Sony Eyes Top Spot in LCD Business

On June 30, Sony Corp. (SNE - Analyst Report) said it has entered an agreement with Seiko Epson Corp. (SEKEF). Under the deal, certain Epson business assets relating to small and medium sized thin film transfers (TFT) liquid crystal display (LCD) operations will be transferred to Sony, subject to government approvals. The deal was previously discussed in March 2009.

The transfer of sales function for small- and medium-sized TFT (excluding high-temperature polysilicon TFT LCDs) LCD business operated by Epson Imaging to the Sony group is expected in 2009. Thereafter, it is planned that certain manufacturing-related assets for businesses owned by Epson Imaging will be transferred to Sony Mobile Display Corp. on April 1, 2010, following which they will be operated by the Sony group.

This alliance with Sony would enable Epson Imaging's LCD technology and amorphous silicon TFT production capability to satisfy customer demands. By incorporating Epson's wide range of technologies, particularly Epson Imaging's amorphous silicon TFT technology, and LCD product designs and production capabilities, Sony plans to enhance LTPS-TFT LCD and sell small and medium-sized LCD business to generate profits.

Earlier, Sony formed the S-LCD joint venture with Samsung (to produce optical devices in-house for LCD TVs in order to reduce fixed costs. S-LCD has announced plans to launch an 8th generation amorphous thin film transistor (TFT) LCD panel facility, where it initially expects to manufacture 60,000 sheets per month with production targeted to start in the second quarter of fiscal year ended March 2010. Through alliances, Sony aims to increase competitiveness of its small and medium-sized LCD business.

Additionally, Sony plans to consolidate its resources within its subsidiary Sony Mobile Display Corp. This will strengthen Sony’s business structure and accelerate the development of TFT LCD, resulting in an increased production and development of TFT. Moreover, Sony will reinforce its TFT and electroluminescent (EL) layer coating facilities at Sony Mobile Display Corp.'s Higashiura factory in fiscal 2010.

The consumer market has been sluggish of late, with sale of LCD televisions now expected to be much weaker than initially expected. Since Sony serves the consumer market almost exclusively, the company will feel the impact more than the other technology companies. Moreover, Sony had been counting on LCD sales to help turn around its fortunes.

Sony plans to achieve the number one position in LCD TVs by fiscal 2010. With increased competition, LCD television prices have come under pressure and we believe the entry of traditional PC companies into the consumer market will continue to commoditize products. Sony competes against Dell (DELL - Analyst Report), Apple (AAPL - Analyst Report), Vizio, and Samsung in the flat panel TVs.

According to U.S. research firm Display search, Samsung was number one in the global TV market in the first quarter of 2009 with a market share of 18.2% in flat panel TV sales. Vizio held the second position with a 17.9% of the U.S. flat panel market in the January-March quarter, while Sony’s share dropped to 13.2%. We maintain our Sell rating on SNE’s share.