Sony and Foxconn Relationship

Sony Corp. (6758), Toshiba Corp. (6502) and Hitachi Ltd. (6501)agreed to divest their liquid-crystal display businesses to a government-backed fund amid mounting competition from South Korean and Taiwanese producers.

The companies will spin off and merge the units to create Japan Display K.K. next year, the three Tokyo-based electronics makers said today. The government-backed Innovation Network Corp. of Japan will own 70 percent of the venture after a 200 billion yen ($2.6 billion) investment, while Sony, Toshiba and Hitachi will split the remaining 30 percent, they said.

The deal may create the world’s biggest maker of LCDs for mobile phones and cameras as Japanese companies struggle to compete against Korea’s Samsung Electronics Co. and Taiwan’s Chimei Innolux Corp. (3481) in the larger market for television displays. Sony and Hitachi are unprofitable in LCDs, while Toshiba ended losses at its display division last fiscal year.

“For each of the three companies, capital spending would continue to be a burden and it’s hard for them to stay competitive on their own,” said Yuichi Ishida, a Tokyo-based analyst at Mizuho Investors Securities Co. “It’s probably a plan led by the government trying to boost presence of Japanese manufacturers in the global market.”

Sony, Japan’s biggest exporter of consumer electronics, fell 1.8 percent to close at 1,665 yen in Tokyo trading before the announcement, widening this year’s loss to 43 percent. Toshiba dropped 2.4 percent, while Hitachi gained 0.5 percent.

New Management

James Chung, a Seoul-based spokesman for Samsung and Son Young Jun, a Seoul-based spokesman for LG Display Co., declined to comment on how the Korean companies view the Japanese government’s involvement in the venture.

Chimei Innolux’s relationship with the three Japanese companies will stay “quite strong” as they share cross- licensing and foundry agreements, said spokesman Eddie Chen. AU Optronics Corp. (2409), Taiwan’s second-largest maker of...