Korea: Set to Duel in Digital TV
Could the Koreans do it again with TVs? Time was, Japan dominated in memory chips, flat-panel displays, and virtually all things consumer-electronic. Just over a decade later, things look decidedly different. Korean companies absorbed the technologies from their Japanese mentors and found ways to beat them at their own game -- first in memory chips, then in flat-panel displays, and more recently in cell phones.
Now the Koreans see a golden opportunity in the crown jewel of home electronics: digital TV. "It was enormously difficult for latecomers to catch up to leaders in the analog era, when accumulation of manufacturing technologies and experiences was vital," says Vice-Chairman and Chief Executive Yun Jong Yong of Samsung Electronics. "For digital, we are [all] racing from the same starting line."
The battle for leadership in digital TVs has taken on greater importance in the run-up to this summer's World Cup soccer tournament (see BW Online, 5/21/06, "Advertisers Kick it Up for the World Cup"). With flat-panel display prices falling rapidly as a result of massive investment in production facilities by the Koreans, Taiwanese, and Japanese, consumers are snapping up large, sleek televisions to replace bulky tubes before the games kick off on June 9 in Germany. The U.S. requirements that manufacturers equip all 25-inch sets or larger with digital TV tuners will also accelerate the switch.
Both Samsung and compatriot LG Electronics have said they want to be at the head of the pack, outdistancing rivals Sony (SNE) and Matsushita Electric Industrial (MC). Unlike Sony, which focuses on liquid crystal displays (LCD) for thin-screen technology, and Matsushita, with its emphasis on plasma, the two Korean giants have hedged their bets, and are in both technologies (see BW Online, 9/12/05, "War Of The Screens").
Samsung has set tough targets for itself. Last year, it placed either the No. 2 or No. 3 in LCD, plasma, and rear-projection TVs, trailing Japanese rivals. This year it wants to be No. 1 in all three categories, by selling a total of $8.8 billion worth of digital TVs, a gain of 40% from last year. And in 2007 Samsung aims to be the first company to top $10 billion in revenues from digital TVs alone.
LG's ambitions are even more grand. The company, which ran second worldwide in sales of plasma TVs and fifth in LCD, hopes to pass Matsushita, Sony, Samsung, Sharp, and Philips Electronics to become the leader in both categories by 2008.
TURNING IT UP.
"We will cement our second place in the plasma TV market this year to challenge the No. 1 in 2007," says Yoon Sang Han, LG executive vice-president in charge of the TV, monitor, and plasma panel module businesses. He expects LG's plasma TV sales to more than double to 2 million sets this year, from 877,000 in 2005. He sees sales of 4 million LCD TVs, up from 1.5 million.
The Koreans can expect the Japanese to put up a tough fight. Sony, in particular, is staging a dramatic comeback. Chief Executive Howard Stringer has given top priority to reinventing Sony's core consumer-electronics unit for the digital era, as video technology moves to high definition -- more than double the clarity of analog's standard definition. "The scale of the transition from analog to HD will make the shift from black-and-white to color seem small by comparison," Stringer said earlier this year.
Sony enjoys a strong advantage over Korean rivals in terms of brand recognition. Many consumers still have fond memories of the company's Trinitron models, which dominated the analog TV industry for decades. And while Sony lagged behind competitors in developing flat-panel technologies, its thin-screen Bravia TVs have become hot sellers in the less than 12 months they've been on the market (see BW Online, 4/26/06, "Sony's TV Star in the Spotlight").
SUPPLY IS KEY.
According to market-tracking outfit DisplaySearch, Sony laid claim to a 15% share, by revenue, of the global market for LCD TVs in the first quarter of this year, followed by Samsung, with 13.9%, and Sharp, with 12.7%. A year ago, Sharp was the clear leader.
Sony's Achilles' heel is that it doesn't have production capability for the thin panels used for digital TVs that can be hung on a wall -- a handicap faced by other Japanese TV makers. It is now relying on a 50-50 joint venture with Samsung for the supply of LCD panel modules while its plasma TV output is limited by the lack of a stable supply of panel modules. In contrast, both Samsung and LG have direct control over their supply of both types of thin panels, either because their own plants churn them out or they have contracted production from affiliates.
Another big advantage for the Koreans, particularly Samsung, is the capacity to generate huge profits from other divisions that can be then plowed back into strategic projects such as digital TVs. Samsung achieved a profit margin of 14% last year, thanks to its lucrative memory-chip business, compared with Sony's anemic 2.5%. That means Samsung has a big chunk of cash to spend on research and development, as well as marketing.
GOOD LOOKS SELL.
The company earmarked $6.4 billion for R&D this year, up from $5.7 billion last year. It also allocates the equivalent of 9% of sales for marketing. "Digital TVs will be at the heart of our strategy to refashion Samsung into a great digital-media company," says Kang Young Kie, the vice-president in charge of charting long-term strategy. "Controlling the TV market will give us a strong stepping-stone to move into the digital solution business for networked homes."
Another Samsung strong suit is design. Market surveys have revealed that nowadays consumers buy TVs as much for their looks as for their technical capabilities and features. To capitalize on the trend, Samsung has inaugurated design centers in a number of the world's style capitals, including London, Los Angeles, San Francisco, Tokyo, Shanghai, and Milan. It now has 550 designers on its payroll, up from less than 400 three years ago. The design for its latest LCD TV model is minimalist, in synch with a leading trend in interior design.
But it's not all style over substance. To polish its high-tech image, Samsung is rolling out the world's first next-generation Blu-ray DVD player next month, and a new LCD TV in July to accommodate Blu-ray picture quality of two-megapixel resolution. "We'll set trends in the areas of high-definition video, wireless connectivity, and networking," says Samsung Vice-president David Steel, head of marketing for TVs, computer, audio, and video products.
For its part, LG is planning a big marketing push for its new plasma and LCD TVs equipped with built-in digital video recorders. The TVs will have hard drives that can store 250 gigabytes of information, roughly equal to 92 hours of regular TV programming or 21 hours of high-definition programming. The sets, priced about $300-$500 more than flat-screen TVs of comparable size without hard drives, are also outfitted with slots for several types of digital-memory cards that can be used to display pictures from digital cameras.
There's no guarantee that history will repeat itself, and that the Koreans will usurp Japanese manufacturers' dominance of digital TV. Analysts are sure of one thing though: Sales of flat-panel TVs will continue to grow rapidly. DisplaySearch predicts demand for LCD TVs will jump to 111.4 million in 2010 from 21.1 million last year. Demand for plasma TVs will surge to 20.7 million from 5.9 million.
"Samsung and LG appear poised to be among the top four digital TV players, along with Sony and Matsushita," says Daniel Kim, display analyst at Merrill Lynch. "It certainly is a tough task for the Koreans to outgun the Japanese, but I wouldn't discount it."