Samsung-Sony Venture to Reduce Capital

APRIL 25, 2011 THE WALL STREET JOURNAL

By Jung-Ah Lee
SEOUL—S-LCD, a flat-panel joint venture of Samsung Electronics Co. and Sony Corp., said Monday it will reduce its capital by 600 billion won (US$555 million), which the companies said will result in a more efficient capital structure but that analysts see as a sign of weakening commitment.
South Korea-based S-LCD, a 50-50 venture that makes liquid-crystal displays, was formed in 2004. The two companies' stakes will stay equal, with each taking 300 billion won, the venture said in a regulatory filing.

"This latest reduction was decided under the dual agreement by the two companies and we (Samsung) haven't yet decided where the proceeds will be spent," Samsung spokesman James Chung said.
Sony spokeswoman Yuki Shima said, "The main purpose of this capital reduction is to return the funds generated by S-LCD's operation to the parent companies. In the Joint Venture, it is a common option to implement a capital reduction to return the profit to the parent companies."

After the capital reduction, the joint venture said its equity capital will decline to 3.3 trillion won (US$3.1 billion) from 3.9 trillion won through share cancellations, and its issued shares will also decrease by about 15%, to 660 million from 780 million.

At a meeting last May in Seoul, Samsung Electronics Chairman Lee Kun-hee and Sony Corp. Chief Executive Howard Stringer reportedly agreed to continue developing business ties and also discussed business cooperation in the area of LCDs used in televisions and handsets. A Korean newspaper reported in November that the two sides were in talks to jointly produce 11th-generation LCDs through the joint venture.

But analysts say the capital reduction suggests a lower chance that the venture will move into larger-sized LCD panels, for which demand is weakening. They expect Samsung to focus instead on its partnerships with Chinese counterparts and spend more on its advanced OLED screens—for "organic light-emitting diodes"—which require less power and offer clearer picture quality and faster response time than conventional LCD displays.

"The relationship between Samsung and Sony has been weakening since two years ago," said Jonathan Hwang, an analyst at Daewoo Securities. "The fastest-growing LCD market is China now. It's important for Samsung to strengthen its partnerships with them (China) now."

In its most recent efforts to gain a greater presence in the mainland and strengthen its ties with Chinese vendors, the Korean electronics giant said Friday that it will invest 541.1 billion won in a joint venture in China to make its 7.5th-generation flat panels,.

Samsung plans to team up with the local government of Suzhou to build a 2.6 trillion won LCD panel plant in that Chinese city. Samsung will hold a 50% stake, its Chinese affiliate 10%, the government-affiliated Suzhou Industrial Park 30% and Chinese television maker TCL Corp. the remaining 10%, Samsung said.

Meanwhile, Sony is backing away from plans to raise its stake in an LCD joint venture with Sharp Corp., people familiar with the matter told Dow Jones Newswires last week. Sony, which holds a 7% stake in Sharp Display Products Corp., had planned to raise that stake to 34% by the end of April. Some analysts say weak demand for large LCD panels for TV sets is the main cause behind the move Sony's changed.

—Juro Osawa and Daisuke Wakabayashi in Tokyo contributed to this article.