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Blurry Times in the Plasma TV Biz

Revenues are set to peak in 2008 for plasma TV panel makers, but Japan's Matsushita Electric is still betting big on the technology

It's a classic dilemma for any flat-panel TV maker: to expand or not to expand. But for plasma TV manufacturers, the question goes beyond the usual hand-wringing about whether to spend on more super-efficient factories now to reap cost advantages later. That's because by 2009, companies like Matsushita Electric Industrial (MC), LG Electronics and Samsung could get hammered by falling revenues, as competition from the dominant flat-panel technology, liquid-crystal displays, drives down prices and undercuts their profits.

According to market research firm iSuppli, revenues, estimated at $7.7 billion last year, could peak at $10.2 billion in 2008 before falling back to $8.7 billion in 2011. The decline is expected to come despite rising sales of the specialized glass panels for plasma TVs, which could more than double from 10 million last year to 23.6 million in 2011.

The not-so-upbeat outlook explains why most plasma-panel makers aren't eager to ramp up production. This year only one company hasn't curtailed production: Matsushita. Says iSuppli's Riddhi Patel: "Most panel makers have cut their production utilization rates to around 70%—except for Matsushita, which remains at 100%."

Matsushita Has More at Stake

So why does Matsushita CEO Fumio Ohtsubo have his plants firing on all cylinders when everyone else is taking a wait-and-see approach? Ohtsubo has yet to offer a clear answer.

The best guess is that he's dead-set on reaching his target of selling 5 million sets this fiscal year through March, 2008—a 43% rise from 3.5 million last year—and reaching even higher levels in the next few years, and anyway it's premature to get all worked up about a contraction. It's no secret that Ohtsubo wants Matsushita to rule the market for big screens by the end of the decade.

It could also be that Matsushita simply has more riding on the success of plasma TVs than anyone else. The world's biggest plasma producer, with more than a third of the market, the company is outspending all others on state-of-the-art panel-making factories. Its $2.4 billion facility—the company's fifth and biggest to date—is scheduled to be up and running in May, 2009. That mega-plant could double the company's current annual production capacity to 11.5 million sets by early 2010.

Ohtsubo's goal is for one in four of all flat TVs with screens measuring 37 in. and larger that are sold worldwide to bear the Panasonic brand. One way he might accomplish that: expand Matsushita's small-scale LCD TV business. On Aug. 9 the company did just that, announcing plans to sell 37-in. LCD TVs in Japan for the first time and moving up in size from the 32-in. sets it had previously made.

How Big is the TV Pie?

It's still not going to be easy for Ohtsubo. The world's top LCD makers, once limited to smaller screens, have developed new technologies that allow them to crank out bigger TVs. Samsung Electronics (SSNKF), Sony (SNE), Philips (PHG), and Sharp (SHCAY) are just as eager to stake their claim in the high-margin sector of the market that plasma once had all to itself. In the first quarter of this year, LCD makers sold more big-screen TVs in sizes 40 in. and up than plasma producers, says market research firm DisplaySearch. (Plasma TVs currently make up only 15% of the global flat-screen TV market.)

With the TV pie set to grow in coming years, it would seem that there's plenty to go around. But the reality is that plasma makers are already feeling the heat from LCD's encroachment. Last year large-screens accounted for 14% of the 44.5 million LCD TVs sold worldwide. This year that figure is expected to rise to 25% of LCD sets, and in 2011 it could be as much as 40%, iSuppli predicts.

Last Year's Models

No wonder some analysts have revised down their plasma TV sales forecasts following a tough quarter for the world's top manufacturers. In the April-June quarter, Matsushita's TV sales volumes were up 31% but overall TV revenues only gained 2%. And the company's declining TV revenues in Japan and North America—where a majority of the world's big-screen TVs are sold—offers a glimpse of how the entry of LCD TVs is weighing on prices and profits in the sector.

Although rising inventories might suggest the need to curb supply, the company says the stockpile comes just before a launch of brand-new models, not because slowing demand has left old sets sitting at warehouses. Other plasma makers aren't holding up as well, with LG and Samsung chalking up sizable losses in the most recent quarter.

No Rest for the Weary

The one thing still going for Matsushita and other plasma makers is price. Displaysearch estimates that in the April-June quarter the average price for a 50-in., high-definition plasma set was $2,191 vs. $2,524 for a comparable 45- to 47-in. LCD TV. But the gap is likely to narrow.

Samsung, Sony, and Sharp have just begun production at new factories of their own where they're able to produce bigger sheets of glass from which more large-screens can be cut, and they're already plotting their next move (see, 8/01/07, "Sharp's Mega-Wager on LCD TVs").

That suggests the best option for plasma makers is to keep innovating so they can stay a step ahead of LCD makers. Analysts note that consumers rank price among their top considerations when shopping for a flat TV, but eventually the price contest could give way to a perception game. Consumers might be less inclined to drop $1,000 on a TV if they think manufacturers will abandon the technology in a few years. Perhaps Matsushita is smart not to neglect its own tiny LCD-TV-making operation, just in case.

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