Canon to buy Toshiba's stake in display unit

TOKYO (Reuters) - Canon Inc. said on Friday it will buy out Toshiba Corp. in their flat-panel display venture to resolve a patent dispute with Nano-Proprietary Inc. in the United States.

Canon will now own the unit that was set up in 2004 to develop a new type of thin panels that can be used in TVs to challenge consumer electronics giants such as Samsung Electronics and Matsushita Electric Industrial Co. Ltd.

The move is aimed at appeasing Texas-based Nano-Proprietary, which filed a lawsuit claiming that its 1999 agreement to license technology to Canon did not extend to Toshiba. Toshiba has a 50 percent stake in the joint venture, called SED Ltd.

But it may also pose a bigger risk for the future of Canon, the world's top maker of copiers and digital cameras, which has been hoping the new display business will become a major profit driver as it expects cooling demand and price declines in its existing core products.

The surface-conduction electron-emitter display (SED) TVs are said to have brighter pictures and consume less energy than the current types of flat TVs such as liquid crystal display (LCD) and plasma, but analysts doubt they will be cost competitive.

"We currently have limited expectation that SEDs can catch up to LCD and plasma TVs," Ryohei Katsura, an analyst at Mizuho Securities Co., wrote in a report earlier this month.

In addition, the plan to build a 180 billion yen ($1.49 billion) factory this year at a site owned by Toshiba in Himeji, western Japan, to mass-produce the panels is under review, Canon said.

Tokyo-based Canon and Toshiba delayed the launch of SED TVs last March to the October-December quarter of 2007 to improve cost competitiveness and combat steep price erosion.

Without a new plan for mass production, Canon may have to "reconsider growth drivers to replace SED," Katsura said.

Canon, which is set to report a seventh year of record earnings when it announces fourth-quarter results later this month, has been posting double-digit profit margins thanks to strong sales of copiers and printers and rigorous cost-cutting.

Katsura said the market may view a decision to scrap the new factory plan more favorably than a decision to invest without taking cost-effectiveness into consideration.

Canon said it will manufacture the displays on a smaller scale at its own plant for the launch in Japan, which is still scheduled for the fourth quarter as planned.