Global Economics

Sharp Bets Big on Ultra-thin, LCD TVs


The Japanese company's ability to sell ever-thinner liquid-crystal-display sets will determine whether it can retain brand cachet and keep profits up

Shigeaki Mizushima is about as wily an engineer as you'll find at Sharp (SHCAY). He once tailed the company's top executive into the bathroom to plead for more funds for a project. As a young researcher, Mizushima set up a technology demo for a liquid-crystal-display prototype on the rooftop of a building and then got his boss to drag the chief executive officer outside for a look after a senior management meeting had ended one floor below. "He asked to see it again indoors," recalls Mizushima. "Then he gave us the green light."

Now, as the head of display technology research for Sharp, Mizushima, 52, is putting his natural flair for theatrics to a different use: persuading consumers that ultra-thin, liquid-crystal-display TVs are the best flat-screen sets around. In late August, he and Sharp President Mikio Katayama unveiled a super-svelte 52-inch LCD TV prototype that the company plans to make at a new $3 billion plant near Osaka starting in March, 2010. They have hit the road with the next-generation LCD sets, and will be stopping next at the Jan. 7 International Consumer Electronics show in Las Vegas after industry confabs in Berlin and Tokyo in recent months.

Mizushima's ability to sell the public on thinner LCDs could determine whether Sharp can keep its brand cachet and profit margins high. Success will also help insulate the company from the 20% to 30% declines in TV prices annually. "Thinner LCDs will give consumers more freedom to put a TV anywhere—on a wall, for instance—and change their lifestyles," he says. He won't divulge details about the panels except to say that they'll be made from materials and with methods never tried before.

Targeting Buyers Willing to Spend Thousands

Some analysts have their doubts. "Consumers are already enamored with the flat TVs out there," says Paul Gagnon, DisplaySearch's director of North American TV research. "Going from a set that's three or six inches thick to one inch isn't a big enough difference."

LCDs are the planet's dominant thin-TV technology and the market's fastest-growing sector. This year, four out of five consumers worldwide who buy a flat-panel TV will choose an LCD set, according to market researcher Displaybank's forecast. That adds up to big bucks when you consider that manufacturers are likely to sell 88 million flat TVs in 2007. DisplaySearch estimates that LCD TV sales alone could exceed $65 billion this year. By 2015, unit sales of flat TVs are likely to have tripled, to 264 million, with much of the gains powered by annual double-digit growth rates for LCDs.

To recoup the massive spending on its next-gen TVs, Sharp will need to target buyers who are willing to cough up thousands of dollars for the latest high-def set. In the cutthroat, $101 billion TV business, giant-screen, high-end sets yield the fattest profits. Mizushima says Sharp will be able to make the new LCDs in any size. But he'll likely avoid the low-margin, high-volume market for smaller sets, at least initially.

Big Crowd at Next-Gen TV Party

Sharp has thrived despite the intensifying competition from other top brands as well as from low-cost rivals such as Vizio and Westinghouse. This fiscal year through March, 2008, the company forecasts a 3.2% gain in net profits, to $955 million, on an 8.7% rise in sales, to $31 billion. In the third quarter, its Aquos TVs even snatched the No. 1 spot in North America, according to DisplaySearch.

The problem is, the high-end market is attracting a crowd. Many manufacturers are planning their own next-generation technologies to challenge the two most popular flat-panel types: LCDs and plasma displays.

Until now the world's top TV makers have focused on selling consumers ever-larger sets. Only a handful of companies can do it profitably. They rely on state-of-the-art factories to crank out the massive, specialized panels that are each cut to make several big-screen flat TVs at a time. Brand-name makers such as Sharp, Panasonic (MC), Sony (SNE), and Samsung Electronics also cram in sophisticated chips and software to improve picture clarity and color. That's how those brands can command premiums of 20% or more for TVs larger than 46 inches, DisplaySearch says. In the smaller sizes, where upstarts have flooded the market with commodity sets, the premiums are closer to 10%.

OLEDs: The Next Frontier

The next battle looks likely to be over thinness. Exhibit A: Sony's 11-inch, high-definition TV made with an organic electroluminescent display, or OLED. Unlike LCDs, which use a backlight, and plasma displays, which have a space for chemical reactions, OLEDs use a carbon-based material that produces a picture with just an electric current so they can be made very slim. Sony's OLED, which hit stores in Japan this month, has a screen that's just one-tenth of an inch thick. Others such as Toshiba (TSBF), Hitachi (HIT), and Victor of Japan have their own thin TV prototypes for commercialization in 2008 and 2009.

Luckily for Sharp, OLEDs and another up-and-coming tech known as field-emission displays will remain a tiny fraction of the market for several years, says iSuppli analyst Riddhi Patel. Even so, Mizushima's crew will likely face a fierce PR war against all the newfangled technologies.

That suits Mizushima just fine. "We think consumers will recognize that our TVs are superior," he says. His confidence stems partly from honing the art of the well-timed pitch over nearly three decades at Sharp. In past projects, Mizushima has had to sway skeptical executives inside and outside the company that LCDs would work in video cameras, cell phones, and game machines. In the Nineties, his team landed an order to equip Nintendo's portable Game Boy console with a new type of color screen. The machines went on sell more than 115 million units worldwide.

Engineers who have worked for Mizushima give him high marks for his guile and mentoring. He'll need to draw on those skills in the coming months. While Sharp's new plant is going up, his team will be finalizing plans to mass-produce the very prototypes they took a month to build by hand. Eventually the plant will make as many as 36,000 giant panels, measuring 2.8 meters by 3 meters, each of which can be cut into 15 40-inch, five 50-inch, or six 60-inch sets. Mizushima says he expects the LCD technology to improve, which should keep rivals and copycats at bay. The extra time also lets him work on building a case to convince analysts and consumers.


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