Business Tech

The weak economy hasn't stalled the American consumer's flat-panel fix.

Following a decline last year, North American sales of flat-panel TVs surged during the first quarter of 2009, according to a report released Monday from market research company DisplaySearch. With demand often outpacing supply on some models, 7.2 million flat-panel TVs flew off the shelves, an increase of 23 percent from the first quarter of 2008.

Aggressive pricing followed by Circuit City's liquidation tempted consumers in search of bargains, according to the DisplaySearch report titled "Quarterly Global TV Shipment and Forecast Report."

Former small fry Vizio earned the No. 1 spot as the best-selling LCD vendor for the first quarter, a status it hasn't held since the second quarter of 2007. Vizio's share of the market jumped to 18.9 percent and was the only company to show a sales gain from the fourth quarter of 2008. "Vizio is a relatively young TV brand in the U.S. marketplace, but their strong alignment with mass merchant and warehouse club retailers seemed to put them in the right place at the right time with growing channels," said Paul Gagnon, DisplaySearch director of North America TV Research.

Funai, another company with low-cost offerings, also showed growth in market share--from 7 percent to 8.5 percent. Funai sells the Sylvania and Emerson brands in North America, and added the Philips and Magnavox brands last quarter. Companies with premium flat-panel models, such as Sony and Samsung, saw their market shares decline as consumers flocked to better deals and lower prices.

Last year gloomy sales were predicted for the industry as flat-planel TV shipments dropped during the second half of 2008. Sales continued their downward dip over the fourth quarter, showing a 2 percent decline over the previous year.

As part of its bid to restructure its liquid crystal display business, Toshiba will buy out partner Panasonic's share in the Toshiba Matsushita Display Technology Co., the two companies announced Wednesday.

The joint venture produced LCDs for small devices like this Toshiba notebook.

(Credit: Toshiba)

Toshiba already owned 60 percent of the company, compared with Panasonic's 40 percent, and the resulting buyout will cost Toshiba about 2 billion yen or about $20 million, a Toshiba spokeswoman told The Wall Street Journal. The deal is scheduled to be completed by April 28, when the name of the company will be changed to Toshiba Mobile Display.

The company, established jointly in 2002, currently produces LCD panels for small and medium-size mobile devices, like mobile phones, notebooks, and in-car navigation systems. But it also produces organic light-emitting diode (OLED) panels, the technology that is considered the next-generation successor to LCD.

In a statement, Toshiba said the business "aims to establish OLEDs as an engine for growth and to enhance its display business" in the near future.

Hitachi executive Sakae Someya was indicted Tuesday by a federal grand jury in San Francisco for his role in a conspiracy to fix the prices of LCD screens.

Someya is accused of conspiring with others in the LCD display business "to suppress and eliminate competition" by fixing the price of the panels sold to Dell for notebook PCs. Someya is accused of participating in the scheme between January 2001 through December 2004. That would be a violation of the Sherman Act, which can result in a $1 million fine and a 10-year prison sentence.

Someya's indictment brings the total number of individuals charged in the case to eight, representing four different companies. The Justice Department has assessed more than $585 million in fines related to the price-fixing scheme.

Someya's employer, Hitachi Displays, agreed earlier this month to pay a $31 million fine for its role. LG, Sharp, and Chunghwa Picture Tubes have also plead guilty and paid fines for their roles. In February, the CEO and two executives of Chunghwa and an LG executive were sentenced to jail time and fined for similar charges as Someya.

Update: This article was corrected to reflect that the information is for the fourth quarter of 2008, not the whole year.

The liquid crystal display TV market is beginning to lose some steam.

The fourth quarter was the first time that the total number of shipments of LCD TVs in North America was lower than the same quarter the previous year. Just 8.7 million units were shipped during the last quarter of 2008, a 2 percent decline from the 8.9 million shipped during the same time in 2007, according to data released Thursday by DisplaySearch, which tracks the TV industry.

In December, DisplaySearch issued a warning that in 2009, revenue from selling LCD TVs will also fall for the first time ever.

Plasma TV makers were ready for this, it seems. Plasma TV shipments actually increased 28 percent during the fourth quarter of 2008 (peak holiday season), and overall were up 10 percent for the year.

Plasma may have seen a bigger demand during the quarter because of the current economic climate and increasingly cost-conscious buyers: plasma tends to be more cost effective, and TVs sporting the technology are generally 5 to 10 percent lower in price than similarly sized LCD TVs, according to Paul Gagnon, who monitors the TV market for DisplaySearch. In some cases, plasma shipments actually grew at the expense of LCD, he said.

Meanwhile, the number of major manufacturers producing plasma sets is declining. No. 3 plasma maker Vizio said Wednesday it would cease production of plasma and focus entirely on LCD TVs. And late last week a report surfaced that Pioneer was leaning toward exiting the plasma business as well. That leaves just Panasonic, Samsung, and LG Electronics as the major producers of plasma TVs. Gagnon expects Panasonic and Samsung, who already hold about three quarters of the plasma market in North America between them, to pick up where Vizio--and possibly Pioneer--leaves off.

