SEOUL Samsung Electronics (005930.KS) is in the final stages of talks with Sony Corp (6758.T) to jointly build a new LCD production line, a Samsung source said on Wednesday, soothing concerns that their alliance was in jeopardy.
Sony, which unveiled plans to invest in Sharp's (6753.T) new panel plant on Tuesday, and the South Korean company may also cooperate on another, bigger line for liquid crystal display (LCD) panels used in flat-screen TVs, according to the source, who declined to be identified because he was not authorized to speak to the press.
Sony's investment in the Sharp plant raised concerns that Sony might not cooperate with Samsung in future projects, although Sony President Ryoji Chubachi pledged to continue running S-LCD, its joint venture with Samsung.
As Sony diversifies its panel suppliers the Japanese electronics giant could gain pricing power over rival Samsung, the world's top maker of large LCD screens in 2007, analysts said.
"Sony had difficulty in securing enough panels, but now it can have bigger power in pricing negotiation," said Park Sang-Hyun, an analyst at CJ Investment & Securities.
LCD makers are set to enjoy a booming TV market this year, as demand rises while stocks are low, but there are concerns about oversupply in 2009, when panels from bigger production lines hits the market.
"The picture could be grim for 2010," Park said.
Sony said on Tuesday it would take a one-third stake in Sharp Corp's $3.5 billion LCD plant in Japan to meet rising demand for flat-screen TVs.
NEW JOINT PLANT
Samsung was sanguine in the face of the Sony-Sharp deal.
"We've almost wrapped up discussions with Sony for the 8-2 (eighth generation/line 2) production line and it's been going well," the Samsung source told Reuters.
The new plant would be located at S-LCD's LCD production complex south of Seoul.
The investment size for the new line has not yet been set but should be similar to the 8-1 line, an eighth-generation facility already in operation by Sony and Samsung, the source said. Sony's Chubachi declined to comment on Tuesday when asked if Sony is talking with Samsung on another eighth-generation line, which yields fewer panels than 10th generation line.
A Sony spokesman on Wednesday said the company still had no comment on the matter.
Samsung and Sony spent a combined 1.8 trillion won ($1.9 billion) in the initial stage of the 8-1 line. Samsung is currently ramping up the line on its own, spending another 2 trillion won.
Samsung believes it is still possible to work with Sony on a bigger 10th-generation LCD production line, the source said.
Chubachi said on Tuesday Sony is willing to consider such plant with Samsung if Samsung proposes.
Sharp's new factory in which Sony is investing will be the world's first using the 10th-generation glass substrates, which yield more panels than earlier lines.
Samsung benefited from Sony's brand power and steady demand for its screens, while the alliance provided Sony with a partner to shoulder heavy investment needs in the flat-panel industry.
But the two are rivals in the LCD TV market, with Samsung ranked the world's biggest LCD TV maker last year, followed by Sony and Sharp.
Sony aims to sell 15-20 million LCD TVs in the year starting on April 1, up from 10 million this business year, and urgently needs to secure enough panels.
Shares in Samsung rose 1.2 percent to 578,000 won while Sony rose 2.3 percent to 5,320 yen, both outperforming the respective market's benchmark indices.
(Additional reporting by Kiyoshi Takenaka in Tokyo, Editing by Marie-France Han, Louise Heavens and Michael Watson)