The television set has long been the main conditional indicator of the consumer electronics sector, around which industry analysts and brand names make strategic decisions and forecast the future health of the industry. In recent years, the television industry in itself has seen a transformation from older Cathode Ray Tube (CRT) models to Flat Panel Television (FPTV) models that have become increasingly affordable to the mainstream consumer and steering the consumer electronics boom. “It’s the driving force behind the consumer [electronics] boom,” explained Karl Zalum, commercial manager of Philips’ exclusive agent in Lebanon, in reference to the consumer transition from CRT to FPTVs.
Indeed, CRT models are being relegated to the history books. “It’s already over for these technologies, especially CRT TVs. The CRT factories have already shut down,” Zalum remarked. Recent figures released by DisplaySearch show that globally CRT TVs make up only 43% of TV shipments in 2008 which is far removed from the 77% market share enjoyed by CRTs in the first quarter of 2006. Most of the market share associated in CRT production has been siphoned off to third-tier manufactures that target lower-end consumers, “This sector has been left to ‘Mickey Mouse’ manufacturers in China and India where the market still exists for these products,” Zalum said.
A similar pattern is developing in the Middle East and Africa (MEA), although the CRT shipment volumes still outnumber Liquid Crystal Display (LCD) and Plasma Display Panel (PDP) TVs combined. According to DisplaySearch, shipments of CRT TVs in the MEA remain high, chalking up 71%of total TV shipments to the region. That being said, the trend is starting to take off in the Middle East. “We are selling more LCD TVs than we are selling conventional [CRT] TVs at LG. We didn’t expect that to happen so fast,” observed Selim Antaki, CEO of LG’s distribution agency in Lebanon. Year-to-year growth of Q1 TV shipments in the MEA region paints a clearer picture, with LCDs leading the field increasing by 153% followed by PDPs (104%) and CRTs (20%).
LCDs take the cake
As the TV industry became flatter, two competing technologies squared off to take over from CRT TV sets. Going back to early 2006, PDPs where the cheapest production option and the most readily available on the global market. However, in just a few short months, major consumer electronics brands began to produce LCD TVs en masse, and overran the market with LCD screens. The resulting price competition and availability of LCDs lowered production costs of LCD screens and sank the PDP market, as LCDs took over most of the FPTV market share. “In any business, the business itself usually revolves around one product […] today it’s the LCD,” said Adib Cherfan, CEO of Samsung’s exclusive agent in Lebanon. “The LCD is the cornerstone of any electronics distributor in this market.”
Global figures for LCD shipment rates show a year-to-year growth of 47% and hold a market share of 49.8%, compared to a 7.1% share allocated to PDP TVs, according to DisplaySearch. However, other more industry-specific factors are also being pointed to in order to explain the LCD boom. “One of the first reasons [that LCD took over] is that people associate Sony with higher quality. So [when] Sony began to produce only LCDs, they advertised that LCDs are better than Plasmas,” Antaki said. “Some other manufactures like LG and Samsung have the manufacturing capabilities for both LCDs and Plasmas. They didn’t consider advertising that Plasmas even have some advantages over LCDs.” The trend also applies to consumers’ pre-conceived notions of the advantages of LCD screens over PDPs. “Consumers have been brainwashed to believe that LCD is so much better [than PDP]” Cherfan said, cautioning, however, that “at the end of the day this is really still debatable because it is a different technology and no one can say that one is better than the other.”
Accordingly, the major consumer electronics manufactures either suffered or benefited greatly from the FPTV manufacturing paths they chose as it became evident that there was no going back, “When the issue was which way to go, LCD or Plasma, the big names like Sony, Samsung, LG, Panasonic, and Philips sat around the table to decide which strategy to take,” explains George Khoury, CEO of Khoury Home. “This was a big issue two years ago that made it extremely hard to change course; they [the big suppliers] have chosen their direction and they have to stick to it.”
The third factor attributed to LCDs takeover had to do with sales. “In the showroom, where the purchase is made, you have florescent lighting or you make your purchase in full daylight, [and] LCD looks better than plasma.” Antaki explains. “The sales staff in a showroom doesn’t care about whether you buy an LCD or a Plasma [TV]; they care about their commission. So the customer looks at the TVs and LCD looks better so they make a choice,” Antaki explained.
