How Vizio Beat Sony in High-Def TV

"The Vizio brand has become a force to be reckoned with"

William Wang's corner office at the headquarters of electronics maker Vizio is the picture of luxury. Seven giant flat-screen televisions adorn the walls behind Italian leather chairs. Bottles shimmer at a full wet bar. Vizio may have been founded on low prices, the chief executive officer says, but he wants it recognized as a success story.

After seven years in business, the company just surpassed Sony (SNE) to become the second-largest TV brand in the U.S. and is closing in on Samsung, according to industry tracker iSuppli. Vizio, based in Irvine, Calif., is on track to sell more than 6 million of its bargain-priced LCD TVs this year, up from 3.6 million in 2008. "The Vizio brand has become a force to be reckoned with," says iSuppli analyst Riddhi Patel.

"Our model is definitely a child of the 21st century," says Wang, 46. In the 1990s, the Taiwanese-born entrepreneur, who once ran the now defunct computer-monitor company Princeton Graphics, started Vizio in 2003 with $600,000, no engineers, and no factories. He parlayed relationships with Asian manufacturers into shelf space at U.S. retailers. The company made its mark by introducing HD sets at Costco (COST) for $3,000, a third of the price of Sony, Panasonic (PC), and others. Rivals cited inferior quality; consumers didn't care. "With digital TVs, it's become harder to distinguish yourself as a premium brand," says Stan Glasgow, president of Sony Electronics' U.S. division.

Wang says what made his low-price approach work was recognizing that TVs are following the path of PCs, and that he needed to become a Michael Dell-like master of his supply chain. Wang went further than just securing good prices for parts and shipping. He offered two huge Taiwanese contract manufacturers, Foxconn and AmTRAN Technology, equity stakes in his company to ensure their attention. They bit. That enabled Vizio to deliver inexpensive sets to Costco, Wal-Mart (WMT), and other chains, and Wang's startup quickly gained market share.

Now, Vizio is going after Bluetooth headsets, portable TVs, iPod docks, and a type of stereo speaker called sound bars. It'll back the effort with a $30 million marketing campaign, featuring Beyoncé, aimed at showing shoppers that Vizio can offer gear as good as the top brands at much lower prices.

New products from Samsung and other rivals will keep the pressure on Vizio. Glasgow says the 3D sets Sony is shipping in June will be better than Vizio's offerings. As for any possible newcomers—for example, a major retailer that decides to launch its own line of HD sets, as Best Buy has done—analysts say Vizio's supply-chain efficiency would be difficult to duplicate. "That's an expensive barrier to entry," says Tim Bajarin, president of technology consultancy Creative Strategies.

The privately held company doesn't disclose profits but says it has operating margins of 4% on $2 billion in revenue. (Sony has been losing money on TVs for more than a year, according to filings.) Wang says an IPO is likely, though not "in the next few months."

Wang says Vizio will keep growing by coming up with ways to undercut the colossi. He is not wanting for confidence. "Hey, before I was 30 years old, I made my first million," he says. "Before I was 40, I lost my first $40 million."

The bottom line: Vizio's business model—supply-chain mastery and low-priced products—would be difficult for any competitor to replicate.

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