By Bruce Einhorn
It wasn't so long ago that having a color TV in China was a sign of affluence. Today, many millions of Chinese own them, and China's TV makers are among the world's biggest. One is TCL, based in Southern China's Guangdong province near Hong Kong, which now controls the RCA TV brand. TCL won the RCA name thanks to the Chinese company's dominant role in a joint venture with France's Thomson group, making TCL one of the world's most powerful TV makers.
Yet, as more and more American consumers scrap their clunky old TVs and buy sleek new thin-screen models, could it be that the Chinese are out of their league? Companies like TCL, Konka, and Changhong have grown large by producing cheap, low-tech cathode-ray tube models. That CRT technology may be popular in China and other developing countries, but it's quickly losing favor in the world's wealthier economies to snazzier, more complicated technologies such as liquid-crystal (LCD), plasma, and rear-projection digital-light processing (DLP) models.
Right now, the companies that dominate these categories are the traditional big-name brands -- names like Sharp, Panasonic (MC ), Samsung, and Philips (PHG ) -- with new competition from American PC makers like Dell (DELL ) and Hewlett-Packard (HP ). Still, it's likely that the Chinese will be major players in the world of high-tech TVs. Certainly China's major TV makers aren't going to sit back and let the Japanese and Koreans and Dutch dominate the market.
Already, the Chinese are moving into the more lucrative thin-screen market. "Everyone is getting into this business," says Henry Lau, the former CEO of Chinese TV maker Skyworth Multimedia. Skyworth had just 15 LCD TV models in 2003 but several dozen last year. "Flat screens are now not very big for us, but we won't give up," says Zhao Zhongyao, the CEO of TTE, the joint venture between TCL and France's Thomson that controls the RCA brand in the U.S. TTE has a joint laboratory in the Southern Chinese city of Shenzhen with Texas Instruments (TI ) to work on DLP technology. It's also working with Trident Microsystems (TRID ) to develop chipsets and has plans to start producing its own displays.
Another factor that will keep China front and center in the new TV era is its role in the outsourcing food chain. Just as PC companies have been able to outsource production of their computers to manufacturers in Asia, the companies that sell brand-name TVs are finding that they can rely on others to do the manufacturing and design for them. That means the barriers to entry are falling.
"We have a paradigm shift, with an opportunity for a whole set of new players to enter the marketplace," says Douglas Woo, the 44-year-old CEO of Westinghouse Digital, a Southern California-based startup that has revived the old Westinghouse brand by selling LCD TVs made by a partner in Taiwan. "Who survives and dominates the next generation of TVs is really up for grabs."
And if the parallels with the PC industry hold, as more companies outsource to the Taiwanese, more of the actual manufacturing will be shifting to low-wage locations across the Taiwan Strait in China. So a few years from now, when you buy your next TV, chances are good that it's going to be made in China.
One thing is certain: The shift to digital TVs means even more of the design and manufacturing of TVs will be taking place in China and other parts of Asia. For instance, Silicon Valley chip designer Trident Microsystems employs 100 engineers in California to work on the algorithms, architecture, and advanced design of its TV chips, but it has 200 more in Shanghai to work with customers in the region. As Trident grows, it will be adding more engineers in China, says CEO Frank Lin.
Lin is also intrigued by the potential of the domestic Chinese market. "China produced 65 million units last year -- 34 million for domestic consumption and the rest for export," he says. "Only 6% are digital." As the Chinese middle class grows, so too will the demand for higher-end TVs that make use of Trident's chips, Lin believes. "In China alone, you can see that the growth potential is huge," he says.
Another factor in China's favor is the fact that Asia is the center for production of plasma and LCD panels. The U.S. still has chipmakers like Intel (INTC ), Texas Instruments, AMD (AMD ), and Micron (MU ), but when it comes to LCDs and plasmas, the action is all in Asia -- in Japan, Korea, and Taiwan. The Chinese hope to get into the business too, with new fabs in Beijing and Shanghai.
But even if China doesn't succeed in making the LCD and plasma panels, its close proximity to the Asian producers of these components will give companies even more incentive to assemble their TVs in China. With old-fashioned CRTs, multinationals spread out their manufacturing around the world, since the picture tubes themselves were so big and bulky that it was too expensive to ship them from Asia to the U.S. or Europe. That allowed countries like Mexico and Turkey to have major TV manufacturers, even though their labor costs weren't nearly as low as China's.
But as the industry's growth increasingly comes from LCDs and plasma displays, manufacturers realize that they have no choice but to ship from Asia. So there's less reason for companies to stick with uncompetitive locations.
"No matter what you do, the panel has to come out of Asia," says Frans van Houten, CEO of the consumer-electronics division at Philips. "More products will come out of Asia. That is definitely the case." So one way or another, the Chinese are going to emerge as high-tech TV winners.
Einhorn is Asia economics editor for BusinessWeek in Hong Kong
Edited by Phil Mintz