Sharp Invests In Pioneer To Jointly Develop Products
by Greg Tarr -- TWICE, 9/20/2007
Tokyo — Sharp and Pioneer have agreed to form capital and business ties, with plans to join forces on the development of next-generation consumer electronics products.
Pioneer said it will issue 30 million new shares to Sharp for $357.3 million on Dec. 20. The private placement will make Sharp the top shareholder of Pioneer, with a 14.28 percent stake.
Sharp will sell 10 million, or 0.9 percent, of its outstanding shares from its treasury stock to Pioneer for $172.3 million that month.
 
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“As you know, there is harsh global competition in the electronics business field,” said Mikio Katayama, Sharp president/COO, in remarks announcing the deal. “Technology has been developing significantly faster compared to the past. Regarding industry trends, it is not an exaggeration to say that we cannot predict one year ahead, or half a year, or even three months ahead. In this environment, if we tried to cover all the necessary technology by ourselves, it would take considerable amounts of time, human resources and expenses. This might cause us to miss big opportunities.
“So, in order to cover core technology and know-how that we do not have, we believe a strategic business alliance is needed,” he said.
The two companies said they will combine their expertise to jointly develop products in next-generation DVDs, audio, car electronics and displays.
In next-generation DVD products, Sharp currently produces blue-violet laser diodes for Blu-ray Disc players while Pioneer contributed drive module technology to the development of the optical disk format.
The companies also plan to jointly develop new network-related products for in home electronics applications.
In mobile electronics, which is a Pioneer strength, the companies look to create new business opportunities by combining Sharp’s technology in small- and medium-size displays, communication and sensor technology with Pioneer’s car navigation technology and other car electronics technologies.
In imaging applications, the two look to expand both companies’ display businesses and develop new A/V products based on future display technologies such as OEL displays.
Pioneer, which ranks ninth in the Japanese consumer electronics industry according to a Nikkei report, plans to procure LCD panels from Sharp to add televisions smaller than 42 inches to its lineup.
Pioneer, which has seen three consecutive years of losses, posting a net loss of $58.6 million in fiscal 2006, will use the $189 million net gain from the capital tie-up with Sharp to rebuild operations including the plasma TV business, which ranks third in the domestic market.
Sharp, the sixth-largest Japanese consumer electronics manufacturer according to Nikkei, will reduce its reliance on LCDs by developing products using Pioneer’s optical disc, car navigation and audio technologies. Sharp, the leading Japanese LCD TV maker, derives more than 70 percent of its group operating profit from LCD businesses.
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Perhaps we may see more partnerships, if not mergers, in the CE industry, particularly among the tier 2 and 3 Japanese brands. LG (a Korean brand) might also be in that mix as well. Partnerships in R&D, manufacturing, and marketing might become the norm in order to compete against the Chinese juggernaut. Look for Toshiba, LG, JVC, or the CE division of Mitsubishi to make a similar move in the near future (my prediction). Chinese CE companies have cornered the market in low-end budget everything, most notably flat panel TVs. The Chinese companies have the advantage of owning their manufacturing as well as having that manufacturing in their own backyard at a bargain rate (in terms of labor). The Chinese also have a logistical advantage by having their manufacturing in their own backyard, (as well as a wide choice of Chinese shipping companies to chose from). All of this will spell lean times in the CE industry for profits and cuts in labor force. As many of us already know, partnerships and mergers tend to include cuts in labor to some degree.
I''m not predicting that Sharp or Pioneer will make cuts in their work force because of this partnership, but the writing may be on the wall. Not only for them, but the entire CE industry. When we begin to see 42" LCD TVs priced at less than $1,000, someone else will have to "pick up the tab" for that loss in profit. Sadly, that "tab" generally includes the loss of a regular paycheck for some people.
Adam Cauble - 2007-21-9 00:38:00 EDT -
It is a difficult time for CE manufacturers and as a result there have been numerous ownership “morphs†the majority of which make little sense to me. But Sharp and Pioneer getting together does. Like pieces of a puzzle their strengths and weaknesses complement each other and the result should be good for both presuming they can manage the inevitable issues that collaboration will bring. No small task in Japanese companies even among divisions of the same company (just ask Sony) not to mention two heretofore separate ones.
Bill Matthies - 2007-20-9 17:33:00 EDT
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