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Electronics giants battle for share in the hottest market for televisions
Talk to Yin Weiguang and you'll quickly understand why foreign makers of televisions are having a tough time making inroads in China. The 55-year-old retired construction worker in Beijing isn't wowed by fancy technology or cutting-edge design; price is his hot-button issue. "I don't really care about fancy features," says Yin, who recently paid 2,799 yuan ($413) for a 32-inch set made by Skyworth Digital Holdings, China's largest homegrown TV manufacturer. "I just use it for basic entertainment: watching news, weather forecasts, and TV series."
Forget about the marketing wars in the West over who has the thinnest screens or the ability to view 3D movies. In China, price can make or break a TV sale. That's forcing Sony (SNE) and Panasonic (PC), the world's two largest makers of consumer electronics, to slash some TV prices by a third in China after being outsold 6 to 1 by Shenzhen-based Skyworth. Sony aims to double TV shipments in China this fiscal year, and Panasonic expects 50 percent growth in the world's second-largest market for flat-panel TVs. To play in this huge market, companies are willing to slash prices.
"The price battle in China will likely intensify as local manufacturers, South Korean makers, and Japanese companies all fight for market share," says Yoji Takeda, who heads the Asian equity management team at RBC Investment Management (Asia). "Prices will probably continue falling with increased market supply during the second half."
In December, Sony offered a 32-inch set for 3,000 yuan, or 33 percent off the previous low price for that size, targeting customers in regional cities and rural districts, says Yuki Shima, a Sony spokeswoman. To help cut costs, Sony has increased outsourcing of television production to Foxconn Technology Group, the Chinese company that's the world's largest contract manufacturer of electronics.
Panasonic, the world's biggest maker of plasma TVs, may cut prices of some models in China by as much as 50 percent this year, says Hitoshi Otsuki, senior managing director of the company's overseas operations. "The market is totally different from the U.S. and others," Otsuki says. "In China, domestic manufacturers are very powerful, especially in low-end products. The smaller sets are the fastest-growing area and the most difficult for us."
Sales of liquid-crystal-display TVs in China will rise 15 percent, to 45.5 million, next year and overtake North America shipments, estimates market researcher DisplaySearch. China will become the biggest flat-panel TV market, including plasma sets, in 2012, it forecasts.
Skyworth leads in China with 15 percent of the market, followed by domestic rivals Hisense Electric and TCL, according to AVC Consulting in Beijing. Japan's Sharp was the top non-Chinese vendor with 4.9 percent, followed by Korea's Samsung Electronics and LG Electronics. Sony and Panasonic each had 2.4 percent. "Sony has started to take more serious actions in China," Shima says, citing the December price cut. "We need to become sensitive about changes on products and business models for China."
A price war on the mainland could pinch big foreign TV manufacturers' profits, said Yuuki Sakurai, chief executive of Tokyo-based Fukoku Capital Management. Sony and Panasonic on July 29 said they had raised their full-year forecasts because of better-than expected sales of flat-panel TVs. Sony projects 60 percent growth worldwide and Panasonic 35 percent. Still, Sakurai says, "There's no way Sony and Panasonic can compete with Chinese producers in terms of prices. Even the South Koreans are struggling. Chinese consumers aren't very keen on top-quality products."
Samsung said last month that falling set prices may erode profitability this quarter. The company intends to keep prices above those of Chinese producers. "We will stick to a strategy that will make people aware of our premium image," says Chenny Kim, a Samsung spokeswoman. "We won't compete with local companies in pricing."
Skyworth's annual shipments in China rose 12 percent, to 7 million sets, in the fiscal year ended Mar. 31 from a year earlier, the company reported. Revenue from the business rose 55 percent. The Chinese company isn't concerned about foreign competitors, says Shen Jian, a spokesman. Brands from abroad account for only about a quarter of the TVs sold in China, according to DisplaySearch. One reason: A 40-inch, international-brand TV sold for an average of about $902 in the second quarter, or 33 percent more than Chinese brands.
The bottom line: China is poised to become the world's biggest TV market, but foreign brands have difficulty competing there on price.