Flat screens at rock-bottom prices

New companies are trying to capture market share from well-known consumer electronics makers by using one tactic: low prices.

Ben who?

BenQ, a new and almost unknown supplier of LCD televisions, hopes consumers will know the company's name in the next few months. Along with lesser-known brands like Norcent and Syntax, BenQ has jumped on the flat-panel TV bandwagon. All are attempting to capture market share from well-established consumer electronics manufacturers like Panasonic, Philips, RCA and Sony by using one tactic: low prices.

But the second-tier companies, including some using better-known brand names like Polaroid and Westinghouse, have a long way to go. None of the new brands appear in the Top 10 list of flat-panel TV unit sales or revenue. According to market research firm DisplaySearch, even the best-performing second-tier LCD company, Syntax, captured just 4 percent of sales in the third quarter of 2004. BenQ held 1 percent.

As flat-panel televisions remain costly, these companies have chosen to compete at the bottom of the scale, hoping to attract buyers who lust after the latest technology but are unable to afford units made by the better-established brands.

In contrast to early analog picture tube companies that manufactured their own sets and did not share their technology, display panels and integrated chips for digital television are made by various companies for sale to virtually anyone.

Despite such availability, established television makers argue that their brand recognition and reliability will allow them to dominate the market.

"A consumer spending $2,500 for a TV will take a careful view of how long it will last and how long it will be supported," said Jeff Cove, a vice president at Panasonic. He cited his company's distribution and service networks as reasons it does not expect to lose market share to new, low-cost entrants.

Bharath Rajagopalan, an executive with RCA's parent, TCL-Thompson Electronics, said that all televisions were not created equal. Each top-tier manufacturer adds its own "secret sauce" to the mix--algorithms and filters that reduce visual noise, plus other technologies that smooth out images, he said.

But James Li, chief executive of Syntax, which sells televisions under the Olevia brand, argued that such so-called secrets are only marketing gimmicks. "The fundamental components that make the picture are the panel and the chipsets," he said. Syntax gets those items from the same suppliers that some of the brand names use, he noted.

Price play
Few of these companies' products are available at the larger mass merchants. Instead, they tend to be sold through Internet retailers, regional electronics stores and specialty stores.

"This is absolutely a price play," said Glenn Cunningham, Amazon.com's director of electronics. The Internet retailer sells second-tier flat-panel brands, including Westinghouse and Olevia. "When I look at the customer reviews, they say 'Great TV for the money.'"

"People purchase no-name brands opportunistically," said Ross Rubin, director of marketing analysis for the NPD Group. "They say, 'I just need something flat and sexy-looking in a room.' "

Experience with PC monitors has given some entrepreneurs the impetus to make televisions. William Wang, the former head of Princeton Graphics, began V in 2003. V employs just 28 workers in the United States, using contractors in Asia to assemble plasma and LCD displays.

The company sells televisions in such stores as Costco, where its 42-inch plasma HDTV is priced at $2,500. Models of the same size from Panasonic and Sony typically cost $4,000 to $4,500.

About the same time that Wang created V, Doug Woo, his former colleague at Princeton Graphics, started his own company and licensed the Westinghouse name from its owner, Viacom.

"Younger people know the Westinghouse brand," Woo said. "They have a vague recollection of it; they don't know what the brand does. But under-35-year-olds are now beginning to recognize it as a TV brand."

Westinghouse has positioned itself as one of the least expensive suppliers of LCD televisions. During the holiday season, it cut the price of its 30-inch model to $1,700, 23 percent less than in the summer. Today the model is available for $1,500 at such retailers as Best Buy and Amazon.com. The same-size set from Philips is priced $400 higher. "Today our major benefit is pricing," Woo said. "That's how we'll become a major player. We're not ashamed of that."

Westinghouse Digital has formed a partnership with CMO in Taiwan, its sole supplier of displays. "This relationship is the bedrock of our company's future," Wang said. "We source only from them. We can release products in sync with their supply, and we can take advantage of whatever cost efficiencies there are, and bring lower costs to the street really quickly."

And because these new start-up manufacturers are selling in small volumes, they are able to ship merchandise soon after they buy it.

"They offer an attractive time to market," said Ross Young, president of DisplaySearch. By ordering 50,000 units, a company can receive a shipment soon after payment, keeping prices in line with costs. "Sony's December product could have been paid for in June," Young said, when parts prices were higher.

Danger for profits
Sony recently cited rapidly falling flat-panel TV prices as one reason its consumer electronics division's operating income dropped in the third quarter.

Yet there is the danger that if low-cost brands do gain significant market share, the larger players, with deeper pockets, will reduce prices to compete.

"As soon as Samsung, Sony and Sharp see a viable threat from these guys, they'll do something about it," said Chris Chinnock, of Insight Media, a research firm. "I can't see all these competitors surviving even five years from now."

Li of Syntax said his company is in for the long term. To dispel customer concerns about buying the Olevia brand, the company offers in-home service for its LCD televisions during the first year of ownership at no extra charge.

Once available only through the Internet, the company's sets are now sold at regional retailers like ABC Warehouse and Fry's, as well as some Staples stores. In its first full year of operation, the company sold 95,000 televisions. The company expects to double its revenue this year. In April it will introduce a 42-inch L.C.D. television, with a 47-inch model following by the fall.

But Young of DisplaySearch said he believed the success of the second-tier brands would be confined to the smaller screens. "If you are buying a large TV, you want that to be a recognizable, prestige name," he said. "If you buy a knockoff TV, your friends will ask you why."

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