Earlier this week Sharp and Sony signed a non-binding memorandum of intent to establish a JV for producing and selling large LCD panels and modules. Sharp’s new Gen 10 plant, now being built in Osaka Prefecture, would be incorporated in the venture, with Sony’s investment buying it 34% of the JV and entitling it to 34% of the plant’s output.

Ken Werner
Senior Analyst and Editor

Now, the companies will negotiate to create a legally binding agreement by September 30, 2008, with the intention of formally establishing the JV by April 2009. Operations will begin by the end of FY2009, which was the start-up date for the Gen 10 plant Sharp announced months ago.

The plant’s production capacity will start at 36,000 substrates per month and rise quickly to 72,000 substrates per month. The partners-to-be will also investigate the possibility of jointly developing module components.

Currently, Sony has a very successful manufacturing partnership with Samsung. The companies’ S-LCD joint venture produces LCD-TV panels on Gen 7 and Gen 8 lines at a Samsung facility in Korea. The relationship has guaranteed Samsung a reliable market for panels and has guaranteed Sony a reliable supply, and both companies have prospered. Samsung is the world’s biggest LCD-TV vendor, having shipped 13.38M units in 2007 for a 17% global market share. Sony was second, with 2007 shipments of 9.56M units for a 12% market share, according to Digitimes. (Philips, Sharp and LGE filled out the top five.) Samsung is also the world’s most profitable LCD panel-maker.

Given this history of success, why would Sony change LCD horses in mid-stream? Long-festering tensions between Korean and Japanese companies generally were almost certainly part of the background. For Sony, being dependent on its biggest TV-set competitor for many of its panels could not have been a cup of sake that was easily swallowed. And the Japanese government has repeatedly called upon Japanese firms to consolidate, just as the Korean government has encouraged consolidation among Korean firms and also called for "supply-chain localization" - which really means, "buy your display components and materials from other Korean companies, instead of letting the profits flow to Japanese suppliers."

All of these factors, along with hints of different points of view at Samsung and Sony regarding the details of Gen 10 development, probably contributed to Sony’s willingness to return to the Japanese camp. According to Rebecca Kuo and Rodney Chan, writing in Digitimes, "Many critics have read the Sony and Sharp move as an attempt by the Japanese electronics industry to counter the expansion of Samsung."

And what about Sharp’s motivation? Although clearly proud of its expertise in manufacturing engineering that has repeatedly allowed Sharp to be first with new-generation plants, and also proud of the super-thin and light LCD modules that will come out of its new Gen 10 plant, it is clear the company has had concerns about whether the market will be able to absorb the huge boost in panel supply the Gen 10 plant will enable, especially with competitors’ Gen 8 and Gen 8.5 plants coming on line at roughly the same time. The Sony deal absorbs one third of the plant’s capacity immediately, as well as helping out with the plant’s huge capital investment. Sharp execs must be breathing a bit more easily this week.

And what about Samsung? Will it continue to defer its Gen 10 decision? Will it look for Taiwanese partners? Samsung has the resources to go it alone if the company thinks that is wise. But is it, particularly after Sharp has apparently decided it is not? That’s the other shoe, and we will report on it promptly when it drops.

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