I think we've seen this before, as the Japanese handed US TV makers their lunch. They produced equal or better quality products at prices US manufacturers couldn't match. Korean manufacturers are now doing it to Japan.
The problem for consumer electronics manufacturers is accurately guessing what the Next Big Thing will be, jumping in early, and *knowing when to jump out*. For several years, the market was big screen TVs. In the early days, prices were high, margins were too, and TV makers could make good money as the market got rid of old TVs and got the new big expensive models.
But sooner or later, the demand ebbs as people *have* replaced their old TVs, and as volumes rise, costs drop, prices drop, and margins become thinner, with lowest cost producer winning.
The Next Big Thing that was *supposed* to take up the slack when the big screen TV market was saturated was 3D TV, but that has been underwhelming, to put it mildly.
The question about the Japanese TV makers appears to be "Were they reading the tea leaves? Were they unaware the market was becoming saturated? Did they realize Samsung and LG were in a position to grab the low end of the market, and the high-end was largely filled?" It appears they weren't and they didn't. But in fairness, it's not clear what they could do *instead*. They arguably could have reduced production and trimmed losses, but without the Next Big Thing to build instead, that would have meant shrinking and layoffs, as there would be nothing for the plants that made them and the workers in those plants to do.
I think this raises bigger questions about the future of Panasonic, Sony, et al beyond TV. What *do* they do? What products *can* they make, *in* Japan, using *Japanese* workers, that have a big enough market to be worth addressing, and high enough value to allow charging prices that will let them be addressed profitably?
I think the answers will have important implications for Japan as a whole.
According to Ken Park, an analyst at DisplaySearch, LG reported a 4.1 percent profit margin for its TV business in the first quarter and Samsung reported a 5 percent margin. How are the South Korean companies able to turn a profit when the Japanese cannot?
It seems inevitable to me that the companies, particularly Sony, will keep putting branded TVs out there at least for the near term. I suspect they will outsource more of the manufacturing to Hon Hai and other contract manufacturers. My understanding is they have been having at least a portion of their TVs built by others for years.
Yes, Sony has been working with Foxconn for some time now; some say that 50 % already made by Foxconn. But it sort of proves the point that outsourcing alone is not going to be the answer for tv biz getting back to profitability.
I can believe LG getting a 4.1% margin, and Samsung getting 5%.
But we need to look at other factors related to the financial markets. If Sony or Panasonic could get that, would it be sufficient?
I remember when Sony dropped its popular Clie line of Palm OS PDAs. The Clie unit was profitable, but not profitable *enough*. Sony top management decided they could get a better return investing corporate funds elsewhere.
A profit margin of 5% might *not* be adequate for Sony, with an expectation by investorss that they could make more money elsewhere. (Where that might be is a good question...)
If I were Sony and Panasonic, I'd be outsourcing manufacturing. But I'd be looking hard at design, and thinking about what what features I could add that differentitated my products, added value for the buyer, and let me charge a higher price with a better margin.
I appreciate the margin discussion above. But with all due respect, I think what we should be looking at here is whether TV business is worth the effort of saving -- for any sane companies these days. Unless you can leverage the LARGE scale of economy to the extent Samsung made it possible, adding features and differentiations to TVs wouldn't seem to do the trick.
The days when TV was the focal point of many people's lives seem to be long gone. Added values and more differentiations will make more sense in smart phones and tablets...
Most consumers don't buy flat TVs because it's 3D or Google TV. It's because...well...it's cheap!
What makes a market worth being in in the first place?
If it's a market addressed by your industry, it's worth it if you can make enough money addressing it. What "enough money" is will depend upon who you are, what you do, what your business model is and what your financials look like.
"Unless you can leverage the LARGE scale of economy to the extent Samsung made it possible" is a key factor. TVs have become a commodity product, with commodity pricing and paper thin margins. It's what I was talking about earlier in product life cycles, where it's the end of an inevitable progression in consumer electronics, and when to *exit* a market you're in is an important question. Samsung and Foxconn are structured to do commodity manufacturing and make money, by selling enormous volumes. Sony apparently isn't.
But while the TV business may indeed *not* be worth saving, what does Sony do *instead?* If they decide it's not worth saving, how do they get out? It sounds like TV is a large enough part of Sony's business they they may simply not be *able* to say "We are out of the TV business." How many plants would be closed? How many workers would be laid off? What sort of a loss would Sony have to take close down that part of the company, and could they afford it? What would the resulting company look like?
I can think of various reasons why Sony couldn't just say "We're out!" tomorrow, including corporate ego, the costs of exiting the market, and unhappiness on the part of the Japanese government.
If I were Sony, I'd try to do two things: wind down the TV business and shift production to outsourced partners, and try to make the TVs I *still* made higher end products I could charge a higher price for. I wouldn't expect to *make* money, but I'd be trying to *lose* less.
But my ultimate question would still be "What is the Next Big Thing that will be my bread and butter, the way TV *used* to be?"
If I don't have an answer for that question, I'm in trouble.
Having worked for one of the Big Three, I would say that the main problem is that there were not able to make TV evolve enough.
The fact the needs for LCD was also driven by the move from analog to digital broadcast. 5 years I saw the same TV set in a store in Tokyo and in Paris. The one in Tokyo was using newly introduced full HD channel, whereas in Paris it was still analog. With such a poor quality nobody wants to pay twice the price. So the problem was not the TV set, but the contents (not talking about how lame are the shows...). In Japan the move to digital created a needs for new TV. It was the same in the US or in Europe, but with some time-lag. During that time the technology became common and Japanese company had to cut prices.
After digital broadcast something new is required. Up to last year, there were planning on 3D to create a new move, but it seems it will not happen.
I think that TV makers where not able to do what Apple did with the iPod: provide the hardware and the content.
For TV, streaming has been a big competitor. Why buy a TV if you can have the same thing + extra on your computer.
For the Big Three (and others) the next move is to rethink TV, not a box displaying broadcast content, but as an extension to the content they do provide themselves.
At one time the names like Sony and Panasonic meant prime products , here in India. In the last decade this scenario has changed. It is only LG and Samsung everywhere.
So it is bye bye Japan and welcome korea as far consumer electronic products and white goods are concerned
What do we mean by Flat TV here? Does it include LCD and LED back-light TVs? If it does not then the market of the CRT based TVs is going to be lost day by day there is nothing strange about it. From the article it is very confusing to figure out which TV is being discussed at different stages.
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