Japan to merge tech giants“ LCD units

Japan is seeking to protect its lead in the production of touch screen displays used in smartphones and tablet computers with a plan to merge operations owned by Sony and Toshiba into a new company th…

Japan is seeking to protect its lead in the production of touch screen displays used in smartphones and tablet computers with a plan to merge operations owned by Sony and Toshiba into a new company that would be majority-owned by the government. According to people familiar with the matter, Sony and Toshiba are in talks to shift production of small liquid crystal displays to a joint venture with the Innovation Network Corporation of Japan (INCJ), an investment fund that has received more than 90% of its capital from the state. Demand for touch screen panels is growing quickly thanks to the popularity of mobile devices such as Apple“s iPhone and iPad. But while Japanese producers together control about a third of the global market, they are coming under increasing pressure from South Korean and Taiwanese rivals. Japanese groups fear being overtaken in the same way they had been in LCD televisions – a product category they dominated until the middle of the last decade, but have since largely ceded to cheaper competitors elsewhere in Asia. One reason Japan failed to hold on to the LCD TV market, analysts and industry executives say, is that production was scattered among the country“s many consumer electronics companies, none of which were able to build sufficient scale in what quickly became a high-volume, low-margin business. In 2010, Toshiba controlled just over 9% of the market for small LCD panels, according to DisplaySearch, a market research group, while Sony“s share was just over 6%. A merged operation would be slightly larger than that of Sharp, the Japanese producer that leads the sector. Samsung of South Korea is in second place with just under 12%. The INCJ is the latest of many official investment vehicles in Japan, created by governments to promote new industries or to prop up ailing ones. Having invested in a dozen mostly little-known technology companies since last year, it is prepared to buy up to JPY 100 billion (USD 1.25 billion) of new shares in the proposed Sony-Toshiba venture, which would give the fund an ownership stake of 70-80%. The money would be used to expand the venture“s output of next-generation organic light-emitting diode (OLED) panels, which are only beginning to be adopted in devices such as Sony“s upcoming PlayStation Vita handheld video game console. Japanese groups believe the sophisticated technology involved in touch screen panels gives them an edge that they lack in more commoditised television displays. Sharp said recently that it would convert a television panel factory in western Japan to production of small LCD displays. Sony appeared to waver in its small-sized LCD strategy in recent years, selling production facilities in Japan to Kyocera, another Japanese manufacturer, while buying the small panel operations of Seiko Epson. The company does not break out financial figures for the business, but analysts say it is struggling. Sony and Toshiba declined to comment. The INCJ said that, while it does not comment on specific investment targets, it evaluates deals on their economic merits. A fund spokesperson said that their job is to step in when a business still has potential but lacks capital.