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Westinghouse plugs in to LCD TVs

President Douglas Woo isn't worried about competing with the big guys and says the shift to LCDs is virtually "unstoppable."

Douglas Woo wasn't supposed to be a major player in TVs.

In 2002 when he formed Westinghouse Digital Electronics and became its president, the company had about a dozen employees and a lot of people thought that the plan was to sell generic TVs on the strength of the name alone.

Flash forward. Westinghouse is now one of the larger LCD TV brands in North America, and it recently entered Japan and China. The company has also penetrated the commercial market for computer monitors, landing sales to the likes of Halliburton. The secret, says Woo, has been Westinghouse's ability to combine the marketing techniques of the consumer electronics world with the hard-boiled efficiencies of PCs. The company, he adds, also participates extensively in the actual engineering of its sets, too, which explains why Westinghouse has managed to get ahead of competitors in some high-definition features.

Woo sat down with CNET News.Com's Michael Kanellos to discuss price declines in TVs, mass merchandising and the inevitable world domination of LCDs.

Q: Three years ago, a lot of people scoffed when Westinghouse and other people jumped into LCD TVs. The latest data shows you're one of the largest selling brands in the U.S.
Woo: It's kind of a validation. When we first launched, LCD TV wasn't very strong. People were still saying "Is it plasma or LCD?" and "Is it going to really replace CRT?" And there wasn't much shelf space. So we came in and told the retailers, "This is the next big thing," and we told them that we weren't your normal operation and we weren't just buying products in Asia.

So how did you do it? When you started out you only had about 12 employees, so everyone assumed you were just leveraging contract manufacturers.
Woo: First of all, we have very strong relationships with panel makers. That's not only to ensure supply and see the direction of pricing in the industry, but it also gives us the ability to work from a product marketing and engineering standpoint deeply into the supply chain.

That's what we told retailers early on, that we had the ability to adjust to the marketplace really quickly because we control so much of the resources in between.

For example, when we released our 42-inch (LCD TV), it was from a new panel from Chi Mei (Taiwan's Chi Mei Optoelectronics). Typically, the panel maker comes up with a panel module, then TV guys work on it for six to eight months and then come up with a product. For us, it was a co-launch--they launched the panel, we launched a TV. And that's because we had a really deep R&D relationship. And that's what we told retailers early on, that we had the ability to adjust to the marketplace really quickly because we control so much of the resources in between.

Our products are typically ahead of the marketplace. We launched 1080p (monitors) last year, not this year. Now, we go all the way from entry level up to 52-inch 1080p. It's a beautiful, beautiful product. And now this year, we launched into the commercial market to sell everything from basic 32-inch and 26-inch monitors up to an 82-inch digital signage piece, up to quad, full HD 8-million-pixel displays for oil and gas exploration. (Editors' note: "Quad" refers to the fact that there are four times as many pixels as in a 1080p TV.)

You've only got so many engineers, so how do you figure out what kind of research they should tackle?
Woo: We have, I don't know, 20 to 25 engineers working directly on staff. We typically concentrate on the architectural side. We architect the product, then we work with each of the component suppliers in order to affect a way they create the component. We work with Chi Mei, the video-processing guys.

If you look at all of our products, you'll see we have adopted the Westinghouse spine design. (Editors' note: In this design, all of the output connectors are lined up in a spine behind the screen of the TV and are housed on the same board.) It's a single-board design. When we first started in this business, no one did that. Pull apart a TV from a competitive, tier-one supplier from back then and you'll probably see 12 to 13 boards in back.

If you pull apart a TV from Westinghouse what you'll see is a single board in the spine. That structure improves wire management, it improves video performance by reducing signal path and it makes the manufacturability of the unit and serviceability of the unit much better. We can depopulate (i.e. remove) particular chipsets and populate the board with new chipsets to take advantage of the either higher performance or lower costs.

Either way, we can go to market much more quickly to productize newer versions of TVs. If the feature is the same, it (the change) would be invisible to the consumer. If it's a really radical new change, we can create new models on the fly.

And our strength with our channel partners is that they understand our capability. Now they can get into the flow and say "Look, we need more resets" so they can take advantage of things that come along.

It sounds like you take a very modular approach to TVs.
Woo: Yeah. It becomes a lot more like IT. When we started this three years ago, the CE market saw two resets, maybe one to two resets per year. There were annual products and there were very, very long lead times. Everybody knew it had to change and become more IT-like, but we executed it.

I think most people have concluded that the march toward LCD is continuing and is probably unstoppable.

What's the average reset or refresh rate now?
Woo: Actually a lot of the retailers, they have almost continuous resets. They don't want to miss the opportunity. For some of the mass merchants, it's a little harder. They are managing something like 30,000 SKUs, but the traditional electronics retailers, they're all adjusting and the issue for them is which manufacturers are giving them something to adjust to.

Some of our traditional competitors, the established brands, they're still on the one product a year cycle. We can introduce new models as we see market demand or market requirements change.

Has LCD won?
Woo: I think most people have concluded that the march toward LCD is continuing and is probably unstoppable. In the near future, there's really no replacement technology. Think about the number of displays on the TV side, in monitors and notebooks, even the digital photo frames: the amount of glass required to service the global market for everything is considerable. LCD is the only technology with the infrastructure capable to support demand.

But why is LCD winning in TVs?
Woo: The LCD industry does not just service television. The industry is not new or niche-y. LCD is a core display technology used in the PC world for notebooks and computer monitors and many other applications. (TVs are) simply extending it into another area. Television was really a matter of finding the right size and performance features with an existing technology base in order to capture a new market.

