High-Tech TVs for Everyman

Oversupply, new plants, and more TV makers add up to a perfect storm for consumers waiting for much more affordable sets

At last week's Consumer Electronics Show in Las Vegas, high-tech TV makers unleashed the big guns. They're competing to have the thinnest, sharpest, flat-out grooviest set on the market, from LG Electronics' 71-inch liquid crystal display that costs a mere $50,000 to Samsung's new 80-inch plasma, which can be had for a more sensible $39,000.

But underneath all the showboating, another game is afoot among high-tech TV makers -- the battle to control share in the market for TVs that have 30- to 50-inch screens. That's the sweet spot of the flat-panel business, and prices in that growing market are expected to drop at least 30% this year -- so fast that some models could fall below the magic $1,000 barrier by the next holiday shopping season. "[Companies] are really trying to figure out what price point is going to attract consumer attention" says Riddhi Patel, a senior analyst with the technology research firm iSuppli.

Why the big drop? It's a perfect storm of circumstances that could delight consumers while putting the squeeze on manufacturer's margins. With several new state-of-the art plants coming online, pressure to solve oversupply problems from last year, and new low-cost models coming from Taiwan and China, the bottom has fallen out of high-tech TV pricing.


  The end result is cool TV technology for the common man. By the end of 2005, some low-end Taiwanese manufacturers could sell 32-inch LCD models for $999, says Patel. iSuppli expects a 42-inch plasma set will be under $2,000 for standard-definition, under $3,000 for HD, and about $1,500 for a typical 32-inch LCD.

For now, the varied TV technologies have settled into size ranges. LCDs sell mainly in the 30- to 39-inch range, while plasma TVs sell best in the 40- to 50-inch range, and rear-projections screens dominate the giant-size end of the market.

All eyes will be on LCDs in the coming year. While this technology has had the most technical problems in the past, and to many still doesn't look as good as plasma, new state-of-the-art factories are cutting production prices drastically. In the last year, two new factories run by Sharp and LG.Philips (LPL ) have come on-line.


  Most recently Sony (SNE ), which put more focus on plasma in the past, announced Jan. 7 it would purchase an LCD factory in Taiwan for $176 million, as part of a joint venture with Samsung Electronics. Unlike plasma plants, which each have their own methods and specifications, LCD factories follow industrywide standards and produce standard components. As a result, each new "generation" of plants leads to a serious drop in production prices.

It's a production model similar to the computer hardware industry, where prices tumble significantly year-to-year. That will take some getting used to from consumer-electronics retailers and vendors. Retailers and vendors won't want to let go of "40 years of very high margins on TVs," says Bob O'Donnell, director of personal technology at market researcher IDC.

Last year, retailers saw an oversupply of many LCD models. The problem? The 30- to 37-inch LCD screens cost almost the same as bigger 42-inch plasmas. "Back in the end of 2003, LCD TVs were supposed to be the next big thing" says Patel. "But retailers quickly realized consumers weren't buying" because the price was comparable to bigger sets.


  That may soon change. With lower production costs, LCD makers will rush to get their sets below plasma prices. However, plasma and rear-projection makers will likely cut their prices in turn in a trend that has been happening for several years. "A lot of the price erosion...has been inch by inch, where one [company] will make a move, and the others will react," says Russ Johnston, senior vice-president for marketing at plasma TV-maker Pioneer. "It has been tough to maintain margins."

This year, these TV makers will start seeing other pressures most often identified with the computer hardware market: new add-ons like built-in digital video recorders; embedded cable cards, which eliminate the need for cable boxes; and wireless and Ethernet ports for home networking. These upscale features will make bare-bones standard models cost less.

All told, these pressures will keep prices dropping by about 30% a year for at least the next three years. "It will be dramatic" says O'Donnell, "And it's going to continue to be dramatic." Perhaps still not dramatic enough to suit some pocketbooks but at least enough to lure lots of new buyers into stores.

By Burt Helm in New York 

Edited by Jim Kerstetter

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