Abstract

LCD TV Market: Lucrative yet Highly Competitive

The LCD TV industry is part traditional domestic appliance industry and part IT (Information Technology) industry. The IT hardware industry achieves an efficient logistics model by the standardization of key components and the specialized division of labor in the industry value chain. In the traditional TV industry, branded manufacturers focus on the customization of key components - including CRTs (Cathode Ray Tubes), image processing chips, mechanical parts, etc - and create distinctive products through a high level of vertical integration. Japanese brands such as Sony, Toshiba, and Panasonic are examples of this model. In addition, the traditional TV industry has to deal with regional differences as well. Such differences arise from the following factors. First of all, there are different analog standards for different regions; branded TV manufacturers must be equipped with the R&D capability of integrating various analog standards. Secondly, consumers in different regions prefer different color temperatures and reproductions. Therefore each manufacturer's accumulated knowledge of consumer behavior and the corresponding color tuning technologies have become the key to success. Lastly, heavy tariffs are often imposed on TVs, which explains the great number of regional brands co-existing next to the leading international vendors.

The market potential for CRT TV replacements amounts to approximately one billion units worldwide. Hence LCD TVs are not only seen by traditional home appliance makers as a turning point in the realignment of the TV market but also deemed by the IT industry as a touchstone for their extension from the study into the living room. Traditional TV makers, with their established brand images and experience in channel management, are vying for a place in the LCD TV market. LCD panel makers, in order to find enough outlets for their LCD panel production, also reached downstream into the branded LCD business. LCD monitor makers, overshadowed by the diminishing growth of monitor products and the declining gross margin rate, also made the bold move to produce LCD TVs resorting to their background in system assembly: for example, the monitor maker TPV bought Philips's existing monitor fabrication facilities and took over OEM orders for LCD TVs along with it.

With the avid participation of home appliance and IT hardware makers, the industry chain has been further deconstructed. In order to control the crucial sources of TV panels and their own integration, most branded LCD TV manufacturers have the capacity to fabricate panels themselves. Nevertheless, when facing capacity surpluses, branded manufacturers like Sharp also supply panels to other TV makers. Moreover, as the flat-panel display technology constantly renews itself and the mainstream screen sizes keep getting bigger, LCD TV makers are confronted with new product complexity and R&D demands. Branded TV makers have been forced to abandon the production mode of vertical integration and outsource the image processing chips, saving R&D resources for developing their own distinctive image modulation technologies. Furthermore, IT hardware manufacturers and distributors also have entered the market, and they have brought with them considerable outsourcing opportunities, further expanding the market for key components such as TV panels and controller ICs.

Creating Strong Brands

LCD TVs with 26- and 32-inch screens still account for about 50% of present LCD TV sales. First-tier branded TV makers have to rely on a comprehensive product portfolio to widen their lead in the market and edge latecomers out of competition. Furthermore, these first-tier brands may seek to cultivate consumer loyalty and expand brand value by offering small-sized entry-level products to attract younger consumers. For example, in order to protect its original brand image, Philips retains the brand name for medium- to large-sized products while introducing smaller products under the brand name Magnavox.

Differentiating between markets with dual brands and cashing in on value-line products show that prominent international manufacturers were feeling considerable price pressure posed by the trend of low-priced LCD TVs. Nevertheless, while in pursuit of the low-price market, the management of manufacturing and the quality protection are all the more important. The consequent effects on the original brand remain to be seen.

The development of larger LCD TVs serves to manifest first-tier manufacturers' core competence of tuning technologies, accumulated from their experience with analog CRT TVs. Therefore first-tier manufacturers focus their R&D on large-sized TVs.

High-definition image processing and display technology integration required by large-sized TVs have set up a technological threshold for unbranded TV manufacturers. Hence, the market for 26- and 32-inch LCD TVs is overcrowded and the price war is relentless, whereas there is still room in the 37-inch and larger segment. Newcomers would be well-advised to follow market leaders and offer medium- to large-sized products while maintaining their quality and cost management. Brand values can be created by the newcomers if they learn how to devise a fair price/performance ratio and conduct channel management to fit local conditions.

Reasons for Syntax-Brillian's Success

As the prices of LCD TVs fall rapidly and their product life cycle is relatively short, managing the supply chain has become the key to success in profit growth and brand establishment. The reason that Syntax-Brillian successfully penetrated the North American market lies in its comprehensive supply chain support and its experience in channel management. The successful sales experience in North America helped Syntax-Brillian strengthen its foothold and expand overseas. Furthermore, in order to meet the disparate demands posed by the sales environments and tariff issues of Europe, South America, and China, Syntax-Brillian also adopted different entry strategies for different regions and took on different positions in the supply chain.

Appendix

List of Companies