Sony denies it plans to quit plasma TV market

[Gregg Lengling]

By Nathan Layne, Reuters
TOKYO — Sony denied a newspaper report on Monday that it would quit the plasma television business and focus its efforts in the flat-screen TV market on liquid crystal display and rear-projection models, but analysts said it would make sense to pull out.
The Nihon Keizai Shimbun said Sony, the world's number two plasma TV maker behind Matsushita Electric Industrial and ahead of third-largest Hitachi Ltd., would exit the plasma business as early as the spring of 2005.

Sony responded with a statement that it would concentrate on liquid crystal display (LCD) and rear-projection televisions, but that it had no plans to pull out of plasma. Projection TVs magnify a small image in the back of the set and project it onto a plastic screen.

Industry analysts, however, said an exit from the plasma market would make sense for Sony, which does not make its own plasma panels and is therefore having difficulty remaining competitive as set prices fall 20 to 30% each year.

"Because Sony relies 100% on others for its panels, it has little room to lower costs. Even if its market share rises and sales increase, it will continue to have trouble making a profit," said UFJ Tsubasa Securities analyst Kazuya Yamamoto.

"Sony's biggest issue right now is raising profitability in its electronics business, including flat-panel TVs," he added. "If the report is true, I would consider it an appropriate strategy for Sony."

Sony's television division posted a loss of 6.1 billion yen ($58.64 million) in the three months to Sept. 30, partly due to the high costs of LCD and plasma display panels (PDP), which make up a large portion of TV assembly costs.

The company expects profitability to get a boost next year when it will be able to procure panels from S-LCD, an LCD joint venture with South Korea's Samsung Electronics, scheduled to begin mass production in the second quarter of 2005.

But Sony has not made a similar commitment to investing in plasma panel production. That is in stark contrast to rivals like Matsushita, which last week unveiled plans to double output capacity with its PDP partner Toray Industries Inc.

Blow to PDP

If Sony pulled out of plasma, it would be aligning its strategy with Sharp, which is investing heavily in LCD technology in the belief that LCD panels can be made big enough to tackle the market for large sets above 40 inches.

Until now LCD TVs have primarily addressed the 20- to 40-inch market while plasma has been used for the 40- to 60-inch range.

"We don't know what is going to happen in the long term, but right now it is true that we will focus on LCD TVs and rear-projection TVs in the TV business," said Sony spokeswoman Mina Naito. "However that doesn't directly mean that we will stop producing or selling PDP TVs."

A Sony withdrawal would likely deal a blow to the fledgling plasma TV market, which is facing pressure from projection TVs that are growing in popularity in the 50-inch and above segment because they are half the price of similarly sized plasma TVs.

Sony's stock slipped 0.25% to 3,930 yen while shares of Matsushita, which arguably would stand to benefit most from a Sony retreat, lost 0.37% to 1,602 yen.

"The first assumption that can be made is that demand would shift to rivals like Matsushita and Pioneer, but this would also send a negative message to consumers about the prospects for PDP TVs," said iSuppli Japan President Yoshihisa Toyosaki.

"The loss of support from a major player like Sony could hinder the market's development," he said.

Investors began to factor in the potential loss of business to Pioneer, which along with Fujitsu Hitachi Plasma Display (FHPD) and LG Electronics, supplies Sony with plasma panels. FHPD is a Hitachi and Fujitsu joint venture.

Shares of Pioneer, which completed an acquisition of NEC's plasma business for 37 billion yen on Sept. 30, fell 2.35% to 1,992 yen by midday, underperforming the benchmark Nikkei average's slight rise.

The Nihon Keizai said Sony would gradually stop making plasma sets at four sites in Aichi Prefecture in central Japan, at Barcelona in Spain, Wuxi in China and at Pittsburgh in the United States, and shift production to LCD and projection sets.

According the independent research firm DisplaySearch, the global market for plasma TV sets will reach 5.14 million units in 2005, up 92% from 2.68 million this year. The LCD TV market is expected to double to 16 million units next year.

DisplaySearch predicts that sales of rear-projection TVs will total 6.82 million units in 2005, up 20% year-on-year. While sales of flat-panel sets are booming, traditional cathode-ray tube (CRT) models still make up about 90% of all TV sets sold worldwide