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The flat-panel TV industry is coming of age in the U.S. at a less-than-desirable time.

As energy costs, food prices, and mortgage defaults are on the rise, the first things to go for many consumers are luxury buys. Tightening one's budget can mean ruling out the purchase of a larger TV.

Vizio will face stiffer competition this year.

So what's an industry to do?

Give consumers more lower-priced options, according to Paul Gagnon, who monitors the television industry for DisplaySearch. He expects the top-tier TV brands (Samsung, Sony, Sharp, Panasonic, et al) to move in this direction, since TVs in smaller sizes and ones with fewer bells and whistles are going to be a lot more attractive during tougher economic times.

The current economic environment "puts pressure on brands to occupy that middle ground," Gagnon said. "It makes the focal point in the second half of the year on more aggressive price point products, like 32-inch LCD and plasma." LG put out the first 32-inch plasma last year.

Basically, if you shop for a television at Wal-Mart Stores, Circuit City, or Best Buy, your best bet is going to be on newer, smaller sizes because that's where much of the price competition between brands will be. And when TV vendors fight, we all win.

And though the top TV guys are going to be squabbling with each other over consumer dollars and jostling for position on store shelves in the next couple months, they'll at least be united in one purpose: attempting to take down Vizio. The upstart TV maker experienced unbridled success last year selling mainly through club stores and significantly undercutting the top-tier brands on price.

Everyone is gunning for Vizio--it's apparent in both the price competition, and in the snide remarks and left-handed compliments the marketing execs of the traditional top brands make at TV industry conferences. But Vizio isn't alone. Syntax-Brillian (under the Olevia brand) and Westinghouse are also making inroads into territory occupied by the top names in electronics.

"As flat panel transitions to a mainstream, mature category, big brands are looking at more entry-level markets," said Gagnon. "Sony, Samsung are certainly going to try to play head to head with Vizio on their turf. Price points will get pretty aggressive."

Sony actually started this a year ago, when it launched a specific line of TVs for Target and Wal-Mart. The experiment has gone well, as Sony has already said it's expanding the number of models it will sell through those channels this year.

The average price difference on similar models and screen size between Vizio and the mainstream brands was $200 last year, according to DisplaySearch. Competitors will try to narrow that price advantage to $100 this year, and cross their fingers that having a brand name will help them recapture market share.

Update:This blog has been corrected to reflect that the total flat-panel display business value represents global sales.

SAN DIEGO--This year could be a turning point for the flat-panel TV industry, as it decides how it will face the dual threats of market saturation and rapidly declining prices.

The total flat-panel display business in the worldwide in 2007 was $102 billion, up from $11 billion in 1998, according to DisplaySearch. And while that growth is encouraging, it's not necessarily good news for all sectors of the market.

One of the success stories is the rise of LCD (liquid crystal display) televisions, which finally overtook CRT (cathode ray tube) TVs in units shipped in 2007 for the first time ever. Other good news for the industry: the prices of the actual panels coming out of the factories owned by Sharp, Samsung, and others, were actually up last year, something that hadn't happened since early 2003, according to DisplaySearch. Panel suppliers engineered that by creating a shortage through carefully controlled inventory.

But the picture for the year ahead isn't as rosy for everyone.

Second-tier TV brands like Westinghouse continue to drive down prices for LCD TVs, which is good for consumers, not so good for retailers and other TV makers.

(Credit: Westinghouse)

"It's going to be a tough year for (original equipment manufacturers), brands, and retailers," Ross Young, president and founder of DisplaySearch, said here at the U.S. Flat Panel Display conference put on by his firm.

That's principally because the average selling price of flat-panel televisions in retail stores continue to drop, thanks to second- and third-tier TV makers that are driving down prices, as well as the growing power of Wal-Mart Stores and other mass-market retailers in the consumer electronics space.

Wal-Mart in particular is positioning itself as a place to buy traditional top-tier brands, not just cheap imports. It's expanding all consumer electronics offerings in its stores this coming year. Goldman Sachs analyst Matthew Fassler, who follows the CE industry, called it "a well-coordinated set-up" that displays and promotes brands like Samsung and Sony.

"Clearly, there's the beginning of a market-wide shift here, which for specialty retailers, doesn't bode all that well," Fassler said.

Sony first started offering specific models of its LCD TVs to Wal-Mart (and also to Target) midway through 2007 on a limited basis. Last week, Stan Glasgow, president of Sony Electronics in the U.S., told CNET News.com that his company would be expanding the number of TV models in the deal with Wal-Mart by 40 percent.