"Both Samsung and Panasonic will probably evenly split (what's left) up," he said. "But Panasonic is in a little bit better position in club store channels than Samsung," where Vizio is strongest.

Also of note in DisplaySearch's data: Sony gained a lot of ground in LCD TVs during the fourth quarter of 2008. The company shipped just over 16 percent of all LCD TVs to North America, creeping closer to Samsung's 19.3-percent share. Sony hasn't had a share that high in more than three years. Gagnon says that the fourth quarter is always a highlight for Sony, but that the company, which usually positions its brand as higher end, was actually "neck-and-neck" with Samsung on pricing during the holidays.

We shouldn't expect that to continue into 2009, according to Gagnon. "They'll probably be more conservative" about pricing, he said.

Updated 2/12/09 at 9:35 a.m. PST with Pioneer's confirmation.

Pioneer will no longer manufacture televisions and plans to spin off its DVD player business into a joint venture with Sharp, according to a report in Japan's Nikkei newspaper.

The company is reportedly exiting the TV business rather than continue to incur losses in that division. This latest report comes a few months after Pioneer announced it anticipated huge losses at the end of its fiscal year in March and plans to lay off 2,000 workers.

Pioneer had built itself into a widely respected maker of plasma televisions, but last March said it would not make the plasma panels anymore because of skyrocketing costs and mounting losses in its TV division. It tapped Panasonic to provide the panels instead, but that deal appears now short-lived. Another clue this was coming: Pioneer showed no specific models of TVs at CES last month.

Pioneer is not alone among TV makers losing money. Everyone from Panasonic to Samsung to Sony is facing layoffs and large quarterly losses.

Update: Pioneer confirmed it will stop producing televisions by March 2010 and cut 16 percent of its employees.

Next year is shaping up to be a nightmare for LCD TV makers.

Revenues for LCD TVs sold worldwide in 2009 are expected to fall 16 percent from 2008, to $64 billion, according to an update to DisplaySearch's Quarterly Global TV Shipment and Forecast Report, released Thursday. Next year will be "the most difficult year yet for the TV industry and supply chain," DisplaySearch writes in the report.

The culprits are rapidly declining prices of LCD TVs and lower shipments to retailers due to slackening demand. DisplaySearch expects 2009 LCD shipments to drop to 205.3 million unites, which is a 1 percent decline from the 2008 total of 206.4 million units.

The recession in the U.S., and the instability in the global financial markets, have hit the consumer electronics industry hard. By the second half of 2008, TV prices were already beginning to fall as manufacturers competed heatedly for customers. But as prices drop, so do the margins that TV makers, suppliers, and retailers can bring in.

So far, few have been immune, including some of the biggest names in electronics. Sony's TV shipments fell drastically, leading to layoffs and factory closings last week, Panasonic has said its profits will take a hit, and Samsung has said it is planning on cutting back on investments as its sales and profits fall.

The problems developing in the LCD TV business have been brewing for over a year. When LCD TVs were still a relatively new product and the top tier brands were still charging fairly hefty premiums for their sets, small, lower-tier brands found their way into the mainstream by selling through club stores and discount chains at lower prices.

Customers responded in a big way, driving lower tier Vizio, for one, into one of the top TV makers in the world. Sony, Samsung, Sharp, LG, and others, responded too--by lowering their prices in what became a slow race to the bottom.

But looking ahead to next year, just treading water appears to be a lofty goal. The keys will be taking advantage of emerging markets where LCD TVs are still a novelty, by creating or beefing up a line of lower-end TVs for North American and Western European markets.

It could hold them over until the LCD market rebounds, which DisplaySearch says will happen in 2010. By then, revenues for LCD makers should push back above $70 billion.

LOS ANGELES--There are a lot of bad economic winds swirling, but the high-definition television industry doesn't appear to be moved.

Here at DisplaySearch's HDTV Conference, there is far less handwringing than in past years, when manufacturers complained about rapidly falling prices, the sudden appearance of too many brands, and consumer confusion.

Instead, far more confident industry leaders led a discussion Tuesday that revolved around how to make gentle adjustments to keep the HDTV sales machine in top condition. In North America, shipments are still increasing 17 percent year over year, according to DisplaySearch data. And this is despite the decline of home values, and the rising gas and food prices over the same time period.

"It indicates demand is there, (and) if pricing is right, TV sales will remain strong," said Paul Gagnon, who monitors the TV industry for DisplaySearch. "It's a positive indicator for this industry."

A year ago manufacturers were beginning to worry as prices dropped precipitously how they'd extract a profit out of this fast-maturing flat-panel market.

Turns out, their worries were a bit premature, as prices mellowed and the market sorted itself out. Discount brands have lost momentum (some entirely came to a halt, like Syntax-Brillian, which filed for bankruptcy earlier this year), more HD TV content is available than ever, and consumers generally understand the difference and value of an HD picture now.

