December 25, 2002
As Prices of Flat TVs Tumble, Thin Is In Among Consumers
High-tech sets move from specialty stores into the mass market. Makers scramble to meet soaring demand.
By Jon Healey, L.A. Times Staff Writer
In addition to giant tubs of mayonnaise and mega-packs of toilet paper, thousands of Costco shoppers are finding room in their carts for a more high-end product: plasma TV sets.
Sharp price cuts have brought plasma sets and other thin, flat televisions out of high-end electronics boutiques and into thousands of mass-market outlets such as Costco, a wholesale buying club best known for offering members bulk items and big discounts.
The least expensive plasma sets still cost a hefty $3,000 or more, yet sales are growing so rapidly that many manufacturers are racing to boost production.
"Everyone has been surprised by the quantities that have moved," said Tim Farmer, a vice president at Issaquah, Wash.-based Costco Wholesale Corp.
The burgeoning popularity of thin-screen TVs has prompted more manufacturers, including some based in California, to jump into the fray. In all, more than two dozen companies now market some version of the product.
That increase, combined with expanding production capacity and improved technology, could push the price of plasma sets down by one-third next year, according to analyst Richard Doherty of Envisioneering Group, a technology research firm in Seaford, N.Y.
"There is strong consumer demand but not enough to stop the free fall," Doherty said.
Manufacturers already are selling the core component of a plasma set -- the glass panel -- at or near a loss in their hunger for a share of the growing market, some industry analysts and executives say. But they're not just competing with one another; they're also trying to fend off challenges from competing thin-screen technologies, such as liquid crystal displays, or LCDs.
It's too early to write an obituary for bulky picture tubes, which will remain the most affordable TV sets for years to come. Still, analysts and industry executives insist that thin screens have started their transformation from a niche product into the dominant format for TV sets in the digital era.
It may take another decade, but thin will win.
The demand for thin screens is fueled in part by the advent of DVDs and digital TV broadcasts, which offer more detailed pictures and more lifelike colors than conventional analog TV signals. To see the difference, consumers need a set that can pack more information onto the screen than their current TVs can.
This sharpness is most vivid on screens that are 40 inches diagonal or larger. At that size, however, traditional direct-view and projection TVs are so bulky that many consumers have trouble finding a place for them at home.
Hence the interest in thin screens -- models svelte and light enough to hang on a wall.
The glass panels at the heart of plasma and LCD sets come mainly from about a dozen companies with factories in Japan, Korea and, increasingly, China. About 800,000 plasma panels will be shipped this year around the world, said Mark McConnaughey, senior vice president of the advanced technology group at Viewsonic Corp. of Walnut.
That's minuscule compared with the overall market for TVs, which is about 140 million sets this year. Still, McConnaughey said 2003 would be a "breakout year" for plasma because shipments should double.
Helping drive the growth are new or expanded manufacturing facilities. For example, Japanese electronics giant NEC Corp. doubled the capacity of its factory in Japan this year, reaching 300,000 to 400,000 plasma panels. And it plans to double it again in 2003, executives said.
Pioneer Corp. is converting an optical-disc factory in Japan into a plasma production line and boosting production from 180,000 panels a year to 300,000. Matsushita Electric Corp., which sells TVs under the Panasonic brand, is opening a factory in China that should raise its annual output from 300,000 units to 500,000.
Meanwhile, plants are becoming far more efficient, slashing the cost per unit. The average factory had to scrap or rework 85% of the panels produced three years ago, but now it rejects only 10%, said Tom Edwards, senior analyst at NPD Techworld, a research firm.
As competition has heated up during the last four years, prices have fallen more than 50%. According to NPD Techworld, the average price of a plasma display sold in the U.S. dropped from $12,700 in January 1999 to $6,100 in October this year.
Prices will have to drop significantly more, however, to attract masses of buyers, said Tamaryn Pratt, an analyst at Quixel Research in New York. A Quixel survey found that more than 70% of consumers interviewed want screens larger than 40 inches, but they quickly lose interest in sets that cost more than $2,000.
