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Panasonic pares LCD TV costs by bringing panel processing in-house

Reduced inventory, flexible output to help maintain profit as prices decline

Panasonic's Utsunomiya plant is already attaching backlights to panels for high-end LCD TV models.   © (Photo courtesy of Panasonic)

OSAKA -- Panasonic is revamping its production process for LCD televisions, installing more of the backlights to the liquid crystal display panels internally rather than farming out the task half of the time as now.

The change should help the company contain procurement costs, decrease inventories and respond more nimbly to sales trends. The goal is to preserve profits despite the continuing downtrend in TV prices.

The Japanese consumer electronics giant began outsourcing the task of attaching the backlights to LCD panels last year, when it stopped producing the panels itself. The company's TV business returned to the black in fiscal 2015, but because it now procures LCD panels from other suppliers, taking over production steps internally is one of the few ways it can try to improve profits.

Panasonic's TV plant in Utsunomiya, Tochigi Prefecture, has begun attaching the backlights itself for the high-end LCD TV models now coming to market. The company's main overseas base for Asia in Malaysia has also internalized the process, and sometime during the current fiscal year the same will be done at factories in the Czech Republic and elsewhere.

During fiscal 2018, Panasonic aims to attach the backlights itself for 80% of its LCD TVs, compared with the current 50%. The company believes it can optimize procurement this way and secure greater profits by purchasing LCD panels in bulk when prices are low and assembling the TVs when the demand warrants.

By internalizing the attachment of backlights, Panasonic reckons it can reduce the inventories held in its factories by 40%, from 2.5 months' worth of LCD TVs to just 1.5 months of inventory. Panasonic admits that is low compared with rivals and presents some risk of shortages, but the change in the production process gives it greater flexibility to respond to sales trends.

The panels account for most of the cost of an LCD TV and are a product prone to price swings. This is a challenge for a TV maker like Panasonic that does not make its own panels, especially at a time when retail prices are dropping and a price war is looming among volume retailers for the new 4K models.

(Nikkei)

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