Plus, there are still many things for HDTV manufacturers to take advantage of to keep consumers buying new products. New designs, the analog-to-digital switchover, and the continuing move from standard-definition channels to HD channels and services are ways TV makers hope to convince consumers to buy their bigger, fancier TVs.

Big is the key right now. As picture technologies get better, and TV panels are made larger, it's yet another opportunity for the TV makers to charge a premium.

"The ASP (average selling price) peak is coming in 2008. We can't count on shift in technology to prop up ASPs anymore," said Gagnon. That's why manufacturers will continue to pump out larger, and more expensive TVs.

The 40- to 44-inch size TVs' average selling price will peak next year, according Bob Scaglione, senior vice president of marketing for Sharp. Therefore, he notes, 60-inch TVs and larger are a good opportunity for manufacturers to grow their businesses because though prices are dropping, they're doing so more slowly in that range than 40- to 44-inch sets. So expect to see much more activity in terms of promotions around 60-inch and larger televisions in the next few months.

One reason the big manufacturers are starting to feel comfortable again is that they've retaken their places atop the LCD sales figures. The surprising story last year was Vizio's stunning leap to the top of LCD TV sales in North America. It came from severely undercutting the big guys on pricing and selling through club stores.

It's a different story this year. The big guys in TV figured out what Vizio was doing and responded by creating specific models of TVs for mass market stores like Wal-Mart and Target. By associating their brand names with the prices Vizio and others like Westinghouse and Olevia (made by Syntax-Brillian) were offering, the result has been that Samsung, Sharp, and Sony have leaped back into the lead, and Vizio has fallen behind.

Key to that change has been manufacturers like Sony and Samsung working with retailers to tailor their products to specific sets of customers. HDTV makers don't need their products to be a luxury anymore. They want everyone to have a high-def set in their home. The industry has reached buyers that were wowed by the technology first, and now it's on to the people who need to upgrade to a digital TV, or have been waiting for prices to drop.

"It's a new phase of HDTV adoption," said Gagnon of DisplaySearch. "Half of U.S. households have an HDTV, but the next wave of consumers is going to come through mass merchants who focus on a lower price point."

It appears the TV industry's self-prescribed medicine of pushing smaller flat-panel sets is working.

The second-quarter check-up is in, and the industry is in far better health than a year ago. DisplaySearch's Quarterly Global TV Shipment and Forecast Report was released Thursday, and worldwide TV shipments increased 11 percent from the same period in 2007, but just 3 percent from first quarter of 2008.

(Credit: LG Electronics)

Still, the news is encouraging to an industry that was wringing its hands back in March over running out of places to sell its rapidly maturing, but still-pricey sets.

Around that same time, some of the bigger tier-one manufacturers began pushing smaller screens in an attempt to attract buyers who might be tightening their budgets as gas and food prices rose.

Vizio made a splash with its 32-inch plasma, a size that hasn't been available in that technology in the U.S. for a while. Even the big guys like Panasonic, LG, and Sony and Samsung were going small: 32, 40, 46 inches.

"Sony and Samsung launched what we termed 'fighter models,' because they were designed to reach new pricing lows," said Paul Gagnon, who monitors the TV industry for DisplaySearch. Vizio's smaller plasma was specifically launched "to blunt the impact" of Samsung's and Sony's moves into smaller-and-cheaper sets, he added.

Vizio's 32-inch plasma sells in club stores for about $550, while Samsung and Sony's 32-inch LCDs each retail for $699, the lowest price each has ever offered for that size TV.

The result has been a resurgent plasma TV business. DisplaySearch is reporting that shipments of plasma worldwide increased 52 percent from the same quarter a year ago, or 3.4 million units. That's way behind LCD TV shipments, but it's encouraging for a technology that many of the biggest vendors had basically left for dead.

Plasma shipments are on the rise everywhere, but they are particularly healthy in China, where they rose 285 percent in the last year.

To be sure, LCD TVs are still the new television of choice for most. LCD shipments jumped 47 percent in the last year to reach 23.7 million units (compared to plasma's 3.4 million units) in the second quarter worldwide, DisplaySearch says.

Despite LCD's established presence in many North American living rooms, it appears that the introduction of smaller sizes and lower prices are helping retailers to move plenty of product. Last year, LCD shipments to the region were dropping. But second-quarter shipments increased almost 30 percent from a year ago.

And LCD prices have still been dropping more quickly than plasma. With major shopping opportunities like Labor Day, the beginning of football season, and Black Friday fast approaching, plasma's recovery could be brief.

Sony and Samsung tend to set the pace on price reductions, and Gagnon of DisplaySearch says the other brands will all react in order to maintain their brand position in the market. If Samsung drops its 42-inch LCD $100 in the coming weeks, expect Panasonic to do the same on its 42-inch plasma.

But it doesn't appear there are going to be bold moves on the part of plasma to steal some more share and get ahead. For all the brands, said Gagnon, "it's all about maintaining price differential."