Samsung-Sony Venture to Reduce Capital
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. 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.”