Samsung, Sony join forces

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Samsung, Sony join forces
Jamie Miyazaki

TOKYO - Global rivals do not normally open up their patent libraries to each other, especially in the electronics sphere, where new technology often makes the difference between success and failure. But that didn't stop Sony and Samsung, two of the biggest names in the field, from signing a cross-licensing deal last week. The deal effectively opens the patent doors of each firm to the other. Off the cards, though, are a host of "differentiation technology patents", which include patents on Sony's PlayStation console and Samsung's home-networking technology. Still, that leaves around 24,000 patents belonging to the two companies essentially unlocked and there to share.

While cross-licensing deals have been inked before in the electronics and chip sectors, they have usually been limited to specific products or fields. The breadth of the Samsung-Sony tie-up is a first in the cut-throat consumer electronics business. Indeed, it is the same ruthlessness and rapid-change that characterizes the industry that gave birth to the alliance. Despite the clout of these two Asian tech giants, both are facing stiff competition.

Profits at Sony's electronics unit have been under pressure, falling by a steep 83% to 7.2 billion yen (US$69 million) in the second quarter. Samsung, meanwhile, has been facing a sharp decline in chip sales, an important source of revenue for the Korean electronics giant. With new and more complex product lines coming onto store shelves ever faster and research and design (R&D) costs spiraling, companies are under pressure to cut costs and speed up and rethink product development strategies.

The two Asian tech giants have in fact had a history of cooperation before the cross-licensing deal was announced. Samsung is part of the Blu-ray consortium headed up by Sony, which is championing its own format for the next generation of digital video discs (DVDs). The two companies also have a liquid crystal display (LCD) joint venture called S-LCD, due to begin pumping out an eventual 60,000 LCD panels a month once it goes operational, probably in June of next year. In fact, one of the most immediate effects of the new Samsung-Sony tie-up has been on the growth of the flat-panel television market. Sony announced this week that it is to end production of plasma display panel (PDP) televisions at four plants in Japan and abroad by next spring. Instead, the company will focus on the LCD TV market.

Like its LCD line, Sony had been sourcing its PDPs from third-party manufacturers and then assembling them in-house. Some analysts have argued that this strategy has hobbled Sony's momentum in both the PDP and LCD TV markets. But while Sony may not have the presence in the flat-panel market that it does in the traditional, old-school cathode ray tube TV market, it is still number two in both the Japanese PDP and LCD markets. And being second in consumer electronics is not something the Japanese entertainment and electronics behemoth enjoys too much, especially in home territory. But with a shift to in-house development and production and the Samsung joint-venture S-LCD plant slated to come on line in June next year, Sony effectively will be able to produce LCD TVs in-house and thus exert greater control over the final product.

Sony is betting that the market for PDPs, which accounts for around 15% of the Japanese flat-panel market, will eventually be sidelined in three to five years as the cost of producing LCDs continues to plummet and technology improves, making it economical to make large LCD screens. Traditionally, PDPs have dominated the flat-panel market in the plus-37-inch size, while anything below was in the realm of LCDs. But not all are so certain about Sony's gamble. MM Research Institute, a consumer electronics industry research outfit, thinks the market for PDPs in Japan will probably grow by 61% this year and the large flat-panels are fast becoming must-have items in the US market, even if their hefty price tag precludes them from the grasp of most Christmas shoppers. But narrowing its product line, bringing production in-house and focusing efforts on LCDs could well pay dividends for Sony's struggling consumer electronics division. Its current TV line includes not only PDPs and LCD TVs but also PDP projection systems and the traditional cathode ray tube variety.

It's not just Sony that is putting its money on LCDs. Other big players are ramping up production capacity and perhaps setting themselves up for a supply glut. Sharp, the Japanese market leader for LCD TVs, has slated $1.9 billion for a new plant to produce the high-quality glass needed for the panels. The new eighth-generation plant, scheduled to come online in 2006, should yield significant savings for the company. On top of this, and just to put rival manufacturers such as Sony, Samsung and LG-Philips under more pressure, Sharp is looking to double its LCD TV sales next year. LG-Philips, the world's number two LCD manufacturer, also unveiled plans at the start of this month for a $5.1 billion seventh-generation LCD plant due for 2006. Not to be left out, Japanese rivals Hitachi, Matsushita and Toshiba launched a joint venture for LCD TV production in August.

All said, analysts are predicting that even before LG-Philips and Sharp's big projects become operational, there will be a 53% increase in capacity in 2005 alone. LG-Philips thinks that in the first half of next year global TV prices should fall between 10% and 20%, that's on the heels of a 20% decline in prices in the last quarter of this year. DisplaySearch, a market research company, thinks prices of 42-inch LCDs may tumble by half by 2006 to around $2,250.

While prices may be dropping, the market is also expected to grow as well. DisplaySearch is predicting a 21% expansion in the value of the market to $43 billion next year, and according to Japanese business daily Nihon Keizai Shimbun, flat-panel TVs (including PDPs and other variants) will account for 11% of the Japanese TV market in fiscal 2004, up 5% from the previous year. This is good news for consumers but perhaps not so good for manufacturers and retailers, who will see margins squeezed.

Perhaps it's best to put that flat-screen Christmas purchase on hold until next year?

Jamie Miyazaki is an analyst of North Asian political and strategic affairs.

http://www.atimes.com/atimes/Japan/FL23Dh02.html

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from NHK news

Sony to Replace Chairman and President

Japanese consumer electronics giant Sony Corporation is replacing its management in a bid to revive its faltering business.

The reshuffle was approved by a board meeting on Monday and will be implemented after a shareholders' meeting in June.

This comes after the company downgraded its earnings projection for this fiscal year ending in Mach, due to a sales slump in its key electronics divisions.

Sony has announced that vice chairman Howard Stringer will be appointed as new Chairman to replace Mr Nobuyuki Idei, who will step down.

Vice President Ryoji Chubachi is to replace Mr Kunitake Ando as president.

Mr Stringer has been overseeing the company's movie and music operations as the head of its US unit. He will be the company's first non-Japanese chairman.

Mr Chubachi joined Sony as an engineer. He currently leads the electronics and manufacturing divisions.