There seems to be a number of shifts occuring, including one back toward the established brands like Sony, Sharp, and Samsung, and away from the smaller players.

"This could be a shake out year in LCD TV market," DisplaySearch's Young said.

More than others, he added, it will probably help Sony in particular. "They're well positioned in the high end of market, and well positioned to take lots of share. They're making a lot of aggressive moves with OEMs, which makes things more difficult for second and third tiers."

The signs are already pointing that direction. After a poor showing in the first half of 2007, Sony rebounded in a major way in the most recent holiday season and despite its tradition of charging higher prices than its competitors, came away in the fourth quarter of 2007 as the top supplier of LCD TVs.

Sony is suddenly in unfamiliar territory. And that's not a bad thing.

The consumer electronics company, which has long put a premium on quality over TV volumes, was the leader in LCD televisions shipped in North America during the fourth quarter. At an almost 13 percent unit share, it's a fairly dramatic leap for the company, which jumped from fourth place to first in the space of one quarter.

(Credit: Vizio)

Sony entered the last year with caution, saying that flat-panel TV prices were dropping too fast, but ended on a decidedly different note.

Sony Electronics President Stan Glasgow seemed to have seen this one coming. Back in November he told CNET News.com that judging by the orders the company had taken, "it could be the best holiday season in the last couple of years."

Display Search analyst Paul Gagnon said it wasn't any particular pricing scheme that pushed Sony into the lead, but rather that the company was able to provide exactly what big-box retailers wanted to sell. "They pushed big screen sizes, 1080p (resolution), and high-value, high-margin products," Gagnon said.

Sony seemed to recognize early in 2007 that something needed to change and altered its traditional strategy, coming out with some less expensive TVs for Wal-Mart and Target stores. To get these TVs to the price points they wanted, Sony bought off-the-shelf components from third-party suppliers.

After Sony, Samsung shipped 12.3 percent of all TVs, followed by Vizio with 10.7 percent, Sharp with 8.4 percent, and Polaroid with 8.1 percent.

An industry stalwart taking hold of the LCD marketplace again signals yet another shift in a market that's showing itself to be hard to predict. In August, upstart brand Vizio shocked its competitors by earning the No. 1 crown in units shipped to retailers. Vizio has since dropped to third place in unit share, but its overall market share remained steady.

"It's not like they lost ground," Gagnon said. "We've just seen a much stronger reaction from top-tier guys, Sony and Samsung, who were surprised by the upstart. They reacted with aggressive promotions, heading off Vizio at certain screen sizes. But by no means is Vizio falling."

Former leader Sharp failed to maintain previous strong growth during the last quarter of the year and fell to fourth place with 8.4 percent of all TV models shipped to retailers.

With talk of an impending economic recession, it's quite possible that consumers are going to be spending less on luxury goods like high-definition televisions, but that shouldn't have too much of an effect on the TV manufacturers, according to Gagnon.

"Maybe there won't be quite as many super-big-screen sales 40 and larger (as) we expected, but I wouldn't expect a real dramatic shift. Consumer demand has been exceeding supply for quite a while," he said.

The demand has so outweighed LCD manufacturers' ability to produce enough panels for TV makers that vendors are beginning to turn to computer monitor manufacturers to fill in the gap. Next year there will likely be an influx of more 19-inch and 22-inch wide-screen televisions, Gagnon predicts, as monitor panel makers rise to meet the demand for TVs.

Samsung FP-T94 series

(Credit: Samsung)

A sense of order has been restored to the North American TV market this quarter.

A few months after newcomer Vizio stunned the flat-panel television industry by ranking No. 1 in market share for the second quarter of 2007, the old stalwarts have reclaimed their positions. Samsung moved back to No. 1 in overall flat-panel shipments with 11.8 percent of the total market, according to DisplaySearch. Vizio fell to No. 2 with a 10.2-percent share, down from 12 percent the previous quarter. The rest of the list includes Sharp at 10 percent, Sony at 8.6, and Funai (which makes the Sylvania brand) at a 7.2 percent share.

Samsung was able to regain its position because it has a strong presence in both the liquid crystal display (LCD) and plasma markets. Vizio is ranked No. 2 in LCD, but not in the top five of plasma vendors. Another key difference is Samsung sells mostly through national retailers, while Vizio's products have been popular in club stores. That's important because club stores tend to sell TVs consistently all year long, while major retailers see seasonal spikes in sales, usually related to holidays and televised sporting events.

