LCD | November 15, 2007

Price becomes the critical<br>factor in LCD-TV market

Pricing has always been a major consideration for consumers, but now it has become the paramount concern for television makers, as the growing emphasis on achieving the lowest possible cost has brought wrenching changes to the competitive landscape and manufacturing structure of the business.
Pricing and picture quality are the top-two criteria that consumers use to make television buying decisions, according to iSuppli Corp.’s U.S. ConsumerTrak – Televisions service. Brand and technology come in a distant third and fourth among consumer care abouts.

“This phenomenon is already evident in the surging market shares of low-cost LCD-TV brands, said Riddhi Patel, principal analyst, television systems, for iSuppli. “It’s also evident in the fact that television brands are emphasizing efficiency and cost cutting and are making increasing use of Original Design Manufacturing (ODM) services.”

LCD-TVs priced to sell
The overall television market will generate a Compound Annual Growth Rate (CAGR) of 4 percent from 207 million in 2007 to 245 million in 2011, mainly driven by the growth in the LCD-TV space. Because of increased consumer interest, acceptance and adoption as well as continuing panel maker and OEM commitments, the LCD-TV market is undergoing an explosive growth phase, with shipments rising at a CAGR of 21 percent from 76 million in 2007 to 164 million in 2011.

Figure 1 below presents iSuppli’s forecast of global television unit shipments by display technology.

With advanced LCD fabs commencing production, larger-sized panels will be available at much lower prices. Consumers are demanding larger sizes and OEMs are focusing on meeting these needs. OEM and panel maker commitments, combined with the declining prices of LCD-TVs at retail stores, have led to increased consumer acceptance and adoption.

Furthermore, panel makers have increased their efficiency in order to reduce costs. Makers of other components for LCD-TVs also have been able to reduce their costs because of the increasing number of shipments. All this has driven price declines.

Crank up the volume
Another factor that has helped reduce consumer prices of LCD TVs is the emergence of ODMs.

With the use of these third-party contract manufacturers, television brands no longer have to establish facilities for set production, resulting in lower-priced products. Moreover, ODMs have lowered the barriers to entry into the LCD TV market, which has led to the arrival of various low-priced Taiwanese and Chinese brands. With increased competition and consumer acceptance of these value brands, the premium television makers have been forced to lower their prices and to become more competitive in the market.

Rise of the no-names
The rise of Vizio in the North American market serves as a good example of the new emphasis on price in the LCD- TV business. Once a no-name brand, Vizio emerged as North America’s top selling TV maker in the second quarter of 2007. Vizio did this partly on the strength of its rock-bottom pricing.

Figure 2 below presents estimated pricing for Vizio, Sony, Samsung, Sharp and Westinghouse LCD-TVs from iSuppli’s TV PriceTrak service.

Other technologies struggle

While LCD TVs are going from strength to strength, televisions based on other display technologies are suffering setbacks in the market.

CRTs will still dominate the TV market this year in terms of unit shipments, but this technology in recent times has suffered the biggest erosion in sales of all the display alternatives, due to a lack of consumer, retailer and OEM interest. This has led to the shutdown of many component and set production facilities. The only hope for CRT TVs now is consumer interest and acceptance of super-slim sets, specifically in the emerging markets.

iSuppli Figure 2: Average Price of the Leading Value and Premium Television Brands for September, 2007 (Pricing in U.S. Dollars)

Source: iSuppli Corp. November 2007
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