After a couple of weeks of rumors, Sony announced early this week that it will sell 90% of its shares in Sony Baja California to Foxconn Electronics, which is part of Hon Hai Precision Industry of Taiwan. Sony Baja California assembles Sony LCD-TVs for the Americas region in Tijuana, Mexico. Foxconn says the deal is expected to close by the end of this month.
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Sony will retain a 10% share in the Tijuana plant, which will remain a key manufacturing facility for Sony LCD-TVs headed for the Americas, reported Yvonne Yu in Digitimes on Tuesday. The 3300 workers at the site will become employees of Foxconn.
Why sell the plant after nearly 24 years? As is well known, Sony has been losing money on its TV business since well before the onset of the Great Recession, and, as we’ve noted previously, the company has lost product leadership in most, if not all, important consumer electronics categories.
So, for its LCD-TV business, it makes sense for Sony to concentrate internal resources on areas that contribute to product differentiation — such as R&D, engineering and design — and that’s what Sony says it is doing.
By implication, Sony is acknowledging that its repeated claims of superior quality — which implies superior manufacturing — are meaningless, since they are willing to transfer manufacturing responsibility to Foxconn. In fact, the manufacturing quality of all leading makers of TVs (very much including Foxconn / Hon Hai) is excellent. It’s just hard to support the claim that Sony’s any better at it than it’s leading competitors.
By leveraging external manufacturing resources, Sony says it is also attempting to reduce fixed and some variable costs. By selling the plant Sony is certainly able to redirect capital to other areas. But the company is also implying that Foxconn can assemble Sony TVs in Sony’s former plant more economically than Sony can. Now, Foxconn is very good at economical, high-quality assembly, but I’d be very interested in understanding exactly where these new savings will come from.
The benefit to Foxconn, however, seems clear. The company could see additional revenues of $2.5 to 3.0 billion a year, based on annual shipments of 4 to 5 million LCD-TVs a year, estimated Jasmine Lu, an analyst for Morgan Stanley Asia, according to an article in the Chinese-language Commercial Times. That compares to Foxconn’s current shipments of less than one million LCD-TVs a year, said Lu.