By Burt Helm To: Mark Hurd, HP's CEO
Re: Your new TV strategy
It's interesting that you're getting into the high-tech TV market. This summer, Hewlett-Packard (HPQ) plans to start selling nine different models, including liquid crystal display, plasma, and rear-screen projection sets.
At first glance, it seems like a great idea. The printer and PC businesses, HP's bread and butter, are stagnating. Your company needs a place to grow, and TVs could be it. HP is well-positioned: It has partnerships with major LCD-panel manufacturers already in place, thanks to its computer business. And a chunk of floor space at electronic retailers is already dedicated to HP cameras, printers, and computers.
But be forewarned: The high-tech TV business is tough -- and getting tougher. The average price of a high-definition TV is falling by 30% per year, making it hard for anyone to maintain a decent margin. Korean manufacturers like Samsung and LG are slashing costs and ramping up volume. And they're devoting billions to brand new factories, which will allow them to cut their prices even further.
LOW-COST CASUALTIES. So here's the best thing to do: Don't use your high-tech prowess to come up with gee-whiz extras that make you a high-end seller. All people want is a big TV they can hang on their wall or a rear-projection set that'll give them high-def for cheap. They just won't pay an extra thousand dollars for add-ons.
Instead, come up with innovative ways to make HD sets cheaper to produce. A great start is "wobulation," a technology HP developed that can get four times as many pixels out of a rear-projection chip. That means a typical 720-pixel chip -- the bare minimum for an HD set -- can be used to create an image that has 1,080 pixels, known as "true HD." Few channels broadcast with 1,080 pixels right now, but they will in the future. Use that technology with cheaper chips, and make HP a price leader in rear-projection TVs.
It may not be possible to do what Apple Computer (AAPL) did in the PC business and stay out of the low-cost fight. Brands that have marketed themselves as high end, like Fujitsu and Sharp, have had to drop prices in lockstep with the low-cost competition. And in last year's fourth quarter, do you know who beat Sony (SNE) -- the granddaddy of consumer electronics -- in LCD TV sales? Olevia, a low-cost Chinese brand that's relatively new to the market.
LACK OF AWARENESS. Selling through outlets like Tweeter (TWTR) and Good Guys, as HP plans, is a good start. People like to see and touch TVs before buying. That gives HP a leg up on Dell (DELL), which entered the TV market earlier in 2004 as a direct seller over its Web site. But Tweeter and Good Guys won't be enough -- you've got to get in the big retailers, too.
HP has a strong brand in computing and printing, but a robust presence with those products doesn't immediately translate into big presence in the living room. A study in the fourth quarter by research firm IDC asked consumers which brand of high-tech TV they might consider buying. Dell and Gateway finished below big consumer-electronics names, such as Sony and Panasonic (MC), and above the no-name Chinese brands. HP finished dead last. In fairness, plenty of people didn't know HP announced plans to get into the TV business last fall. But that lack of awareness shows just how far your have to go.
And don't be afraid to focus on selling the models that work -- and scrapping the others. Having a broad product line like the Sonys and the Panasonics of the world is less important than doing the best with products that set you apart. And if that turns out to be big rear-projection TVs with wobulation technology, then wobulate away. Helm is a reporter for BusinessWeek Online in New York