The lowest prices today are for sets from Sampo Corp., a Taiwanese company with its U.S. sales effort run out of City of Industry. Like a number of other new competitors, Sampo offers an entry-level 42-inch plasma set that can't display high-definition TV, the most richly detailed form of digital broadcasting. Instead, the resolution is capped at about twice the quality of a DVD played on an analog TV set.
"We focus more on selling in quantity," with profit margins in the 10%-to-15% range, said Robin Hung, a consultant for the company. "If we can sell more than our competitors, that's what we're aiming for."
The company, which does not make its own panels, expects to sell about 20,000 plasma sets annually, he added.
Nearby in City of Industry is BenQ Inc., formerly known as Acer Communications & Multimedia America Inc. BenQ makes its own plasma and LCD panels at factories in Taiwan and China. But like Sampo, BenQ is trying to grab market share in part by lowering prices, although it also is focusing on making panels that last longer, said Jeff Chen, vice president of the digital display division.
The best markets for plasma screens have been in Asia, and about half of the sets have gone to businesses instead of homes. Total U.S. sales could reach 115,000 units this year, said Ed Wolff, vice president of Panasonic's display group. That's a tiny percentage of the 25 million sets sold annually in the U.S., but more than double the amount that Quixel Research estimates were sold nationally in 2001.
"Plasma is still a very small market sector in the total display-unit business, but in dollars it's beginning to grow dramatically," said Craig McManis, marketing vice president for the home entertainment division of Long Beach-based Pioneer Electronics (USA) Inc., a subsidiary of Pioneer. "And the area it's impacting the most is projection televisions." McManis said the company is generating more revenue from plasma sets than from projection TVs.
Like plasma sets, LCD TVs carry a premium price -- they can be 10 times as expensive as a comparable tube-driven television -- that knocks them out of most buyers' budgets.
By Pratt's estimates, 250,000 to 300,000 will be sold in the U.S. this year. But LCD panels are quickly taking over the market for computer monitors, and the tens of millions of panels being produced for that segment will help push down prices for LCD TVs, McConnaughey of Viewsonic predicted.
The challenge for LCD TV makers is to build screens larger than 20 inches that aren't prohibitively expensive. Chen said he doesn't foresee LCD TVs competing effectively with plasma screens larger than 40 inches. But McConnaughey disagreed, saying that large volumes and the steadily improving microchips that power LCD screens would narrow the price gap.
Sharp Electronics Corp., for one, is betting heavily on LCDs, a gamble that it expects will pay off first in Japan. Its chairman, Toshiaki Urushisako, has predicted that Sharp would switch completely from conventional tube sets to LCD TVs in Japan by 2005.
Pratt estimated that LCD TV sales would grow rapidly in the U.S. too, starting at just under half a million in 2003 and rising above 3.2 million in 2006.
Bob Scaglione, a marketing vice president at Sharp, said he expected prices to drop 15% to 20% annually on LCD TVs, thanks partly to burgeoning capacity and more efficient production lines. The company plans to open a large-scale factory for LCD panels in 2004.
Prices have dropped even more dramatically on sets using Texas Instruments Inc.'s digital-light-processing technology, a slim approach to projection TVs that nonetheless can't be mounted on the wall.
The least expensive set is a 43-inch model due soon from Samsung that will sell for about $3,700 -- not cheap, but far below the $12,000 to $15,000 price tags on earlier generations, said John Reder, manager of the tabletop television business unit at Texas Instruments.
Two years from now, he added, the company's goal is to make digital-light-processing sets as inexpensive to produce as conventional projection sets.
Even with prices as high as they are today, manufacturers of thin-screen sets say they can hardly keep up with the demand. The main selling point, it seems, is simple: They're a lot more attractive than sets with tubes.
"Most consumers, when they go to buy a new television set, want a screen size bigger than the last TV set," Reder said. Moving above 32 inches or 36 inches has meant buying a projection TV that came in a large, obtrusive box, and "anybody interested in how their home looked had some problems with that technology."
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