Flat Panel TVs: Foreign Brands Stage the Offensive with Their Industry Chain Advantages

Flat Panel TVs: Foreign Brands Stage the Offensive with Their Industry Chain Advantages

BEIJING, Aug. 16 /Xinhua-PRNewswire/ -- Based on its long-term market research, CCID Consulting, China's leading research, consulting and IT outsourcing service provider, and the first Chinese consulting firm listed in Hong Kong (Hong Kong Stock Exchange: HK08235), has released its latest research report on China's flat panel TV market in 2007Q2. Through its research on the current market situation and its development trend, CCID Consulting has provided a reliable basis for enterprises to formulate their product, services, technology and other comprehensive competition strategies.

CCID Consulting's report shows that in 2007Q2, flat panel TV sales showed a strong seasonal feature. Despite big rises in May, sales volume was low in April and June. Overall sales volume in 2007Q2 was lower than in 2007Q1.

CCID Consulting's research shows that in 2007Q2, 1.5621 million sets of flat panel TV were sold, down 10.56% from Q1. Sales revenues reached 13.28 billion Yuan, down 13.4% from Q1. Domestic firms including Changhong, HiSense, Skyworth and Haier all introduced 32 inch plasma TV sets. Expanded production capacity and active promotion by home firms were the main factors for the stable development of the plasma TV market. The main reason for the drop in overall LCD TV sales was a shortage of panel supplies for domestic brands' 32 inch TV sets.

Fig. 1 Sales Volume and Growth in China's Flat Panel TV Market in 2007Q2 (Unit: 10,000 sets)

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Source: CCID Consulting, July 2007

Fig. 2 Sales Revenues and Growth in China's Flat Panel TV Market in 2007Q2 (Unit: 100 million Yuan)

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Source: CCID Consulting, July 2007

I. Foreign Brands Are in the Dominant Position in the Plasma TV Market

Due to limited upstream panel supplies and price restrictions on the plasma TV industry chain, China's plasma TV market has long been dominated by foreign brands. In 2007Q2, foreign brands accounted for most of the market shares. Together, Hitachi and Panasonic pocketed a market share of over 60%.

Among domestic brands, Changhong has made large investments in plasma TVs, becoming the first PDP industry resources integrator in China. Together with Shiji Shuanghong and the MP Company, Changhong set up Sichuan Hongou Display Co., Ltd. On April 28, 2007, it announced the launch of China's first plasma screen production line, which has performed well in the market, and topped domestic brands in terms of market share. HiSense came 2nd, with a 7.6% of the sales volume in the market.

CCID Consulting thinks that plasma TVs will have big growth potentials in the future, mainly because of the following. First of all, as the price of small-size LCD TV panels rises and profits are thin, home firms will have introduced 32 inch plasma TV sets, and increased their inputs to plasma TV. As plasma TV production capacity continues to expand, the plasma TV market will grow fast. Secondly, as flat panel TVs enter a big screen era, plasma TVs have unique advantages in the big screen market. The demand for big screen flat panel TV sets of over 40 inches has greatly stimulated plasma TV sales.

II. Foreign Brands Grow Strongly in the LCD TV Market

Since April, particularly during the May Day holiday period, foreign brands have greatly cut the retail price of their terminals in the LCD TV market. Market reshuffle followed. In 2007Q2, HiSense had the biggest sales volume, but Samsung followed closely behind. In May and June, Samsung overtook HiSense in terms of sales volume. And, it is still growing.

Among the top 5 enterprises on the LCD TV retail chart in 2007Q1, Samsung was the only foreign brand. It was in the 4th position then. In 2007Q2, Samsung chased behind HiSense and claimed the No. 2 spot. Philips came in 3rd. In the LCD TV market, foreign brands notably increased their market shares. And, the growth momentum was strong. On the whole, the LCD TV market showed the following features in Q2:

(1) Domestic brands were "sluggish", while foreign brands grew strongly.

Domestic brands saw their market shares drop fast, while foreign brands collectively experienced a rise in their market shares. This was particularly the case of 32, 37, 40 and 42 inch TV sets.

Price cuts were the main reason for foreign brands' rising market shares. The range of price cuts from foreign brands is bigger. To a certain extent, such price cuts reduced domestic brands' market shares. On the other hand, with rising 32 and 37 inch panels (the most popular size for domestic brands), prices increased domestic brands' cost and greatly lowered their profits, posing a major challenge to their survival.

