Sony in the market for LCD panel maker

Acquisition would secure supply and reduce costs

TOKYO • Sony Corp. is considering acquiring a manufacturer of liquid crystal display panels to secure stable supplies and reduce the cost of procurement as demand for LCD televisions grows.

“ We are considering our options, including [M&A],” said Makoto Kogure, head of Sony’s TV group, in an interview with the Financial Times.

“ We will not have enough panels . . . we are considering what to do, whether to simply carry out M&A or continue to invest in S-LCD. We are looking at all these [options] overall.”

S-LCD, Sony’s US$2-billion joint venture with Samsung, its Korean competitor, started providing it with panels earlier this year, but not in sufficient quantities to meet its global needs. Sony already buys panels from other manufacturers but this keeps its costs high and makes it difficult to guarantee product supply.

The possibility of an acquisition is hampered by a lack of candidates, since the quality of many LCD panel producers would not meet Sony’s standards, analysts say.

Mr. Kogure said another option would be to invest in Samsung’s new LCD line or to produce more panels on the existing line.

“It is also possible to raise the efficiency of the lines,” Mr. Kogure said.

His comments come as Sony prepares to unveil its mid-term strategy on Thursday, which is expected to outline how the group aims to turn round its struggling consumer electronics businesses.

In particular, Sony faces an urgent need to raise the profitability of its TV business, which was a big factor behind the downward revision to its annual profits forecast for this year.

Katsumi Ihara, executive deputy president, has pledged to make the TV business profitable by the end of the second half of next year.

Sony hopes to achieve that by standardizing the TV chassis, concentrating design functions in Tokyo and manufacturing the main parts in Japan for assembly overseas, Mr. Kogure said.

“We have achieved 50% of our goal of standardizing components.”

However, Sony needs to ensure that its LCD TV business can generate profits even as market prices plunge. Last year, LCD TV prices fell about 35%, while prices in Europe, where Sony has a large TV business, fell as much as 50% for entrymodels.

To make its LCD TV operations profitable, Sony needs to make more of its LCD panels itself, analysts say.

“ What Sony must do is produce LCD panels in-house,” says Fumio Osanai, consumer electronics analyst at UBS in Tokyo. “I don’t think Sony’s TV business will return to the black next year . . . I think the LCD TV situation is worse than the company believes.”