Time to Break Japan's LCD Cycle

Losses continue despite ... That might be a more apt definition of the acronym LCD in Japan.

After restructuring, outsourcing, joint ventures, mergers—and even forays into 3D—liquid-crystal displays continue to lose money for Japanese electronics companies. That may not change anytime soon.

Yes, demand is strong for small and midsize panels for smartphones and tablet PCs. But the price for the displays used in televisions and the TV sets continues to decline more than 20% a year.

That has led to losses of $6 billion over the past seven years at Sony's LCD unit. SMBC Nikko forecasts the electronics conglomerate to lose another $1.1 billion over the next two years. That is equivalent to almost half of the operating profit that all of Sony forecasts for the fiscal year started in April.

Last week, Sharp, which generates a majority of its revenue from finished TV sets and LCDs, said that it would restructure its LCD panel unit and outsource some production. That includes getting out of commoditized TV panels of 40 inches or less and converting some production to smaller displays for products like Apple's iPhone and iPad. But with others also moving into that profitable segment, it could soon face the same oversupply as for TVs.

Adding to its woes, Sharp is heavily reliant on the saturated Japanese TV market—disrupted by the March earthquake and facing weak consumer sentiment. And Panasonic is mainly reliant on domestic manufacturing, leaving it at the mercy of currency swings for its rising exports.

It's time for more radical action. Sony and Toshiba are looking to spin off their small and midsize panel businesses into a third-party fund with government involvement, allowing them to reduce their exposure while keeping minority stakes to ensure supply. But the only way the market will improve is for some to switch off the business altogether.