Abstract

In its LCD TV business in the Chinese market, Philips has adopted a strategy of outsourcing the production of value-line models to TPV, while continuing to manufacture high-end models in-house, using panel supplied by LPL. With LPL having ramped up production at its 7G and 7.5G TFT-LCD panel plants, Philips has gradually terminated production of 26-inch or smaller LCD TVs, and has begun to focus on 37-, 42-inch and larger models. 32-inch LCD TVs currently account for 31% of Philips' LCD TV production, with 37-inch models holding a 29% share, and 42-inch models accounting for 11%. 26-inch and smaller models account for only around 30% of total production.

Philips' LCD TVs are mainly positioned to target the high-end market. Towards the end of 2005, Philips cut the price of its large-sized LCD TVs by 15%; however, Samsung and Sony reduced their prices by 20% at around the same time.

In China's major metropolitan areas, Philips markets its LCD TVs largely through electronics retail chains. In regional cities, Philips relies on partner companies to distribute and sell its products.

In 2006, 32-inch LCD TVs and 40 - 42-inch models displayed the fastest sales growth in the Chinese market. Sales of 37-inch LCD TVs continued to grow, but not as rapidly as these sizes. The 32- and 37-inch segments are the areas that Chinese vendors have been working most aggressively to develop, so price competition in these segments is intense. As the 32- and 37-inch size range accounts for the largest share of Philips' LCD TV product line, Philips can expect to experience increasingly fierce competition from the Chinese brands. Given Philips' high prices, the impact of this competition on sales performance in the Chinese market could be severe.