Hitachi to clip plasma panel production

By Mayumi Negishi

TOKYO (Reuters) - Japan's Hitachi Ltd (6501.T) said it will shrink production of plasma panels and buy them from Matsushita Electric Industrial Co (6752.T) in a bid to cut losses on its flat TVs in a market dominated by rival LCD technology.

The world's No. 4 plasma TV maker will buy fabricated glass panels -- the high-end part of a plasma TV -- from Matsushita in a step that some analysts say could be part of a slow withdrawal from the business.

Hitachi, which is struggling with three years' of flat TV losses, faces intensifying price competition from bigger TV makers Sony Corp (6758.T), Sharp Corp (6753.T) and South Korea's Samsung Electronics (005930.KS) and LG Electronics Inc

(066570.KS).

"It looks like Hitachi wanted to pull out from plasma TVs, if not from TVs altogether. But they didn't have the gumption to do it in the end," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.

"When it does finally pull the plug, it will be a positive," he said.

The move will mean a 40 billion yen ($383 million) impairment loss for Hitachi on its existing panel facilities in the current July-September quarter.

With the deal, Matsushita secures a customer amid plans to build a new domestic plasma panel and TV plant next year, even as LCD TVs continue to take market share from the plasma TV camp.

Price declines have already forced Japan's Pioneer Corp (6773.T) to announce in March an exit from plasma display panel production, buying them from Matsushita instead.

Hitachi's move will lead to a sharp contraction of losses in the business year beginning in April, Deutsche analyst Takeo Miyamoto wrote in a note to investors.

"We think the decision is sound, albeit late in coming," he wrote.

But Hitachi, which holds 7.5 percent of the shrinking plasma TV market, remains shackled with idle production capacity as its sales stall in the United States and Europe.

It said it would continue to make the control circuitry and plasma panel modules at its own unit, Hitachi Plasma Display Ltd.

Hitachi and Matsushita have already teamed up in liquid crystal display panels. Matsushita, which will change its name to Panasonic on October 1, took control of Hitachi group member IPS Alpha Technology Ltd this year.

Hitachi's stock ended 0.3 percent higher at 730 yen and Matsushita fell 3.2 percent to 1,912 yen, while Tokyo's electrical machinery subindex .IELEC.T fell 2.2 percent.

(Additional Reporting by Kentaro Hamada and Sachi Izumi; Editing by Chris Gallagher)