For electronics retailers, it will be the holiday season of the flat-screen TV. But the companies that make the key component – the flat screen itself – won’t have much to celebrate.
Heading into the Christmas sales period, traditionally the biggest time of the year for electronics goods, prices of flat-screen TV sets are falling.
Sharp Corp.’s 32-inch LCD-TV with built-in HDTV tuner, which was introduced to the United States in January at a suggested price of $5,000, now carries a suggested price of $4,000 and is being advertised by some online retailers for about $3,100, including shipping. Wal-Mart Stores Inc. recently began selling a 42-inch plasma set for under $2,000.
As prices slide, sales of flat-screen TV sets are expected to double this year and account for about 5 percent of global TV unit sales. Even so, these sets still yield far more profit for retailers than ordinary, tube-based TV sets. That markup is keeping prices above the level that could turn flat TVs into a mass-market item, say the companies most responsible for the price drop: the Asian makers of the highly complex glass screens called panels.
That isn’t fair, these companies say. To build the liquid-crystal display, or LCD, panels, they are investing tens of billions of dollars in factories as advanced as those that make computer chips. But these manufacturers can’t directly control retail prices since they are just one part of the flat-TV food chain. They sell their panels to TV-set makers, who in turn sell the finished sets to distributors, who then ship the TVs to retailers. Each piece of this chain takes a cut.
The world’s biggest LCD-panel manufacturers have been cranking out the flat screens faster than the TV industry can absorb as new screen factories have come online. That has prompted the panel makers to cut their wholesale prices by as much as 30 percent in recent weeks, a move that has lowered their profits. Now they are calling on TV makers, distributors and retailers to do their part to move the screens by reducing their markup on LCD-TVs – which amounts to as much as 40 percent of their retail price, according to analysts.
“Right now, to work on an immediate and quick liftoff of the LCD-TV market, the (retail) channel margin has to come down,” says Ron Wirahadiraksa, chief financial officer of LG.Philips LCD Co.. The Korean company is the second-largest maker of LCD panels and is a joint venture of LG Electronics Inc. of South Korea and Philips Electronics NV of the Netherlands.
Average selling prices of big-screen TVs have dropped to about $3,000 from $5,000 two years ago. That’s great for consumers. But for retailers, even if they keep charging the same markup in percentage terms, they end up with a lower gross profit per set sold in dollar terms, notes Michael T. Ryan, a former vice president of merchandising at Circuit City Stores Inc. and now president of international retail consultants Ryan Partnership.
The LCD panel makers, meanwhile, face competitive pressure from other screen technologies, including plasma, which generally is used in screens larger than 40 inches, and from the new high-resolution projection TVs that are powered by digital-mirror chips. Since September, plasma-TV prices have plummeted and contributed to a market-share gain over LCD sets. Large LCD screens cost more to build than plasma screens, though that may change in coming years because of efficiencies in the newer LCD factories.
The cuts are coming even faster for smaller LCD-TVs. Westinghouse Digital Electronics has slashed the price of its 20-inch, high-definition-ready LCD-TV to $599 from $1,200 earlier this year.
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