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TV Makers Confront a Shakeout
From The Wall Street Journal - January 20, 2009
By DAISUKE WAKABAYASHI and CHRISTOPHER LAWTON
The explosive growth in flat-panel television sets in recent years attracted a slew of companies into the TV market. But as sales slow and prices now decline sharply, larger manufacturers such as Sony Corp. and Samsung Electronics Co. are starting to squeeze out smaller rivals.
With world-wide television revenue forecast to fall 18% this year, television makers are struggling with a slowdown in consumer spending. But the recession could deal a more punishing blow to several discount or second-tier brands lacking the financial clout of larger manufacturers.
Industry executives expect only a handful of companies -- Sony, Samsung, Panasonic Corp., Sharp Co., LG Electronics Co. and Toshiba Corp. -- to survive the latest downturn. The others, they say, may be forced to either pull out of the TV business or join forces with a surviving entity.
Aggressive pricing from more established TV makers is eating into the price advantage of discount brands like Vizio Inc. and Westinghouse Digital Electronics LLC which took the market by storm several years ago with television sets significantly cheaper than established brands.
Second-tier Japanese brands such as Hitachi Corp. and Pioneer Corp., struggling to compete on price and selection, are losing valuable floor space at stores.
The top five makers of plasma and LCD television sets accounted for 60% of all flat-panel TV sets sold in the third quarter of 2008, up from 53% in the year-earlier period, according to research firm DisplaySearch. They are expected to garner an even bigger share of total sales in fourth-quarter data because of discounting during the holiday sales period.
"The big companies like Sony and Samsung have the resources to sustain very low or even negative profit levels for a short period of time and force some of the smaller brands out of the marketplace," says Paul Gagnon, director of North America TV market research at DisplaySearch.
Not all say they feel pressure. "No, I am not feeling it," says Laynie Newsome, Vizio co-founder and vice president of sales, about the pricing pressure from the big consumer electronics companies. Ms. Newsome says Vizio TVs are selling out and the company is gaining market share against its competitors. "We have already been aggressive at passing on price reductions. It's a race to zero.... We are here to stay," she adds.
The shrinking price gaps are leading consumers such as Nathan Walter to rethink their purchases. Since last month, Mr. Walter, an information-technology professional in Santa Barbara, Calif., has been looking for a 42-inch LCD flat panel TV to replace his 32-inch model.
Looking online, as well as in stores such as Best Buy and Sears, Mr. Walter says he has seen the top-tier brands, Samsung, Panasonic and Sony, offer sales with $300-to-$400 discounts, bringing them closer in price to brands such as Vizio.
"For that small of a price difference I would rather have the known factors -- that they are trusted and they have been around a while," says Mr. Walter, 26 years old.
Mr. Walter says he plans to purchase an LCD television from LG for around $1,200.
Retailers are also taking notice and devoting more space to more well-known brands. Tim Farmer, a vice president at Costco Wholesale Corp., said as larger brands narrow the price gap, it is "extremely possible" that lower- or middle-tier brands "are going to be squeezed."
Smaller TV makers such as Hitachi and Pioneer -- early leaders in the plasma-TV market -- are losing market share and retail space, especially in North America. As rival LCD technology began to become more popular, Hitachi and Pioneer failed to sell enough TV sets to drive down costs and didn't introduce a wide-enough selection of television sizes and models.
On electronics retailer Best Buy Co.'s Web site, a full high-definition 50-inch plasma television from Pioneer goes for $3,499 and a Hitachi model for $3,199. A 50-inch plasma television with similar specifications from Panasonic sells for $1,899 while a 52-inch LCD model from Sony costs less than $2,000 on the same site.
Samsung offers 46 different models of flat-panel TV sets on the site, compared with five each for Hitachi and Pioneer.
To cut costs, the two companies took the drastic measure of scaling back their traditional practice of making all key components in-house. While this allows companies to differentiate their technology from the competition, it requires high-volume sales to reach economies of scale.
Last year, Pioneer said it would stop making its own plasma display panels, opting to buy panels from Panasonic. It will soon introduce LCD television sets using panels bought from rival Sharp. Hitachi also reached an agreement to procure part of its panel production from Panasonic.
A spokeswoman for Pioneer said market share isn't its main concern because it is targeting a high-end, niche-market strategy with large TV sets. Given the recent economic slowdown, the company is reviewing all businesses, including its TV division. Pioneer plans to announce a new midterm business plan next month.
A spokeswoman for Hitachi said it is also not chasing the high-volume part of the TV market, instead focusing on more expensive, premium products. The company says while business conditions are tough for the entire industry, it has no plans to pull out of the television business.
Write to Daisuke Wakabayashi at Daisuke.Wakabayashi@wsj.com and Christopher Lawton at firstname.lastname@example.org
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