"That national chains typically would gain share in the holiday season so you'll see a lot of sell in in the third quarter," said Ross Young, president of DisplaySearch, an industry analysis firm that tracks TV shipments.

It was suspected by some that Vizio's bump last quarter may have been a one-time thing. The company told News.com earlier this month that both Costco and Sam's Club ordered higher-than-normal shipments from the TV maker.

But Vizio's drop in market share is more likely due to the fact that Samsung also sells more TVs with 1080p resolution, a category that's becoming very popular and more affordable, said Young. Vizio is more heavily invested in 720p, he noted.

Sony also made a much better showing in the third quarter. After a disastrous second quarter in which it fell from third to sixth place among TV vendors, the Japanese electronics giant is back with strongest overall growth (up 108 percent from the previous quarter) of any TV maker. That brings it to 8.6-percent market share, good enough for fourth place.

The key to Sony's success this time around was a bevy of new products and better targeted TV lines, including those made especially for Wal-Mart and Target, said Young.

"They were really aggressive with new products," said Young. Besides moving toward selling more large LCD TVs and fewer rear-projection sets, Sony also introduced entry level 52-inch set that "did really well" throughout the quarter, he added.

But what does this all mean for the upcoming holiday shopping season? According to DisplaySearch, the best deals will likely come from Sharp in LCD sets between 19 and 26 inches, Vizio in the 32- and 37-inch categories, and on TVs from most brands between 32 and 42 inches.

UNIVERSAL CITY, Calif.--To borrow from the real estate cliche, selling the "HD experience" is about education, education, education, according to the top-tier TV manufacturers.

Mainstream consumers, apparently, still don't quite get it, and the blame falls squarely on the shoulders of TV manufacturers, according to Randy Waynick, senior vice president of marketing for Sony's home products division.

Manufacturers such as Vizio have come out of nowhere to take away market share.

(Credit: Vizio)

"In the past year, if we were to grade ourselves, we were barely passing as an industry," he told an audience at the DisplaySearch HDTV conference here. Citing a study by Best Buy, 40 percent of consumers that own already own high-definition televisions don't know they need HD channel services or HD movies to take advantage of their TV's high resolution, he said.

While Sony sounds upset on behalf of their customers not getting the full HD experience, it's quite likely that they would be mollified if the general public were purchasing HD camcorders and Blu-ray Disc players en masse. And, of course, more TVs. Sony had a bit of a wake-up call earlier this year when some no-name TV manufacturers--Vizio and others--came out of nowhere to eat way into Sony's market share. The change is rooted in the club store model that Vizio has used to its advantage.

"There was a shift from traditional consumer electronics and A/V retailers to warehouses, clubs and mass merchants," said Edward Taylor, vice president of TV market research for DisplaySearch. "Now the retail market is shifting--clubs have low-risk return policies, and much lower channel margin they operate on, (which) ends up in lower prices for consumers. Vizio, Funai and Polaroid have exploited that successfully."

It also helps that, according to DisplaySearch data, a 42-inch 1080p LCD TV from Vizio is 20 percent to 30 percent cheaper than the same TV from other manufacturers. Sony, for its part, says it's determined not to play that game.

The flat-panel TV industry is "in a race to see how fast we can take the price points down," said Waynick, leaving it in a "sad state." Value, he pressed, is determined by more than price point. "We play differently, and we take a lot of hits for it sometimes because we want to provide a better value." It should be noted, of course, that Sony has already started to rebound since dropping to sixth place among LCD makers during the second quarter. Its market share is up a few points to 21.6 percent now, DisplaySearch said.

Though it's successfully played the underdog in its battle for brand-name recognition, Vizio's director of marketing Jeff Schindler agreed with Sony, saying that his company would also like for consumers to have a better understanding of the nuances of high-def TV watching, particularly in the area of plasma versus LCD, he said.

Another TV maker that hopes change is in the wings is Mitsubishi, which is on the verge of releasing the very first laser-based television. The long awaited rear-projection TV technology will finally arrive at CES in January, said Frank DeMartin, vice president of marketing for Mitsubishi. At the same time, Mitsubishi wants to use laser to create "a whole new category" of large-screen TV, starting with the preferred nomenclature. "'Rear projection,' I really hope we lose that as an industry going forward. 'Microdisplay' is not much better," he said.

That's likely because the prognosis for rear-projection TVs is not good, thanks to the success of LCD and plasma. DisplaySearch projects that there will be fewer than 100,000 rear-projection units selling in 2011, down from 1.6 million units this year.

