A new flat panel partnership between two of the largest electronics companies in Japan offers a glimpse into a troubled market.
On the surface, the hookup announced this week between Panasonic and Sony to produce large-screen displays based on the emerging organic light emitting diode (OLED) technology is easy enough to understand. The technologies at the core of today's top selling panels, LED-backlit LCD as well as plasma, have reached a relatively mature phase of their life cycle, and relentless downward price pressure is challenging increasingly margin-squeezed vendors.
OLED-based panels represent the next logical step in flat screen technology, with a laundry list of advantages over the LCD and plasma screens that currently dominate the market:
- Image quality. Colour saturation and brightness are noticeably better than conventional flat panels.
- Size. Unlike LCDs, OLEDs don't require a separate backlight, which allows thinner designs. LG's 4 millimetre-thick, 55-inch screen, displayed at this year's Consumer Electronics Show in Las Vegas, was a particular showstopper.
- Energy. OLEDs consume far less power than comparable LCD-based panels. As average screen sizes — and energy costs — continue to grow, the cost-saving advantages multiply as well.
- Simplicity. Unlike LCDs, which are manufactured using a complex sandwich of glass and electronics, OLEDs can be printed onto commonly available materials using a fairly simple inkjet printer. As OLED manufacturing continues to scale, screens based on the new technology will eventually cost less to manufacture than comparable LCD panels.
OLED still has a few hurdles to cross, including price — that 55-inch superthin LG panel is expected to cost over $10,000 when it hits the market next year — and longevity, as screens based on the technology will fade to black long before currently available LCD- and plasma-based units. But continued investment in research and development is expected to overcome these challenges.
One small step
The Panasonic/Sony partnership represents a logical first step toward accelerating the shift into OLED and differentiating themselves from competitors. It also represents a critical move back from the brink for the two beleaguered Japanese electronics giants.
Panasonic registered a record US$10 billion loss over the last fiscal year, thanks largely to the effects of the March 2011 earthquake, flooding in Thailand that compromised its manufacturing facilities and supply chain, and the stubbornly high yen.
A deeper look into Panasonic's television business paints a similarly ominous picture, with year-to-year LCD sales down 28 per cent and plasma sales off by 41 per cent.
Things aren't much better over at Sony, as the company that invented OLED in the first place notched a $5.7 billion loss in its most recent fiscal year — its fourth straight yearly loss — thanks largely to sluggish television sales.
Sony, the onetime leader in flat panel sales, is now number three behind Samsung and LG, who are also taking chunks out of a growing range of Sony's businesses, including tablets and computers. As the two Korean powerhouses ramp up their own OLED plans, at least one analyst says the Japanese firms had no choice but to pair up.
"Such tie-ups between fierce competitors in the TV segment were once unthinkable, (but) they are now necessary to claw back the technological and market leadership ceded to Korean manufacturers," said Alvin Lim, an analyst with Fitch Ratings, in a research note.
"Without investment Japanese manufacturers could become stranded in the TV market should this technology become mainstream."
It's not as if major Japanese players haven't been down this road before. They have, and it hasn't always worked out as planned. Last month, Sony pulled out of its joint venture with Sharp to build panels at one of the world's largest flat panel plants in Sakai, Japan.
Pioneer, an early innovator in both plasma and LCD screen technology and a leader for much of the market's existence, ran into trouble in 2008 when relentless commoditization, brutal competition and the global recession forced it to stop making its own panels. Attempts to source LCD panels from Sharp and plasma displays from Panasonic weren't enough to staunch billion-dollar losses and 10,000-employee layoffs. By 2009, Pioneer announced it was getting out of the flat panel business entirely.
Things aren't much better today. The North American market is tapped out as the wave of consumers replacing conventional CRT-based sets is now over. With flat screens already installed in most homes, the market is cooling off as fewer consumers aim to replace older LCDs and plasmas.
Research firm iSuppli predicts U.S. shipments will shrink to 37.1 million this year compared to 39.1 million in 2011 — its first-ever year-over-year drop — and it expects the downward trend to continue through at least 2015. New technologies like 3D and smart TV initiatives have failed to spark consumer interest.
Against that backdrop, the Panasonic/Sony partnership could represent the troubled giants' last, best hope to remain relevant in a market they once dominated.
Carmi Levy is a London, Ont.-based independent technology analyst and journalist. The opinions expressed are his own. carmilevy@yahoo.ca