S-LCD, a flat screen joint venture between Sony Corp and Samsung Electronics, said it would reduce capital by $555 million, as Sony struggles with perennial losses from its TV business and Samsung seeks to shift to a new type of display.
The global liquid crystal display (LCD) market is struggling with faltering demand, with some analysts forecasting the $100 billion LCD TV industry had already peaked last year and would shrink by 3-4 percent annually, as consumers in advanced countries have already traded their bulky tube TV sets to flat screens.
LCD is widely expected to give way to new displays such as energy-efficient active matrix organic light-emitting diode (AMOLED), which is increasingly used in high-end smartphones and tablets and touted as a future large-sized TV display.
In a statement on Monday, S-LCD, which supplies panels to Samsung and Sony, said the move was aimed at improving its capital structure.
The 50-50 LCD joint venture announced its first capital reduction of 600 billion won ($555 million) after more than tripling its capital to 3.9 trillion won since Sony and Samsung formed the venture in 2004 with 1.26 trillion won to ensure smooth supply of flat screens for Sony.
The decision reflects shrinking demand from Sony after the devastating earthquake in Japan last month and the sector's overall shift in focus to OLED display, said Kim Sung-in, an analyst at Kiwoom Securities.
Sony has bought around 1.1-1.2 million units of LCD panels every month from the venture but it can't buy that much any more due to weak sales in Japan. With the overall demand for LCD displays set to shrink further, Samsung and Sony are likely to gradually wind up the business and focus instead on OLED, Kim said.
Sony will not raise its stake in a separate LCD venture with Sharp Corp for at least a year, a Sony source said last week, a move that reflects the industry's growing caution over growing exposure to the LCD industry, which has been in a glut since last summer.
Sony needs to slash costs as it heads for a seventh straight year of losses in its TV business. Highlighting soft demand from TV makers, Philips Electronics said this month it would transfer its TV business into a joint venture with TPV Technology.
Since the March 11 earthquake, six analysts have lowered Sony's operating profit estimates for the year to March 2012 by 19 percent on average, according to Thomson Reuters I/B/E/S, as Sony considers a complete two-week summer shutdown of some company premises due to Japan's power shortages.
On Friday, Samsung is expected to report its quarterly profit had dropped to nearly a two-year low as its LCD business is widely expected to report a loss for January-March.
Panel makers have reduced production after the powerful earthquake on March 11 but demand from TV and computer makers is too weak to absorb even lowered supplies, sending prices of large-sized LCD panels down more than one third over the past year.
S-LCD said it would cancel 120 million shares to reduce equity capital by 600 billion won to 3.3 trillion won, after having had strong cash flow last year.
The company reported 11.4 trillion won in 2010 revenue and 204.6 billion won of net profit, up more than 12 times from 16.4 billion won a year ago, resulting in 747 billion won of positive cash inflow last year alone.
Samsung, the world's top LCD maker, is planning a 5.4 trillion won investment each in LCD and AMOLED this year.
Shares in Samsung, Asia's most valuable technology company with $136 billion in market value, closed down 1.7 percent and Sony fell 0.4 percent on Monday. ($1 = 1081.050 Korean Won)
(Reporting by Miyoung Kim; Editing by Anshuman Daga)