June 25 - Fitch Ratings says that the tie-up announced today between Panasonic Corporation
(Panasonic, 'BBB-'/Negative) and Sony Corporation (Sony, 'BBB-'/Negative) to
develop organic light-emitting diode (OLED) panels for TVs is a natural development given both
companies' necessity to develop new products in a cost-effective manner.
It further illustrates the fall of Japanese tech companies; whereas such tie-ups
between fierce competitors in the TV segment were once unthinkable, they are now
necessary to claw back the technological and market leadership ceded to Korean
manufacturers. Samsung Electronics Co., Ltd (SEC, 'A+'/Stable) and LG
Electronics Inc. (LGE, 'BBB'/Negative) have both invested heavily in the
development of OLED TV as the successor to liquid crystal display (LCD)
"Japanese OLED investment is better late than never," said Alvin Lim, Associate
Director in Fitch's Telecommunications, Media and Technology team, "While
consumer demand for OLED is still unproven, without investment Japanese
manufacturers could become stranded in the TV market should this technology
In the medium term, Fitch expects that the strategic alliance will not have a
significant impact on the panel and TV markets as the Korean TV makers are
already way ahead in the development cycle. SEC and LGE introduced their 55-inch
OLED TVs early 2012 and plan to mass-produce in late 2012. It will be difficult
for the Japanese manufacturers to catch up with the market leaders and gain
meaningful market share without substantial investment.
Both Panasonic and Sony reported losses for the financial year ended March 2012
of JPY772bn and JPY457bn respectively, both record losses for the companies.
With declining market positions and weakened credit metrics, this type of tie-up
is designed to regain market share and catch up with technology leaders in the
most cost-efficient manner. All of the major Japanese tech manufacturers are
currently reviewing their strategies as they struggle with the high yen and
strong competition from Apple, Korean and Chinese manufacturers. Fitch would not
rule out similar strategic alliance or product mergers in the industry.
The Panasonic-Sony tie-up also could further weaken Sharp Corporation's (Sharp,
'BBB-'/Negative) position in the TV market. In response to weak market
conditions and overcapacity, Sharp recently agreed a tie-up with Taiwan-based
Hon Hai Group (Hon Hai). Under this agreement Hon Hai will invest in new equity
in Sharp and existing equity in Sharp Display Products Corp and commit to take
50% of Sharp's Sakai plant LCD output. While this deal is positive for Sharp's
credit quality, the benefits are not sufficient to mitigate the credit risks
surrounding Sharp for Fitch to change its Negative Rating Outlook. The
Panasonic-Sony OLED tie-up may place further pressure on Sharp in the future.