Mergers & Acquisitions Sensors and embedded

Sony will be mobile imaging powerhouse

Smartphone makers like Samsung and Sony are turning their attention to chips and displays as growth in the handset business slows, and Sony is reported to be acquiring Toshiba’s image sensor division, to expand on its lead in mobile camera chips. But the squeeze on smartphone sales and profits does, of course, also create challenges for companies which supply the components of those devices, and Sony’s troubled compatriot Sharp is feeling the heat, warning of yet another round of losses and blaming poor handset display sales.

Sony president Kazuo Hirai has embarked on a radical if belated turnaround plan, which has sparked rumors that he will pull out of the smartphone business, where Sony continues to make losses. Hirai said last month that he would stick with handsets “as long as we are on track with the scenario of breaking even from next year onwards. Otherwise, we haven’t eliminated the consideration of alternative options”. This was considerably more ambivalent than earlier executive statements, in July, that Sony would “never” exit this sector. But last week, Hiroki Totoki, head of the mobile division, was reported as saying there were absolutely no plans to exit.

Whatever the future of this activity, Sony is certainly shifting its emphasis to areas where it has greater competitive strength, including displays and various types of sensor chips. Hence the reported bid for the Toshiba unit, which Bloomberg sources said would cost it ¥20bn ($165m). Toshiba is looking to raise case after a recent accounting scandal removed $1.3bn from its profit figure since 2008.

Sony supplies CMOS smartphone imaging chips to Apple and Samsung, among others, and is the market leader with about 40% share of the $8.7bn pie. It is pushing this expertise into other devices, such as gaming consoles and wearables, too, as the sector looks set to grow sharply to about $12bn by 2019.

Sony is targeting a revenue increase of 62% by 2018, which would bring in ¥1.5 trillion. Acquiring Toshiba’s unit would add about 100,000 units a month and up to ¥70bn in additional sales, and operating income of up to ¥20bn, according to estimates by SMBC Nikko Securities. Toshiba supplies CMOS image sensors to Microsoft, HTC, LG and Nikon, among others. The most important element of its dowry would be its plant in Oita, which would increase Sony’s output capacity – seen recently as a potential brake on its growth.

Meanwhile, Sharp has warned its shareholders of yet another shock, a six-month operating loss caused by poor mobile display sales. Previously, Sharp had predicted operating profit of ¥10bn for the period from September 2015 to March 2016. Now it is forecasting an operating loss of ¥26bn ($215m), blaming “intensified competition” in the small and medium-sized LCD business. Sharp will manage to turn a profit for the full year, it said, but this will be significantly down on its previous guidance – ¥10bn rather than ¥80bn.

Sharp, like Sony, is in the midst of a three-year restructuring plan, which aims to offload struggling businesses and focus on growth areas. Unfortunately, one of the key areas it identified was mobile LCD displays, which are now under intense pressure from Korean and Chinese rivals. In September, there were rumors that Foxconn of Taiwan might acquired Sharp’s display activities, in a reboot of a deal that fell through a few years earlier. Apple is also an investor in Sharp, which is one of its iDevice screen suppliers, as is Qualcomm.

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