasonic made a big but disastrous bet on
plasma TVs, establishing themselves as the world's largest producer of these TVs, but never succeeding in making this technology mainstream. A widely touted experiment in 3-D TV was also a big flop for all Japanese TV producers. In 2009, Panasonic cut its investment plan for two plasma TV factories in Japan to JPY445 billion yen by 2012, from a previously intended 580 billion yen, but as yet has to totally abandon the business. Yet heavy investments in LCD and plasma televisions six years ago were behind Panasonic's losses.
Repeat of the Japanese DRAM Demise?
The South Korean majors of course are not waiting around for their Japanese senpai to get their act together. Samsung Electronic will announce a 55-inch organic EL within this year for JPY750,000, or twice what a regular flat screen TV costs. Display Research of the US thinks the organic EL market will be a 5 million unit, 7.1 billion USD market by 2015.
In February 2012, Elpida, Japan's last DRAM producer with about 18% of DRAM industry output and the No. 3 supplier globally, became Japan's biggest bankruptcy in two years, despite government support. Elpida was the product of a 1999 merger between the memory businesses of NEC (6701.T) and Hitachi (6501) and was supposed to have been the answer to a Japanese revival in the memory chip business. The downfall of Japan's DRAM business was their South Korean competition, namely, Samsung Electronics, which dominates the memory-chip business and is the only consistently profitable company in the industry. Elpida is now expected to come under US Micron's (MU) management.
Desperate Measures?
The fact that previous arch-rivals Sony and Panasonic are joining hands in developing organic EL shows how desperate Japan's consumer electronic producers have become, especially in audio-visual products, as global TV sales for both firms in the fiscal year ended March 2012 fell 11% and 7%, respectively, after a brief mini-boom in digital broadcasting compatible sets in Japan with the conversion to full digital broadcasting.
Japan's foray into flat panel TVs began with Sharp's big investment in 2002, after which Sony established a flat panel J-V with Samsung Electronics (S-LCD) in 2004, but dissolved this J-V in 2012 at a significant loss. In 2005, Hitachi, Panasonic and Toshiba joined forces in investing in a flat panel plant, which Hitachi sold their share of to Panasonic in 2007. In 2009, Sharp made a big bet again, firing up the worlds biggest flat panel plant, the same year that Hitachi and Pioneer (6773.T) withdrew from plasma TV production, and Pioneer completely withdrew from the TV business in 2010. Hitachi followed Pioneer in 2011 in completely withdrawing from TV production in Japan. Limping from the heavy domestic investment, Sharp entered in a capital tie-up with a Taiwan firm for offshore LCD production.
Actually, both Sony and Panasonic are not entirely certain that consumers will recognize the superior technology of organic EL over the cheaper, well established LCD flat screens. Further, it remains to be seen whether both companies have a sufficient new technological edge to bridge the substantial gap with their South Korean competitors and put Japanese producers back on top of a major consumer electronic equipment category.
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Japan's Consumer Electronic Major |
Given the huge losses in their TV business, it is no surprise than Japan's consumer electronic majors are lagging the Nikkei 225, itself which has significantly lagged the S&P 500 for all but a very brief three months in Q1 2012. Regarding their overseas rivals, Micron's stock got nothing from the company's strategic decision to take over debt-ridden Elpida, and LG Electronics' stock has done little better. Samsung Electronics however is on a roll, defying the global risk-off knee-jerk on renewed Euro crisis fanfare, perhaps because Samsung is also giving Apple a serious run for its money in
smart phones.
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Samsung Electronics Rules |
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