Moving beyond monitors

The brand image of three finches is an apt one for monitor maker ViewSonic in more ways than one.

The three birds are colorful--a key element for a monitor maker--but they are also tough to catch. In a market dominated by multinationals such as Samsung, NEC and Hewlett-Packard, the comparatively small, privately held Walnut, Calif.-based manufacturer has managed to remain at the forefront of its industry. (Symbolism takes you only so far, though. Originally, the company was going to put tropical fish on its logo.)

The company is now branching out into tablet PCs, wireless devices and television sets. Although markets for flat panels are expected to explode, intense competition and price fluctuations make profitability tricky.

Founder and CEO James Chu sat down with CNET News.com recently to discuss the growth of the flat-panel market, the opportunities coming to light with liquid crystal display (LCD) TVs, China and the impending ubiquity of computer screens.

Q: Can you give us the quick history of ViewSonic?
A: I started the company, selling keyboards and components. That was 1987 in Los Angeles. At the time, the white-box market was growing very rapidly. But I was (of the mindset) that if I am selling components inside the metal box, I don't have any visibility, and I wanted that. The best visibility is your screen. The PC can be on your desk or under your desk, but the display definitely needs to be on your desk. So I said, "That is the product you want to get into."

LCD has emerged as one of the stronger markets in the past few years, even despite the downturn. What is going on here?
In the last decade, the industry focused on PCs. In the next decade, displays will get hot. Before, you talked about speed, but now, a PC is just a PC.

You see everyone trying to jump in. There are all kinds of LCD TVs. I see (the LCD market) like the PC industry 10 to 15 years ago. There is a lot of funding and opportunity, and nobody knows how big it is going to get.

And the screen will do all sorts of entertainment--it will work as a TV, with a DVD. The PC is becoming a source of information. You can hide it behind the screen.

Almost like a server?
Yes, a server. The monitor can be on a desktop to work with a PC, but it can also be used as a TV and put on the floor. Also, there can be a wireless monitor in your hand. They will measure from 3 inches up to 300 inches across. The form factor from traditional watches and CRT type monitors is going to LCD technology rapidly. With a clean and light form factor, you will have a lot of changes start to happen.

See that wall over there. (Points to an array of TV screens embedded in a wall). That is a collection of our LCD monitors. You can imagine that pretty soon, wallpaper will be a screen. You will be able to change it by the time of the day or your feelings.

How do your revenues break down?
LCD right now, from the revenue point of view, is about 2-to-1 over CRT (cathode ray tube). The conversion has been going pretty fast in the last few years.

When did the LCD really begin to take off?
It began to really take off in 2001 in the United States. Before, in 1998, it took off in Japan. Japan is an early adopter. Then, Japan accounted for about 70 percent to 80 percent of the market for LCDs. Now, Japan is starting to be saturated, and the U.S. market is growing. United States and Europe are now the No. 1 and No. 2 markets.

The growth of LCD TVs is doubling, and it will double for the next few years.

The LCD market is pretty much settled now. Not many people will continue to get into the LCD market. People will focus on LCD TVs in the future. The growth of LCD TVs is doubling, and it will double for the next few years. More and more companies, especially the old CE (consumer electronics) brands, will jump into LCD TVs. Even major PC companies will jump into LCD TVs.

How do the two industries--computers and consumer electronics--differ? From the outside, they seem quite the same.
There is a big, big gap between PC and CE manufacturers. There is a CE channel, and people are asking for 30 percent to 35 percent margins. The PC channel is asking for 10 to 15 percent margins. Product development is also different. The TV can go for many, many years and not change in design. You have one design for three years. In the PC industry, you change your design every six months. One is slow; one is fast. One is high-margin and less efficient.

One is very efficient, but there is also a challenge in the buying behavior. People who buy a TV--they want to see the TV first. In the future, will that change in the same way as with PCs? We don't know.

