Global Economics

LG Bets Big on TV Design


The Korean electronics company unveils sleek plasma and LCD sets it hopes will rival Sharp, Samsung, and Sony models in the digital TV stakes

After generating buzz in the cell-phone industry by launching innovative models that, among other things, beat Apple's (AAPL) iPhone in the race to launch a touch-screen model, South Korea's LG Electronics is now gearing up a similar design-focused strategy in the fiercely competitive TV market.

In the battle for new features, digital technology allows LG and rivals like Sony (SNE), Samsung Electronics, and Sharp (SHCAY) to fight to a draw. So, in a world awash with digital and high-definition TVs boasting super picture quality, LG executives believe striving for technological superiority won't win consumer hearts. "In the TV market, design will be a critical differentiator this year," says Simon Kang, president in charge of LG's digital display unit.

That's why at the just ended annual Consumer Electronics Show in Las Vegas the Seoul company unveiled a pair of sleek TVs that it hopes will be game changers. With the help of the two innovatively designed models, one using a liquid crystal display (LCD) screen and the other a plasma panel, LG aims to boost its flat-panel television sales to 17 million sets in 2008, up nearly 90% from 9 million last year. In the first nine months of 2007, LG's flat TV revenues rose 24.7% to $5.3 billion, according to market researcher DisplaySearch.

Tough Fight Against Well-Established Japanese Brands

LG's goal is to get a place in the digital TV club of top three global makers. Samsung and Sony have established themselves as the most influential TV brands, seizing market shares of 18.4% and 12.2%, respectively, in the first nine months of 2007, DisplaySearch statistics show. Sharp placed third with 10%, followed by LG, Philips (PHG), and Matsushita Electric Industrial (MC), which sells TVs under the Panasonic brand name; all had a share of between 9.5% and 8.5%.

It will be an uphill battle, particularly against Japanese companies with greater brand value (BusinessWeek, 12/18/07). The biggest challenge will be in the sale of LCD TVs, which account for more than 80% of the total flat-panel global market. (Industry officials estimate the total market will be between 110 million and 115 million sets in 2008, up nearly 30% from last year.) LG's target is to double its LCD TV sales, to 14 million units this year, from 7 million in 2007. "LG doesn't have [the] brand clout of its Japanese rivals," says Harrison Cho, electronics analyst at Seoul-based Mirae Asset Securities. "Such an enormous volume expansion isn't realistic." Cho forecasts LG's LCD TV sales at between 10 million and 12 million sets.

LG is betting on its eyeball-grabbing designs to fulfill its ambitions. "Consumers are bound to make a stop in front of our new products, making it easy for salesmen to start explaining their features," says Kang. LG's new LCD model, codenamed LG60 and billed as the world's thinnest, has a big hole in the lower center of the panel that works as a power button. The black panel surrounding the hole vibrates to work as a speaker. The TV's glossy red back, when seen from the front, forms a red line around its frame. "We seek an intuitive interaction with consumers," says Kim Tae Bong, chief designer in charge of LG's TVs and other display products. A gentle touch of the hole will trigger a unique sound as a red light blinks before turning into white blue while it is being turned on. "It'll make an emotional appeal through the user's ear, hand, and eye." And the whole thing is only 1.77-inches deep.

Taking Its Cue From LG's Cell Phones

This playful interaction with users takes cues from LG cell phones that sleep until they are touched (BusinessWeek, 8/29/07). LG's product planners and designers have found out that just as the mobile phone has become a personal accessory for young consumers, many homeowners buy a flat-screen TV as much for its look as a piece of furniture as for its technological capabilities. "The LG60 is targeting stylish consumers who want a fashion icon in their living room," says Kim.

LG's new flagship plasma TV takes a different approach to appeal to a wider range of consumers. For an elegant look, LG used one big glass panel and removed the usual gap between screen and housing. Although it boasts the latest technology—a blazingly fast 180 Hz refresh ratio to cater to fast-moving images as well as the industry's highest contrast ratio of 30,000:1—it is designed to look like a dark window pane when not in use.

The Chocolate Phone Turned Things Around

"The plasma TV seeks minimalist design and could be compared to Audi in the car world," says Kang, who was in charge of introducing high-end refrigerators and washing machines in 2004 under the LG brand in the U.S. "The new LCD TV, on the other hand, targets a niche segment just like B&O (high-end Danish consumer-electronics firm Bang amp; Olufsen) is trying to achieve (BusinessWeek, 11/15/07) for its audio products."

Now, the Korean company tries to bring out similar financial effects in its TV business to those its phone unit achieved through design panache. Its Chocolate phone, which marked the company's shift in emphasis to design and user interface from leading-edge features, has played a key role in turning around what was a money-losing cell-phone business. LG, which has sold some 15 million Chocolate phones since their global debut in 2006 and has followed up with other sleek models, posted an 8% handset profit margin in the third quarter of 2007, against a loss margin of 0.4% in the first quarter of 2006. And in February last year, LG launched its touch-screen multimedia phone, co-branded with Prada, (BusinessWeek, 1/29/07) five months before the launch of Apple's iPhone.

LG badly needs a similar turnaround for its display division, which has been hit by struggling plasma panel sales. LG recently has imposed tighter control over management of its supply chain. That—plus consolidation of the plasma panel industry, which has been losing market share to the LCD camp—has provided encouraging results. Kang says his division broke even in the last quarter of 2007 while the money-losing plasma operation would turn profitable in the first quarter of this year. LG's plasma panel plants now operate at full steam, churning out 450,000 units a month, compared with a 53% operating ratio in the first half of last year. LG's more efficient supply chain means a decline in its U.S. subsidiary's distribution costs to 1.4% of revenues in September from 2.6% last January.

Still, there's a cloud hanging over the overall consumer industry: the negative impact from the U.S. subprime mortgage crisis. Yet Kang and execs at local rival Samsung hope that sales-boosting factors such as this year's Beijing Olympics, the Euro 2008 football tournament, and the February, 2009, deadline for U.S. broadcasters to switch from analog to digital broadcasting will more than offset the chilling effects of a credit crunch.

In an encouraging sign for LG, Citigroup (C) in December singled out LG as its top pick in the Korean technology sector in 2008, citing stronger-than-expected shipments and margins for mobile phones and improvements in plasma displays. "It will be a daunting task for LG to displace Sharp as the No. 3 flat-screen TV maker, but I wouldn't discount its design capabilities," says Michael Min, a tech specialist at fund manager Tempis Capital Management. He expects a net profit of about $400 million for LG in the fourth quarter of 2007, up some 80% from a year earlier. LG will announce its results on Jan. 24.


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