In late January, Sony's CEO Howard Stringer suggested that he was considering outsourcing flat-panel TVs.
Not all, but just enough that the TV division, which accounts for 10 percent of the company's overall revenues, might staunch its losses.
But how far Stringer would go was unclear. In May Sony said it would shut one of two TV factories in Mexico. It had already announced plans to close two others, in Pittsburgh, Pennsylvania and Ichinomiya, in Japan. (Sony has plants in farflung regions--from Japan to Mexico to Slovakia.)
Now Macquarie Securities' analyst David Gibson has done some digging and come up with an estimate: Sony could outsource up to half of its LCD TVs, from 10 percent to 20 percent last fiscal year through March.
That's a big step away from Sony's traditional obsession with manufacturing the products it sells. Since Stringer took over in mid-2005, Sony has been selling off plants and other unprofitable businesses, such as semiconductor plants and retail outlets. But it had been reluctant to rely on contract manufacturers for TVs because of flat-panel sets are vital to its brand image with consumers.
In a report published yesterday, Gibson predicted that Taiwanese contract manufacturer Wistron would be the biggest beneficiary of Sony’s outsourcing business. Would Sony consider outsourcing all of its TVs?
"We do not believe the company will adopt a 100 percent outsourced assembly given the investment in Slovakia and the need for some local production to minimize taxes in some emerging markets."
This fiscal year through March 2010 Sony could ship nearly 16 million liquid-crystal-display TVs globally, Gibson predicts; the figure could go up to 18.8 million next fiscal year. Sony will probably focus on making the big-screen TVs with all the bells and whistles a gadget lover would desire. The LCD panels inside will still mainly come from S-LCD, Sony's panel-making joint venture with rival Samsung Electronics. The two recently announced that they were running a second production line there.
Outsourcing should help Sony's TV business, but Gibson doesn't think it will solve everything. He figures that though last year's US$1.32 billion loss from TVs could shrink this year, it won't disappear entirely: this year's loss is likely to be US$580 million.
This article was first published as a blog post on BusinessWeek.
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