Asia’s TV manufacturers change channel on strategy

October 7, 2013 12:58 pm

Asia’s TV manufacturers change channel on strategy

By Jennifer Thompson in Tokyo and Sarah Mishkin in Taipei

Taipei café owner Wei Peng-Jeng is an avid viewer of television series, but the small screen that he watches them on is far smaller than the one they were created for. During a recent slow afternoon, Mr Wei propped up his HTC smartphone’s five-inch screen to watch Sherlock, the BBC crime drama. Watching programmes on TV sets, he says, is the domain of “parents or the older generation”.Mr Wei was far from alone in seeing the living room box as passé. Globally, demand for TVs may barely budge next year, Nomura analysts reckon, compared with growth of 7 per cent year-on-year in 2011 and 30 per cent just a few years previously.

Japanese manufacturers, once the biggest players but now ranking just third with a market share of less than 20 per cent, have borne the brunt of this – as testified by the increasingly strained finances at the likes ofSharp, which has made a net loss of Y921bn in the past two years.

All major Japanese TV brands, including Sharp andSony, lost market share in the first quarter this year compared with 2012, according to NPD DisplaySearch, the market researchers. The news did not improve in the second quarter, when only Chinese brands increased revenues year on year.

Also bleeding cash is Toshiba which last month axed 3,000 jobs in a move designed to save Y20bn a year. Analysts welcomed this as the first step towards turning round a unit that has not made money in the past two years.

Henceforth Toshiba, whose TV and digital products unit comprise an estimated 5 per cent of group sales, will make 11m TVs in just two overseas factories, one a joint venture in Egypt. By contrast, three years ago it was producing an annual 14m from four factories.

But not everyone sees these moves as sufficient. While analysts believe the move will help return the unit to break-even, were Toshiba a US company it would have shed its TV business long ago, says Masami Kashiwagi, analyst at Forrester.

Instead: “It has pride, history, and complex decision making motives,” she says. “It will try to improve its TV business by reorganisation efforts first.”

Sales of Toshiba’s digital products fell 14 per cent last year to Y1.4tn ($14.4bn). The unit’s underperformance has had a significant impact on the group operating margin. Axing production altogether would help lift group operating margins 100 basis points to 4.4 per cent, says Mark Newman, analyst at Bernstein Research.

Toshiba’s factory closures and accompanying plans to reduce the number of different models produced are mirrored at other Japanese set makers such as Sony, which has retreated from the sector after its TV manufacturing division reported annual losses for almost a decade.

Toshiba is adamant that it will stay in the sector, but concentrate on more profitable large-screen, high-definition models, and continue to make Smart TV models that contain features such as access to the internet.

But the unit was ignored as a growth area by Hisao Tanaka, Toshiba’s new chief executive, when in August he cited data storage and healthcare as the most promising areas of focus for the group.

Besides, Smart TVs are attracting plenty of competition too. China’s Baidu, Alibabaand Xiaomi – a search engine, e-commerce company and smartphone maker respectively – are all launching such Smart TVs that undercut Toshiba’s.

Samsung and LG Electronics of South Korea also operate at the top end of the market, having invested aggressively in technology and marketing.

“Not only are [Korean TV manufacturers] making the best quality TVs but people now know it,” says Mr Newman – a strategy that has won them a league topping 37 per cent market share globally, ahead of China’s 24 per cent.

Sadly for the Japanese, and their peers, there were no signs of a resurgence of interest in TVs over the recent Golden Week holiday in China. Instead, sales were lukewarm, partly given the absence of government incentives to upgrade to greener appliances, says Eric Chiou, display analyst at WitsView, a market research group in Taipei.

“Even with a Chinese national holiday . . . demand is just so-so, and the TV price is kind of weak,” he says.