Toshiba, Hitachi, Sony team up on small LCD venture

In a move to support technology companies striving to compete with aggressive rivals from other parts of Asia, Japan is pumping $2.6 billion into a merger of the small-size LCD panel operations of a trio of the country's biggest electronics blue chips.

The investment by Innovation Network Corporation of Japan will pool the small-size LCD businesses run by Toshiba Corp., Hitachi Ltd., Sony Corp. into a single outfit that will enjoy more than 20% of the fast-growing global market for panels used in smartphones and other digital gadgets.

The INCJ and the three companies said Wednesday that the merger to create the new entity to be called Japan Display K.K. will be completed in the spring of 2012. The INCJ will invest about Y200 billion by purchasing new shares, giving it a 70% stake. That will reduce the burden shouldered by the three companies. Toshiba, Hitachi and Sony will each hold a 10% stake.

The deal comes as Japan seeks to step up efforts to help companies counter the yen's recent surge to record highs, including a $50 billion credit line designed to boost overseas M&A, just as the country's economic recovery following the March 11 disasters encounters early signs of an economic slowdown in key U.S. and European export markets.

The latest investment, first flagged earlier this year, is the fruit of months of work away from the spotlight by the little known INCJ. Set up in 2009 under the government of then Prime Minister Taro Aso as a "unique public-private partnership"-- the government providing about 90% of its capital and a series of companies providing the rest -- the INCJ started life with Y900 billion to invest in Japanese ventures.

Speaking at a press conference announcing the new joint venture, Kimikazu Noumi, president and CEO of INCJ, said,"We are setting up this entity to ensure that Japanese companies can maintain their competitive edge in the LCD panel space going forward."

The new company will establish new production lines, but it has not decided on where to base its production hub.

Trying to keep up with South Korean and Taiwanese rivals, Japanese players are focusing on smaller

LCD panels used in high-growth sectors such as smartphones and other devices, having already seen an erosion in market share for larger panels used in televisions.

Joining forces in an area where Japan believes it still has a technological edge reduces the hefty capital expenditures for research and development and new facilities. It also makes them less vulnerable to price fluctuations due to shifts in supply and demand.

To maintain and enhance this technological advantage, the company will invest in the development of next-generation technologies such as thinner and higher-resolution organic light emitting diode displays.

With a combined stake of 21.5%, the new entity will supersede industry leader Sharp Corp. Last year, Toshiba had a 9.2% share of the small-size LCD panel market by shipment value. Hitachi had 6.3% and Sony 6.0%, according to DisplaySearch.

Sharp held 14.8% of the market last year, followed by Samsung Electronics Co. of South Korea with 11.9%, and Chimei Innolux Corp. of Taiwan with 11.7%.

The new entity expects sales of Y750 billion or more in the fiscal year ending March 2016, compared with an estimated combined sales of the three companies totaling Y570 billion for the current fiscal year ending March. The new entity also aims for an initial public offering by March 2016.

The panel's investment is its biggest to date, but the entity has already invested Y120 billion in deals large and small across a range of industries. Along with Toshiba it bought Swiss smart power meter Landis + Gyr AG earlier this year -- taking a 40% stake for $680 million.

But it has also invested smaller amounts in a low-cost carrier project and a company called All Nippon Entertainment Works Co. set up to tap into the vogue for Japanese cultural content including manga and movies.

On the conspicuous absence of Sharp in the Japan venture, Noumi said "we have approached various relevant players and the end result was these three companies." He declined to comment further.

"This is a once-in-a-lifetime opportunity for Japanese manufacturers," said Noumi, stressing that they want to ride on the surging popularity of smartphones and tablets. They project the market for small and medium-sized displays will continue growing at an annual rate of 21 percent.