Lucky for Mitsubishi, even if rear-projection isn't what consumers go shopping for when looking to buy a TV, the large size could potentially catch their eye. DisplaySearch data predicts that 50-inch and larger size TVs will be the biggest growth category in the next five years.

Update--Vizio stunned the consumer electronics world when it became the No. 1 seller of flat-panel TVs in North America.

But it may be only a temporary victory.

(Credit: Vizio)

During the second quarter, Costco and Sam's Club, the two primary retailers of Vizio TVs, asked the company for more TVs than normal to increase their own inventories, according to a Vizio spokesman. The store chains typically had been carrying one to two weeks of inventory. They requested that the inventory be increased to three to four weeks. (Costco, by the way, declined to comment.)

As a result, Vizio experienced a sudden acceleration in sales. Look at the second quarter numbers released in August by analyst firm DisplaySearch. In the second quarter, Vizio saw unit shipments of flat-panel TVs--which includes plasma and LCD TVs--increase 340 percent from the first quarter in 2007, a whopping jump in three months. Market share jumped from 8.8 percent to 11.9 percent.

Samsung, meanwhile, saw growth of 67 percent in flat-panel TVs for the same period, but saw market share decline from 14.4 percent to 11.3 percent. The other name-brand manufacturers grew at slower rates or even saw sales shrink. The market as a whole grew by 65 percent. Vizio, thus, was growing at more than five times the market rate. (Again, these numbers only reflect North American sales. Samsung is still No. 1 worldwide in LCD TVs and TVs overall.)

Meanwhile, iSuppli said that Vizio sold 606,402 LCD TVs in North America in the second quarter, a 76 percent jump from the first quarter. That put Vizio in first place among LCD TV vendors, with a market share of 14.5 percent, up from 9.4 percent, or fifth place.

Isuppli counts sales in to retailers, not out to consumers.

With inventory now at the levels requested by the companies, sources--at competing TV companies--allege that Vizio will see sales flatten out this quarter.

Does that mean the company will drop to second place or lower? It's hard to say, but there's a really strong chance. We will know soon because iSuppli and DisplaySearch are due to come out with third quarter numbers later this month.

"It likely will," said Riddhi Patel, an analyst with iSuppli, in a call after the story posted. Vizio also added Wal-Mart, Sears and K-Mart as customers in that quarter, so there was a lot of channel stocking activity.

Still, the company is enjoying a surge of interest among consumers because of its low prices. The company's TVs typically sell for less than similar-sized TVs from Sharp, Sony or Samsung.

It was growing rapidly, after all, even before the inventory changes. Two years earlier, in the second quarter of 2005, Vizio was ranked No. 15 in North America. In other words, not all of the TVs it shipped went into inventory at Costco.

The company may potentially benefit from further unanticipated inventory changes. The inventory of Vizio TVs remains below the inventory levels the stores carry for other vendors, according to the company. Seven or more weeks is normal for other vendors, said Vizio. Thus, the retailers may ask the company to boost inventory, which could then allow the company to rebound from a third quarter decline.

Then again, the established players haven't exactly taken kindly to the success of Vizio and other "silver box" TV makers. At CES, many of the major companies were somewhat dismissive of the small fry. Although the big companies do have better reputations for quality and service, price catches the eyes of consumers.

You can expect to see aggressive prices this holiday season. Hitachi recently told me that it will ramp up its marketing operations in the U.S. to gain more share in TVs.

By the way, tip of the hat to Gary Merson of HDGuru, who told us that it would be worthwhile to look into the inventory issues.

(Credit: Vizio)

For all the clout and brand-recognition that accompanies names like Sony and Samsung, it was Vizio, a virtual unknown a year ago, that topped all LCD TV makers in the second quarter of this year.

Vizio sold 606,402 TVs in North America in the second quarter, a 76 percent jump from the previous quarter, according to a report by iSuppli released Monday. That brings the low-price TV seller's market share to 14.5 percent, up from 9.4 percent.

Former market-share leader Samsung dropped to second place, shipping 467,210 units compared with 445,683 the previous quarter. But the company that took the biggest dive was Sony, which fell from third to sixth place, moving just 253,377 units, compared with 412,232 last quarter.

Certainly selling a flat-panel TV for an affordable price through discount outlets like Costco and Wal-Mart helps, but how did Vizio manage to displace the likes of Samsung, Sony and Sharp TV buyers? Check back later today for an analysis of how Vizio did it.