Sony Sells LCD Venture Stake to Samsung After Losses

By Mariko Yasu and Saeromi Shin - Dec 27, 2011 1:26 PM GMT+0700

Sony Corp. (6758) sold its stake in the venture with Samsung Electronics Co. (005930) to make liquid-crystal displays to the South Korean company after predicting an eighth consecutive year of losses from TVs amid sluggish demand.

Samsung will pay 1.08 trillion won ($935 million) in cash for Sony’s stake in S-LCD Corp., a venture formed in 2004, the Suwon, South Korea-based company said in a statement today. Sony, which invested 1.65 trillion won in the venture, will take a charge of about 66 billion yen ($846 million) in the quarter ending Dec. 31 after the deal, Japan’s biggest consumer- electronics exporter said in its statement.

The stake sale enables Sony Chief Executive Officer Howard Stringer, 69, to shed the responsibility of panel manufacturing amid losses in the TV business, where Samsung is the world’s biggest. To turn around Sony, which has forecast a fourth consecutive annual loss this year, Stringer has teamed up with partners to announce acquisitions worth a combined $8.4 billion in 2011. The purchases are designed to bolster the profitable phones and music divisions and introduced tablet computers to challenge Apple Inc. (AAPL)’s iPad.

“It’s a step forward for Sony,” said Shiro Mikoshiba, an analyst at Nomura Holdings Inc. in Tokyo. “Canceling out the venture enables Sony to become more flexible in procuring panels. Still, Sony continues to face falling prices and heavy fixed costs.”

Sony shares gained 1.6 percent to 1,394 yen at the close of trading in Tokyo today, while Samsung fell 0.2 percent to 1.07 million won. The deal was announced after the stock market closed for trading. The Nikkei reported the news earlier today.

‘Substantial Savings’

The maker of Walkman music players and PlayStation consoles has declined 52 percent this year, valuing the company at $18 billion, down from more than $100 billion in September 2000. Samsung has risen 12 percent in Seoul this year and Apple has jumped 25 percent.

Samsung had 50 percent of the venture plus one share, while Sony held the remainder, according to the statement. The two companies have also entered into an agreement for supply and purchase of LCD panels, Samsung said in the statement.

The transaction and the subsequent agreement will enable Sony to secure a flexible and steady supply of LCD panels from Samsung, based on market prices, and without the responsibility and costs of operating a manufacturing facility, Japan’s biggest consumer-electronics exporter said in its statement.

“Despite this one-time loss, Sony estimates that the transaction will result in substantial savings,” starting January, Sony said in the statement.

Downgrading Sony

Earlier this month, Fitch Ratings downgraded Sony’s long- term ratings to “BBB-,” one level above junk, from “BBB,” citing difficulties in reviving the money-losing TV business and deals that won’t improve profit.

Sony, the world’s No. 3 TV maker, is streamlining its main TV operation, which is estimated to lose 175 billion yen in the year to March. Last month, Sony predicted it will post a loss in the year to March 31 after the company slashed its TV sales target and the yen reached a postwar high.

The Japanese company lagged behind Samsung and Seoul-based LG Electronics Inc. (066570) in the global TV market last year, with 12 percent of sales, according to DisplaySearch. In the U.S., Samsung and Vizio, founded in 2002, had the biggest share for flat-panel televisions, based on research from IHS iSuppli.

Last March, Sony agreed to sell 90 percent of a TV factory in Nitra, Slovakia, to Hon Hai Precision Industry Co., after disposing of 90 percent of its largest North American TV-making site to Taipei-based Hon Hai. Sony also agreed to sell a TV facility in Barcelona in September.

‘Unflagging Resolve’

Earlier this year, Sony agreed to divest its money-losing smaller-sized LCD business to a government-backed fund, which also bought a similar unit from Toshiba Corp. (6502) and Hitachi Ltd. expenses at its marketing units.

“I have unflagging resolve” to turn the TV business around, Executive Deputy President Kazuo Hirai said Nov. 2. Sony’s management “feels a sense of crisis” about the unit’s losses, he said.

TV makers also face what Credit Suisse called a “generational culture shift surrounding video consumption.” Teens live in an Internet-based video culture that doesn’t depend on cable and satellite broadcasts, and they are satisfied with “small-screen experiences” and lower picture quality, the analysts led by New York-based Stefan Anninger said in the Nov. 28 report.

For Samsung, finding another buyer for Sony’s stake would have been “difficult,” said Jeff Kang, an analyst at Daishin Securities Co.

Separately, Samsung today said it will merge with Samsung LED on April 1.

To contact the reporter on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net.

To contact the editor responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net