HD Hardware Suppliers Squeezed by Price Declines

Mar 13, 2008  •  Post A Comment

More than 10 million North American consumers marked the holiday season last year by buying a new high-definition television set. But some of the industry’s component makers are now finding less reason to celebrate.
Manufacturers of liquid-crystal display television components such as flat-screen panels are likely to see profit margins narrow as U.S. big-box retailers such as Wal-Mart and online merchants such as Amazon.com compete with electronics specialty stores like Best Buy by offering the cheapest HDTVs.
Such price reductions have cut original equipment manufacturers’ profit margins in half to about 4% in the past year, while TV companies’ margins on LCDs fell about 2 percentage points to about 7%, said Paul Gagnon, director of North America television research at NPD Group unit DisplaySearch.
As a result, OEMs, including companies such as Proview and TPV Technology, outsourced about 23% of their functions during the third quarter of 2007, up from about 15% two years earlier, DisplaySearch said this week. That figure may rise to 35% as sales of HDTVs, which account for most LCD sets, slow and retailers and leading LCD TV brands such as Sony and Samsung, which account for about 40% of the market, continue to lower prices.
“TV brands and OEM producers have had to give up their margins,” Mr. Gagnon said. “Somebody’s going to take share from somebody else in order to grow.”
North American consumers took advantage of a 6% average price drop in LCDs to buy 10.3 million HDTVs in the fourth quarter, up 52% from a year earlier.
That surge in HDTV sales and the resulting increased demand for high-definition service may give television service providers, and in turn, customers, further opportunity to save as HD set-top box unit sales jumped, causing costs to fall, Reed Elsevier research unit In-Stat said in a separate report this week.
While set-top box unit sales doubled last year and are expected to triple this year, dollar volume will remain about flat at $2 billion because of dropping component costs, said Michelle Abraham, principal analyst at In-Stat.
Still, customers should expect HDTV price declines, which slowed last year from a 21% drop in 2006, to taper off further this year as some TV brands and OEMs drop out of the market, Gagnon said.
“Consumers expect to find a better deal every year, but they will definitely not see prices fall as fast,” Mr. Gagnon said.


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