Industry Reaction Mixed On Sharp-Pioneer Partnership - Twice

Industry Reaction Mixed On Sharp-Pioneer Partnership

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Industry executives offered mixed opinion on the merits of Sharp's investment and co-development deal with Pioneer.

The pact, announced late last month, calls for Sharp to take a majority 14.3 percent stake in Pioneer for $357.3 million, and for the manufacturers to combine their expertise to jointly develop products in audio, car electronics, displays, next-generation DVDs and network-related in-home electronics applications.

Fumio Ohtsubo, president of Matsushita Electric Industrial, marketer of the Panasonic brand worldwide, empathized with the partners. "As you know, competition in CE is very, very, very severe," he acknowledged last week while attending CEATEC Japan 2007. "In Japan there are eight major players. Recently these players are focusing on their strong points. Japanese players are focusing on what they do best ... which is good."

Joel Blank, executive VP of CE distributor BDI-Laguna, concurred that strategic partnerships have become a necessity in today's CE market. "Trends and market changes emerge very quickly and no single organization is equipped to handle those changes alone. That's why all types of partnerships are essential to succeed," he said.

"Sharp and Pioneer are going to build on each other's success

with this alliance," Blank continued. "We think that this type of collaboration is good for the whole industry, with distribution playing a key role in spotting shifts in consumer buying habits, understanding markets, and partnering to make the whole customer experience the best it can be. That's what we do with our customers today, and with a Sharp-Pioneer alliance producing the products the market wants, it could be an outstanding combination."

Brothers David and Dan Pigeon, respectively president/CEO and chief financial officer of A/V specialist Starpower, agreed that the move "makes a lot of sense for both companies" because of the costs of development in the flat-panel market. They said it "only makes sense that these companies merge so they can appropriate resources to maintain their positions as leaders in their respective areas."

The Pigeons added, "We're living in a new day where the speed of price compression makes it nearly impossible for a relatively small company to survive" by repositioning themselves in time.

Others were less certain that the numbers added up in the one-plus-one-equals-three scenario. "It was a little surprising to me that Sharp went down that road," said Tim Farmer, Costco's merchandising VP/ CE general merchandise manager. "LCD has become a big part of the business now, but Pioneer went with plasma and they're stressed financially."

NATM dealers queried by TWICE during their buying group's annual meeting last month either concurred with Costco's Farmer or were unfamiliar with the specifics of the deal.

In an interview with TWICE, Tom Haga, chairman/CEO of Pioneer Electronics U.S.A., described the agreement with Sharp as "strictly engineering cooperation ... and new technology development," with no plans to share facilities, distribution or other operations.

The partners share "a long history together" with Pioneer buying parts and components from Sharp. "It is difficult today to have one company develop technology ... and do everything," he said. "In thinking for the future [Pioneer] knew this."

"Plasma and LCD are today's [flat-screen] technologies, but there will be others in the future," Haga continued. Pioneer, or any one CE manufacturer, "can't come up with everything on its own ... to successfully support our dealers."

In announcing the deal, Sharp president/COO Mikio Katayama noted, "There is harsh global competition in the electronics business field. 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.

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-disc format.

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. — Additional reporting by Colleen Bohen, Alan Wolf and Greg Tarr

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