News and Reviews....

    The Flat Panel Blues   July 2007

    We would like to bring everyone up to date on the Flat Panel business and the recent turmoil it is causing in the industry. The buck stops at the numbers associated with all the heavy hitters in the industry. SONY Corporation reported a net loss of just under $2 billion it associates with its game business, mostly because of missed sales targets, excessive inventories of its PlayStation 3 product. While its other divisions did OK, they could not prevent a 68 percent drop in operating income from 2006. The confusion in 2007 to 2006 years is related to their fiscal year which doesn't end on December 31 of the current year, it carries over to April or May. Rest assured their 68 percent drop in income is real and take into account that their LCDs are not manufactured by SONY but Samsung and TPV (China) and you can do the math which predicts that they do not have complete control of the process. Something of a change for a company that likes vertical control.  

Pioneer Electronics, who forecast predictions of a $40 Million profit, flipped that profit into a $56.3 million loss. The blame is on downturn in Plasma prices and a decline in first quarter of this year shipments. Matsushita Corporation, parent of Panasonic has managed an increase in income of 18 percent to $1.8 billion for the most fiscal year but missed target of $2 Billion. Former subsidiary JVC (should be sold to TGP Group by the time this is read) rang up $64 million in losses for the same period. So Far So Bad for the Japanese. The Koreans, LG Electronics incurred $140 Million in net losses and is trying to stop the bleeding. Samsung reported a net loss of $77 Million for the first quarter of 2007. Chinese LCD Manufacture AU Optronics racked up a $152 Million loss in the same time period. The list goes on.

    Hitachi Electronics fiscal 2007 net loss of $32.8 billion yen (about $271 Million) was due to the company decision not to expand capacity of plasma operations at Fujitsu Hitachi Plasma Display LTD. Pioneer also shelved plans for a Plasma expansion. Pioneer's losses are attributed to its position in the high end of Plasma HDTV pricing. It has a small share (8%) in the North American market and has less manufacturing capacity then the other four plasma manufacturers where sheer numbers and their relationship to pricing is slamming the company. What astonishes me is that the manufactures are still bringing out 42 XGA (1024 x 768) plasma sets which are going to be dinosaurs in the near future do to the SXGA models starting to enter the market. The just is that if you sit close enough to a XGA 42" plasma the difference in resolution to full (1080P) HDTV will be hard to see. And so the quest for a denser pixel count is driving the lower, perfectly fine, XGA sets out of the market or to the discount bin.

The crux of the problem is the "race to the bottom" game being played by Panasonic, LG and Samsung. Cutting margins to the bone. Nothing is left for retailers to cover overhead on defects, returns or other abnormalities that in the long run will end up costing much more, given the fact it was not taken into consideration in the original MSRP. The only saving grace is that all of the companies have ability to pull the plug on Plasma and concentrate on bread and butter LCD, which I do not see as a better picture (natural). Hitachi and Pioneer do not have that option and must sink or swim. Sony will continue to private label someone else's LCD and Panasonic which is building its sixth plasma assemble plant seems to and believes it can stay competitive. 

Our Comment .....  The future in Plasma and LCD relies on High manufacturing volume coupled with aggressive pricing and distribution channels. Pricing flat panels displays at the high end of the market is not wise today. LG, Panasonic and Samsung have the ability to make enough product and get it to store shelves with market-sensitive pricing, Hitachi and Pioneer are not. This does not mean that Panasonic, LG and Samsung have the better piece in terms of technology, picture quality, or build quality (longevity). Plasma is holding ground in 50 inches and above, LCD is taking the 50 inches and below territory. We feel the average consumer is forcing the scale with mis-information from, read between the lines advertising. Buyer beware.

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