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Friday, March 7, 2008

Japan's Pioneer to stop making plasma panels

Japan's Pioneer Corp said Friday it will stop making plasma panels amid intense competition and will instead outsource the production of plasma panels for its television sets.

The Japanese maker of car navigation systems and audio equipment said it will start buying plasma panels from Matsushita Electric Industrial Co Ltd (NYSE:MC) , the world's largest consumer electronics maker, but did not provide details on the timing and volume of panels it will now outsource.

The decision to exit plasma panel production came after Pioneer slashed its sales projection for plasma TV sets to 480,000 units for the current fiscal year ending this month from the initial target of 720,000 sets.

Pioneer said it now expects to report a net loss of 15 billion yen for the fiscal year ending March 31 as it will book an impairment loss of 19 billion yen on its plasma display manufacturing facilities. This would be its fourth straight year of reporting a net loss.

Consumer electronics maker Pioneer Corp <6773.T> said it would fall into the red for the fourth straight year on costs to scrap production of plasma displays as it rejigs its strategy in the cut-throat flat TV market.

Pioneer is expected to now turn to Panasonic brand maker Matsushita Electric Industrial Co <6752.T> to supply it with panels for its plasma TVs, thereby allowing it to focus on design and marketing and save on production costs.

Pioneer is the world's fifth-biggest plasma TV maker, but it has been struggling to compete with larger rivals such as plasma industry leader Matsushita and LG Electronics <066570.KS>, which can leverage economies of scale.

The company, which also makes home stereos and car electronics, said it now expects to post a group net loss of 15 billion yen ($146 million) for the year to March 31, compared with its previous forecast of a 6 billion yen profit.

The new forecast reflects 19 billion yen in losses to write down the value of its plasma panel production facilities.

"This move will allow us to transform our business model for displays from vertically integrated, capital-intensive operations to a leaner business model geared to making value-added product proposals," Pioneer said in a news release.

The decision to end production of plasma panels was widely flagged by the media, including Reuters, earlier in the week.

The move follows a deal struck last year with Sharp Corp <6753.T> under which Sharp will supply Pioneer with liquid crystal display (LCD) panels, allowing Pioneer to round out its product line-up with LCD TVs.

But pulling out of plasma production marks a major shift in Pioneer's strategy. The company has spent a little over 100 billion yen to build four plasma panel production lines and to buy two more lines from NEC Corp <6701.T>.

Japanese TV makers have been undergoing a realignment as top manufacturers with ample output capacity such as Matsushita and Sharp look for panel buyers, while midtier players seek ways to obtain display panels without making hefty initial investments.

Pioneer said it would now refocus its resources on more promising businesses such as car electronics and audio equipment.

Shares of Pioneer closed Friday down 5 percent at 1,151 yen ahead of the announcement, but had surged 16 percent in the previous three days on reports it would cease making plasma panels to cut losses in its flat-TV business.

The Nikkei newspaper reported earlier on Friday that Pioneer and Matsushita were also planning to jointly develop low-cost and high-quality panels for shipment as early as 2009, and that Pioneer engineers could be transferred to Matsushita.

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