What else do you use plasma or even DLP rear projectors for? They are single-application types of products. People think, "Oh, LCD is new." Well, LCD TVs are new, but LCD is mature and that makes it much easier to scale up.

The plasma guys have a different challenge. The actual production capacity is not growing. Even if it was the most popular format, it could not meet supply.

But Samsung is building a plasma factory, and execs at Samsung and Philips, which sell both kinds, will tell you that quality is equal between LCD and plasma.
Woo: For every single plasma plant that's being constructed, there are probably 10 LCD plants being constructed. So, after a certain point, it will overwhelm the marketplace. Will LCD be 100 percent of the market? No. There's no technology in any field that's 100 percent of anything. Is it a dominant format for the foreseeable future? Probably.

And there are a lot of markets to address. Westinghouse Digital launched in China in October and in Japan in December.

How did the Japanese launch go? There's sometimes a 'buy local' ethos there. Microsoft has never done well with Xbox.
Woo: We're in the largest retailer in Japan and we're in Go Mei, which is the largest retailer in China. If you look at our pattern, we reached out to the largest partner in the U.S.--Best Buy--and established a pretty good relationship with them, which helped drive the category. In China, we're in a very similar position. We feel like we're starting at the right time. Japan is a little different; it's a mature market. We have a very good brand in Japan. Westinghouse has been in the news a lot with Toshiba's acquisition of Westinghouse's nuclear group.

But in Japan, a lot of your potential customers are going to work for your competitors.
Woo: But it's one of the largest markets in the world for flat television. There is an inherent consumer requirement for thin and flat. Westinghouse is selling a lot of TVs, so we have to be a global player and Japan is one of the largest markets.

We're in the No. 4 position in the U.S. now, but we probably have 10,000 retailers compared to like a Sony or a Sharp with 30,000 stores, but we're running equal volumes.

Executives at some of the larger companies have been saying that the severe price pressure of 2006 will slow down in 2007. Is that possible or is it wishful thinking?
Woo: It's how you look at it. If you're looking at it on an average basis, who knows? But the more interesting phenomenon when you get down with the details is where it's going to occur. We believe that the large TVs, 40 inches and above, is where you're going see the greatest amount of compression.

For every single plasma plant that's being constructed there are probably 10 LCD plants being constructed.

But that sounds scary because the most price compression will occur in the most profitable segment.
Woo: That's the industry pressure. The panel makers have built enormous capacity and the glass has to go somewhere. Everyone wants share in the standard-size television market; 42-inch used to be a big TV. Most people now view 42-inch as a midsize television. So the most activity will be in the 32- to 42-inch segment, and 42-inch just launched in the past year from the LCD side, so this is the year where there'll be compression.

I think it'll be pretty substantial, so it will be great for consumers. And I can say this, there will be plenty of supply.

How about CRT?
Woo: CRT is still out there, and there are still factories and they're still producing and the price points are pretty low relative to flat-panel technology. But you'll see a move now from LCD to capture even more of the market. Smaller sizes of LCD, 26 inches and below, will begin to reach price points that just will eliminate CRT as the other option.

Such as?
Woo: You have a computer monitor. When the price ratio of the LCD monitor to the CRT monitor was 4-to-1, it was interesting. People started buying when it was 3-to-1. We started getting volume. When it was 2-to-1, it was over with CRT. LCD saw 100 percent volume increases. CRT volumes declined so much they had to close factories.

I think that you're going to reach closer to the two-times point for smaller LCD TVs in the coming year. You're not going to see a 26-inch LCD for $199, but you're going to see very, very aggressive 26-inch pricing to the point where consumers will say, "You know what, I could spend 'x' and buy that, rather than this big thing."

What's the ratio now?
Woo: 26-inch LCD is like five, six hundred bucks. 26-inch CRT is $200. And all of a sudden, it's the end. By the way, we were the No. 1 27-inch last year. Our 19-inch is No. 1 in the U.S.

One thing that people are still stumped by is that, when the PC makers got into TVs, people assumed they would do well, but they haven't. What happened there?
Woo: Let me say this. There's good and bad from PC. The good thing about the PC business model is the way they approach the supply. The supply chain in the PC industry is so incredibly efficient and the way they bring the best price to the consumers has been phenomenal. We try to emulate as much of that as we can. It's something that we feel like we got to jump on the traditional CE suppliers who really have their own internal politics and infrastructure to deal with.

The bad thing about the IT is the supply chain. They completely rely on everybody else to make a product. There's no originality. It's completely commoditized. CE manufacturers understand that this is a lot more like fashion and it takes integration with the channel. That's a unique skill of the CE industry, and so when we launched the company, we didn't launch it as an IT company. We launched this company as a CE company and we tried to build that type of relationship with the channels to engage them and try to figure out what consumers want. How do you merchandise, say, 1080p or whatever. This is a very CE mentality, and the IT guys really don't have that.

You have also become big in digital photo frames, a market that took some time to take off. What drove it?
Woo: When we launched, digital photo frames were being sold in catalogs or maybe Sharper Image and stuff like that. We went into the big-box retailers like Best Buy with a product and a way to merchandise it. We'd tell consumers "Look, you have digital photography. Where are you going to show your pictures?"

The initial products we were competing against were ridiculously expensive and very hard to use. They had to have a telephone connection. We just made this thing really simple: put a memory card slot in, turn it on and off, plug it in. Simple. Remote control? Who needs a remote control? Someday we may add wireless, but right now it's about getting people to understand the product.