Actually, there is a lot of opportunity because of the character of the market. It is just like five years ago with digital cameras. To buy a digital camera five years ago, you went to a specialty store. Now, you find them almost everywhere.

What are the main advantages for the PC makers? PC makers have tried to get into consumer electronics before and have not done so well.
Speed is one. It is a technology revolution, and speed is important. The IT industry in the past 10 years has been trained to be very fast, so they have some advantage.

Of course, brand is an issue. Networking is another one. The interesting thing about TV is that when it goes digital, you need it to connect everything together. IT companies have a better reputation on this. There will also be discussions on who has a better screen.

What are the underlying technological differences between an LCD monitor and an LCD TV, anyway?
The video circuitry is a bit different. One (the LCD TV) highlights the video. Traditional CE companies focus on color more, but they are not focused on resolution. They deal with a very low resolution. The IT industry has typically looked at high resolution. That is a gap in between. If someone can cross over, they will do very well.

Is supply of the mother glass for LCD monitors getting better, or are there shortages still out there?
Supply of glass has recently gotten interesting. A lot of industry analysts predict that there will be an oversupply in 2004, but, based on the strong demand for TVs, and with everyone jumping into the TV market, that could change things. All three technologies compete for the same glass. So you think that prices will drop? Not necessarily. In 2003, prices increased. They dropped in (the second quarter), but there was a price increase in (the third and fourth quarters).

At this moment, there is quite a shortage, not just for TVs but also for LCD monitors. But they (glass manufacturers) are stocking up on capacity, so who knows?

It's just like the stock market--I can't predict that.

How many glass suppliers do you deal with?
Five.

There's a theory that the Korean glass makers coordinate pricing. Is there price fixing? It seems like these guys always have a tough time making money.
For the glass manufacturer, it takes a huge investment. It's like the semiconductor market. You can lose money for three years and then make money for five years. I think they are trying to learn to work together. The meetings don't take place in the United States.

So do you think these meetings take place?
I do think so, yes.

Will China have much of an impact on the LCD market?
It is just starting. Most manufacturers are already moving capacity to China. There are a lot of joint ventures right now. In terms of local demand, ViewSonic is doing well. Our revenue in China grew 500 percent in the last year. We went from No. 8 in market share in LCD monitors to No. 1 in terms of revenue. It is our second-largest country right now, after the United States. The market potential is huge.

Who are your main competitors--companies like Dell and Gateway who sell monitors with their PCs, or is it the after-market specialists?
The main competitor depends on the market. In the Chinese market, we see Samsung and Royal Philips Electronics as the main competitors. In the U.S. market, it is the PC companies like HP. There are also monitor companies like NEC.

Back to China for a moment. Taiwan is trying to position itself as the managerial and logistical center, while China will perform manufacturing. Will the relationship evolve that way?
It has already happened. They take orders and do research and development in Taiwan, and then they ship product from China. Almost every company is moving.

Right now, you have monitors, but those will become wireless monitors. It is only a matter of readying the infrastructure.

How is your information appliance effort coming along? ViewSonic started selling tablet PCs and other devices last year.
That is a megatrend for us. Right now, you have monitors, but those will become wireless monitors. It is only a matter of readying the infrastructure. We think that in (the fourth quarter), the market will take off. The wireless part will be booming very, very soon.

At home, you can have one PC, or maybe a second PC, but the display is different. You can have 10 displays or 20 displays, even 30. This is our vision--it won't be too long. Everything can be a display. You don't need to know that is going on in the background. There will be 1-inch displays, 3-inch, 10-inch, 15-inch, 50-inch or 300-inch.

You're one of the largest private IT firms out there. Why haven't you gone public?
We've been busy on meeting market demand. Going public is one of the many financial alternatives. Of course, it is an attractive alternative. We will continue to evaluate the possibility.

Does it give you more flexibility?
Yes. That counts. Today, running a public company is not that easy. It's not like two or three years ago.