Sony Corp, Toshiba Corp and Hitachi Ltd agreed to divest their liquid-crystal display (LCD) businesses to a government-backed fund, amid mounting competition from South Korean and Taiwanese producers.
The companies will spin off and merge the units to create Japan Display K K next year, the three Tokyo-based electronics makers said today. The government-backed Innovation Network Corp of Japan (INCJ) will own 70 per cent of the venture after a 200 billion yen ($2.6 billion) investment, while Sony, Toshiba and Hitachi will split the remaining 30 per cent, they said.
The deal may create the world’s biggest maker of LCDs for mobile phones and cameras, as Japanese companies struggle to compete against Korea’s Samsung Electronics Co and Taiwan’s Chimei Innolux Corp in the larger market for television displays. Sony and Hitachi are unprofitable in LCDs, while Toshiba ended losses at its display division last financial year.
“For each of the three companies, capital spending would continue to be a burden and it’s hard for them to stay competitive on their own,” said Yuichi Ishida, a Tokyo-based analyst at Mizuho Investors Securities Co. “It’s probably a plan led by the government, trying to boost presence of Japanese manufacturers in the global market.”
Sony, Japan’s biggest exporter of consumer electronics, fell 1.8 per cent to close at ¥1,665 in Tokyo trading before the announcement, widening this year’s loss to 43 per cent. Toshiba dropped 2.4 per cent, while Hitachi gained 0.5 per cent.
NEW MANAGEMENT
James Chung, a Seoul-based spokesman for Samsung and Son Young Jun, a Seoul-based spokesman for LG Display Co, declined to comment on how the Korean companies view the Japanese government’s involvement in the venture. Chimei Innolux’s relationship with the three Japanese companies will stay “quite strong” as they share cross-licensing and foundry agreements, said spokesman Eddie Chen. AU Optronics Corp, Taiwan’s second-largest maker of LCDs, “will still be able to maintain our competitive edge,” the Hsinchu-based company said.
Japan Display will use the money from INCJ to build new production lines and hire external managers, the companies said. Sony, Toshiba and Hitachi will appoint directors on the venture’s board, it said.
FUTURE IPO
The venture plans to sell shares in an IPO by the year ending March 2016, with a target to boost sales to at least ¥750 billion for that year from an estimated ¥570 billion in the year ending March 2012, according to INCJ. Approvals from antitrust regulators will be sought later, said Kimikazu Noumi, president and CEO of INCJ.
“We don’t think there will be a big issue getting approvals,” he told reporters in Tokyo today. Sony, Toshiba and Hitachi accounted for a combined 22 per cent of the market for small- and medium-sized LCDs — defined as screens measuring up to nine inches — last year, according to estimates by researcher DisplaySearch. By comparison, Sharp Corp’s share was 15 per cent, followed by South Korea’s Samsung Group and Taiwan’s Chimei with 12 per cent each.
