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.
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