The final and most pertinent factor was related to size. “The masses will buy smaller sizes and that is the major issue that is [adversely] affecting the sales of Plasma,” Khoury pointed out. Moreover, households with more than one television set were more likely to purchase LCDs due to the smaller size options that were available, “If you have five rooms at home, you won’t install a 42 inch Plasma in each room; you want small sizes,” Khoury said. “You will buy one big size and the others will be LCDs. So you have to decide on the big screen, but for the others you don’t have a choice.”
With all the talk of a LCD revolution it is easy to get caught up in the hype. Many of the major consumer electronics brands did just that last year, when growth forecasts became too optimistic after an initial mass adoption of LCD TVs. The result was an oversupply of LCD screens to the global and regional market. “It’s not only the Middle East that is experiencing an oversupply. The source of this phenomenon is the factories. Growth speculation for a period of about two or three years caused the building of new factories or an expansion of old factories in order to increase supply,” Zalum stated. “However, the market has changed and is not growing as much globally as [previously] predicted and this is resulting in an oversupply. When this happened prices began to drop. On the other hand, two or three years ago we did not have enough supply specifically in Plasma and LCD screens; we would receive around 15% of the quantities that we ordered,” he said.
The oversupply of LCD TVs to the market instantly caused massive price erosion as lack of product differentiation forced retailers to make prices more competitive. The initial blitz to take advantage of profit margins encouraged other brands to emerge and force prices down even lower. “We saw non-traditional dealers in the market such as hyper-markets that are transforming the market into a ‘price busting market’ that creates more demand,” Zalum declared. However, this increased demand could not keep up with the price cuts that where continually eating up margins. “Production was faster than demand,” Antaki explained, “and prices went down in 2007. In 2008 some of the manufactures went out of business as they were not able to follow the price cuts.”
Many second and third-tier manufacturers of LCD and PDP TVs could not keep up with price cuts due to increased costs associated with panel manufacturing that was not a part of their core business processes. “To be successful in this field, you have to be a panel manufacturer, and you don’t have a lot of these. So a lot of electronics manufactures who didn’t have panel [manufacturing] facilities where buying panels from other manufactures; thus they tried to enter the business and they failed,” Antaki said.
In the end, however, the consumers came back to the major brands. “The market is coming back to the brand, we had been experiencing consumers moving into non-branding products or non-genuine products but now the consumer is coming back to those that are more reliable and more trouble free as per branding and supplies,” explained Chalhoub. Prices have stabilized as distributors and retailers enjoy sustained and medium growth, “because of less competition,” according to Antaki.
Today LCD TVs are selling at affordable and stable prices as well as being available in a variety of sizes and transmission frequencies. Even with an expected 9% year-on-year decline on average prices, there is also ample room to grow in developing economies as LCDs only account for 28% of market share in developing countries as opposed to developed regions like North America, Japan, and Western Europe that already have very high levels of LCD TV share at 80%, 85% and 87% respectively. In terms of the bottom line, major players are seeing growth rates materialize as a result of sheer volume, which has helped to compensate for the decrease in profit margins. “So far the bottom line is increasing because volume is increasing,” said Cherfan, “Of course, volume on margin models has been decreasing.”
Plasmas making a comeback
PDP TVs are on the rise again after being dormant for more than two years — mostly due to new size and resolution categories offered by PDPs. These include the 32 inch model introduced by the US value brand Vizio and Panasonic’s new 46 inch 1080p version — both of which did not exist in the previous year. PDP shipments also grew more year-on-year and over the second quarter of 2008 globally than LCDs (47% Y2Y, 12% Q2Q), registering growth rates of 52% and 22% respectively. With this newfound vigor in PDP growth is mainly being attributed to continuing PDP panel price reductions and the dominance of LCDs forcing PDPs to sell at lower prices. “At the same prices, the customer will opt for an LCD [TV] so plasma manufacturers have to sell slightly cheaper,” Antaki said. This is supported by the latest figures coming out of DisplaySearch, which show the gap between models such as 50 inch HD PDP panels versus 52 inch 1080p LCD TV panels falling from US$620 in Q1’08 to US$480 in Q3’08 and thus decreasing prices of PDPs in relation to LCD screens globally. The result of PDPs being resurrected can only be good for consumers as prices will undoubtedly fall due to competition, as brands increase their panel manufacturing in either LCD or PDP television sets to accommodate for new models.
