Japan's struggling consumer electronics maker Sanyo Electric said Wednesday it will quit producing liquid crystal displays (LCD) after it failed to meet earnings targets amid intense price slumps.
Sanyo will sell its 45% stake in a money-losing joint venture to partner Seiko Epson, which aims to quickly turn around the world's third-largest maker of small- and medium-sized LCDs used in cellphones and digital cameras.
The sale will leave Sanyo, which has already withdrawn from the organic light-emitting diode business and makes no cathode ray tubes or plasma panels, with no display operations. The firms did not provide financial details of the transaction.
Some analysts said the loss-making status of the venture makes it difficult to estimate the size of the transaction, but terms of the deal could be quite unfavorable to Sanyo.
"There is a chance that Sanyo may have paid Seiko Epson to take the stake," said Tetsuya Wadaki, an analyst from Nomura Securities. "This is not a positive for Seiko Epson unless they really reshuffle and restructure the joint venture, including job cuts. They have to improve their marketing tremendously," he said.
The venture held a 10% share in the global market for small- and medium-sized LCD panels in April-June, trailing Sharp and another venture between Toshiba and Panasonic maker Matsushita Electric Industrial, according to research firm DisplaySearch.
The agreement will lighten the burden for Sanyo, the consumer electronics giant that received a 300 billion yen ($2.57 billion) bailout from banks and is in the middle of a company-wide restructuring, while allow Seiko Epson to focus on reviving its struggling display business.
In the year to March 2007, Seiko Epson expects sales at its display business to drop 22% from a year earlier to $2.45 billion, with the venture accounting for 85% of the revenue.
DisplaySearch analyst Hirshi Hayase said he sees strong growth potential for the market of small-sized LCD panels, although suppliers are currently hit hard by sharp price erosion. "I believe there still is some substantial margin of growth in the market for small- and medium-sized panels, especially those for mobile phones," Hayase said.
"As users in emerging markets trade in their handsets for advanced models, demand for high-end panels should grow and that's where Japanese companies come in," Hayase added.
Separately, Seiko Epson said Tuesday the LCD joint venture was under investigation by fair trade authorities in Japan and the U.S.. The authorities are also looking into other panel makers for possible price fixing.