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Hitachi, Matsushita, Toshiba may partner on LCDs

Trio of Japanese electronics giants may combine to make a stand in struggling display market.

Reuters
4 min read
TOKYO--Japan's Hitachi Ltd., Matsushita Electric Industrial Co. and Toshiba appear likely to join forces in the production of large liquid crystal displays, a move analysts said would be needed for survival in the fast-growing but highly competitive industry.

The three electronics conglomerates are in negotiations on forming an alliance for the production of liquid crystal display (LCD) panels to be used in flat-screen televisions, according to a report on the Web site of Japanese broadcaster NHK.

Business daily Nihon Keizai reported that Matsushita, the maker of Panasonic products, would likely shoulder part of the 100 billion yen ($894 million) needed for a domestic LCD plant to be built by Hitachi as early as 2006.

Officials at Hitachi, Matsushita and Toshiba said nothing had been decided on a possible partnership and declined to comment further. But NHK said the three companies were aiming to reach a final agreement as early as next month.

Analysts said the three-way alliance would be a logical step given the heavy investment required to produce LCD panels efficiently enough to compete with Sharp and other Asian rivals already investing aggressively in LCD production.

"Hitachi, Matsushita, Toshiba--they all know that there's going to be strong demand for LCD panels for another six, seven or eight years, but they are too afraid to go it alone," said John Yang, an equity analyst at Standard & Poor's.

Demand for LCD panels is growing rapidly as consumers trade in bulky cathode-ray tube televisions for flashier flat-screen models fitted with either LCD or plasma panels, a competing technology primarily used in TVs of over 40 inches.

Industry research firm DisplaySearch projects that the LCD TV market will reach 56.3 million units in 2008, nearly six times the 9.5 million forecast for this year. Sales are expected to more than double in 2004 from 3.9 million units last year.

But with prices of LCD TVs falling sharply, manufacturers need to upgrade to higher-yielding production methods to remain competitive. They also need to secure a steady supply of panels to be able to adjust quickly to changes in market demand.

"It is becoming increasingly difficult for Hitachi and Matsushita to continue operating in the LCD industry on their own," said Okasan Securities analyst Koichi Fujimoto.

"In addition to being panel makers, both also produce televisions and there is significant merit in being able to procure panels internally," he added.

Fear of an oversupplied world
Local media said the new factory would likely be built in Chiba prefecture near Tokyo, on a site of Hitachi Displays Ltd., an LCD unit of Hitachi that until now has mainly built small and medium-sized screens, mostly for mobile phones.

The factory will cut panels from so-called sixth-generation "motherglass" measuring at least 1.5 by 1.8 meters--or about the size of three six-foot men standing shoulder-to-shoulder--and produce panels for 30-inch-class LCD TVs.

Fifth-generation glass plates, such as those used by Samsung Electronics Co. Ltd., measure 1.25 by 1.1 meters. The bigger pieces of glass enable makers to lower manufacturing costs as they yield more panels per piece.

Hitachi Display's existing facilities use so-called fourth or 4.5 generation glass, measuring a much smaller 73 by 92 centimeters.

If established, the triumvirate is expected to do battle with a joint venture between Samsung and Sony, which plan to start manufacturing seventh-generation panels of 1.87 by 2.2 meters next year.

The alliance could also deal a blow to Osaka-based Sharp, which currently supplies Matsushita, Toshiba and Victor Corp. of Japan with LCD panels produced at its flagship sixth-generation facility in Kameyama in western Japan.

"They could switch to procuring panels from Hitachi and Matsushita," UFJ Tsubasa analyst Kazuya Yamamoto said.

Reflecting those concerns, shares of Sharp fell 2.33 percent to 1,554 yen on Friday. That underperformed the Nikkei average's 0.80 percent drop, although all of the parties involved in the media reports saw their shares decline.

Matsushita dropped 1.96 percent to 1,451 yen, Hitachi lost 1.9 percent to 671 yen and Toshiba fell 1.26 percent to 393 yen.

Investors have shied away from LCD, chip and other shares related to consumer digital electronics due to fears that demand could soon falter just as the supply of digital products and the parts that go in them continues to rise.

"I believe that a move like this (alliance) would be a good move by Matsushita. The corporate strategy is not an issue for me," said Kiyoshi Yamanaka, fund manager at T&D Asset Management.

"But there are concerns in the market about oversupply. It's not just about LCDs, but also semiconductors, digital cameras and the like."

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