Sony CEO aims to build on recovery with Toshiba sensor deal

Sony President Kazuo Hirai hopes a Toshiba sensor deal would expand Sony's dominant position in making the chips used to capture smartphone pictures.
Sony President Kazuo Hirai hopes a Toshiba sensor deal would expand Sony's dominant position in making the chips used to capture smartphone pictures.PHOTO: AFP

TOKYO (BLOOMBERG) - Sony Corp. is looking to expand on its dominant position in making the chips used to capture smartphone pictures, as President Kazuo Hirai makes progress in his turnaround effort at the Japanese consumer electronics maker.

The company is in talks with Toshiba Corp. to acquire its image sensor business for 20 billion yen (S$230.4 million), said people familiar with the negotiations. The Tokyo-based manufacturers are close to a deal that may be announced as early as this week, said one of the people, who asked not to be identified because the discussions are private.

Toshiba is seeking to raise cash after an accounting scandal that cut about US$1.3 billion off profit reported over almost seven years.

Mr Hirai is investing in sensors as he counts on the components to drive earnings along with the higher-profile businesses of making consumer electronics, video games and movies. The company leads the global market for chips that smartphones and cameras use to digitize photos and is quadrupling spending on semiconductors to 290 billion yen to keep up with demand from customers including Apple Inc. and Samsung Electronics Co.

"As the possibility of realizing a sale increases, it is positive for both Sony and Toshiba," Takeo Miyamoto, senior analyst at Mitsubishi UFJ Morgan Stanley Securities Co., wrote in a report dated Oct. 26. "The market was expecting Toshiba to sell its imaging sensor business." Sony gained 2.5 percent to 3,507 yen as of the close in Tokyo trading. Toshiba rose 3.6 percent to 356.1 yen.

Sony controlled about 40 percent of the $8.7 billion market for CMOS image sensors last year, compared with about 16 percent for its next biggest competitor, Techno Systems Research. The market is forecast to climb to about $12 billion by 2019, and the company expects its sales to increase as much as 62 percent to 1.5 trillion yen in three years.

Acquiring Toshiba's image sensor business would add about 100,000 units a month to Sony's capacity, boosting sales by 60 billion yen to 70 billion yen and operating income by as much as 20 billion yen at full capacity, Ryosuke Katsura and Yukihiko Shimada, analysts at SMBC Nikko Securities Inc., wrote in an Oct. 26 report. The output of CMOS sensor chips would be from Toshiba's factory in Oita, Japan, which supplies smartphone makers including Microsoft Corp.'s Nokia unit, HTC Corp., LG Electronics Inc. and camera maker Nikon Corp., according to the report.

"The purchase would be an economical way to flesh out its CMOS sensor capacity, currently an area of concern," wrote Katsura and Shimada.

Hirai is taking sensors into automotive and other applications to develop new markets, seeking to produce affordable technology that can process 1,000 images a second.

Toshiba is looking at options for its semiconductor business and is not the source for reports on an asset sale to Sony, the company said Monday in a filing to the Tokyo Stock Exchange. Sony spokesman George Boyd declined to comment on Oct. 24.

Toshiba, which makes everything from nuclear power plants to laptop computers and memory chips, has been selling assets to raise cash after the accounting scandal. In September, the company sold its stake in medical equipment maker Topcon Corp. in a 49 billion yen deal for a gain of about 30 billion yen.

Also in September, Toshiba agreed to sell a 30 percent stake in a building it owns for 37 billion yen and prior to that, sold its investment in Finnish elevator and escalator maker Kone Oyj, for a gain of about 113 billion yen.

Masashi Muromachi, the company's president, in September pledged to prune underperforming businesses, including workforce reductions in appliances, personal computers, televisions and semiconductors.

Toshiba had some 198,700 employees as of March 31, the lowest since at least 2009, according to data compiled by Bloomberg.