Fig. 3 Market Shares of Top 10 Enterprise in China's LCD TV Industry in 2007Q2

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Source: CCID Consulting, July 2007

(2) LCD TV Profits Are Thin, and Domestic Enterprises Lacked Reserved Strength for Growth

Some 60-70% of the cost of a flat panel TV set comes from its panel. Panel makers are mainly Japanese and Korean firms. There are also some LCD panel makers in Taiwan. Currently, TV makers in the Chinese mainland mainly import panels from AU Optronics Corp. in Taiwan. Their production cost is rather high. Foreign brands' big cuts in their terminal prices turned domestic brands' price advantages into a disadvantage and made their profits thin.

The financial situation of major LCD TV makers is no cause for optimism. Prima's annual report for 2006 showed that the company's main business operating revenues amounted to 8.15 billion Yuan, while its losses stood at 523 million Yuan. Changhong's 2006 annual report indicated that its operating profits were only over 40 million Yuan. Konka and HiSense saw their net profits stand at 125 million Yuan and 152 million Yuan, respectively. But, the net profits from CRT business topped 300 million Yuan for all these 3 companies.

(3) Foreign Brands Will Continue to Grow Fast, and Their Market Shares Will also Rise

Foreign brands have made bigger price cuts than domestic brands. In 2007Q3, this will continue to strongly drive up their sales. Due to insufficient supply of panels at the upstream, domestic brands will see their previous advantages such as 32 inch LCD TVs notably affected.

Foreign brands own complete industry chains. Panel supply will not affect them much. In 2007Q3, foreign brands will therefore continue to see their sales volume and market shares rise.

III. Foreign Brands Will Build Upon Their Industry Chain Advantages and Set Up Efforts on all Fronts to Take On the Chinese Market

The price wars surrounding retail terminals have stretched domestic brands' profits to the limit, which has greatly affected their sales. But, for foreign brands, their losses with the terminals can be made up from the upstream. Consequently, the result of the price war will be great changes in the pattern of competition.

Samsung, Sony LG, Phillips, Sharp and Panasonic are both flat panel TV makers and the main suppliers of flat TV panels. After going through a period of nurturing the market, they can build upon their industry chain advantages and control the supply of upstream panels. On the other hand, they have staged price wars with domestic brands in the terminals field, and squeeze their Chinese opponents from both ends. They have stepped up efforts on all fronts, and started strategic work to take on the Chinese market.

Because TET LCD panel production is a technology- and capital-intensive industry, domestic brands currently do not have sufficient strength to build their own production lines. This is also the main reason why there have been obstacles to the integration of the domestic brands industry chain.

About CCID Consulting

CCID Consulting Co., Ltd. (also known as CCID Consulting), the first Chinese consulting firm listed in the Growth Enterprise Market of the Stock Exchange (GEM) of Hong Kong (stock code: HK08235), is a direct affiliate of the China Center for Information Industry Development (hereinafter known as CCID Group). Headquartered in Beijing, CCID Consulting has so far set up branch offices in Shanghai, Guangzhou, Shenzhen and Harbin, with over 300 professional consultants and industry experts. The Company's business scope has covered over 200 large- and medium-sized cities in China. Apart from home market development, CCID Consulting is establishing international cooperation links across the United States, the Asia-Pacific region and Europe, by setting up agents in the U.S., Japan, South Korea, Australia, Singapore, Italy and Russia, with the aim of going global.

Based on four major competitive areas of powerful data channels, industrial resources, intense knowledge and deep understanding of information technology, CCID Consulting provides customers with consulting, research and IT outsourcing services covering strategy planning, IT application, marketing strategy, human resources and information technology outsourcing. Our customers range from industrial users in IT, telecommunications, energy, finance, automobile, to government departments at all levels and diversified industrial parks.

CCID Consulting is committed to becoming the No. 1 brand for strategy consulting, the No. 1 consultant for enterprise management and the No. 1 expert in market research. For more information, please visit our website at http://en.ccidconsulting.com/ .

For more information, please contact:

Cynthia Liu
Coordinating Manager
CCID Consulting Co., Ltd
Tel: +86-10-8855-9080
Email: liuyan@ccidconsulting.com

Source: CCID Consulting Co., Ltd.

CONTACT: Cynthia Liu, Coordinating Manager for CCID Consulting Co., Ltd,
+86-10-8855-9080, or liuyan@ccidconsulting.com

Web site: http://en.ccidconsulting.com/

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