Sanyo and Quanta Plan to Form Plasma/LCD Joint Venture (SANYY)

Reuters reports that rumors of a deal between Sanyo (SANYY) and Taiwan's Quanta Computer sent shares of both companies higher during the trading day in Tokyo and Taipei. After the markets closed an official deal was announced with details of a joint venture agreement for manufacturing and selling flat, thin panel TV's (both plasma and LCD) with total investment of up to US$65m between both parties. The JV is set to begin this July with TVs carrying the Sanyo brand as well as OEM/ODM for other brands.

Both parties were optimistic of the deal's potential despite mild a reaction by analysts. Reuters quoted a Mizuho Securities analyst saying, "It's going to be an uphill battle. They don't have a brand name or much economies of scale." While that's certainly true, Sanyo's relationship with Wal-Mart (WMT) could be a boost even though sales of higher profit margin flat, thin style TVs may take away sales from its CRT TVs.

I view this as another good move by Sanyo. Alternatively it could have divested its TV businesses but it's clear to all TV manufacturers that there is a lot of unmet demand for LCD and plasma TVs.

A Sanyo director was quoted saying, "By working with Quanta, which has a panel-making unit, costs can be reduced drastically and competitiveness can be strengthened."

Quanta Computer's COO said, "After the spin-off with Sanyo, we predict that flat TV shipments will at least (double)." [Quanta shipped 350,000 flat TVs in '05]

Sanyo's ordinary shares (Tokyo: 6764) closed up 2.68% at 307 yen. Its ADRs are listed at 1:5 ratio to its ordinary shares.

SANYY 1-yr chart: