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November 10, 2009

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Battle of brands benefits China's LED TV market

TOMMY Li likes to show off his new Samsung LED TV to his friends. After a lot of deliberating over the purchase, he said he's satisfied he made the right decision.

"I swung between domestic brands and foreign brands," said Li, an auditor who chose the 40-inch Samsung B6000 model that cost him about 13,000 yuan (US$1,940).

"In the end I chose a foreign brand over cheaper domestic ones because foreign manufacturers own the core technologies and they produce a sharper, clear picture," Li said.

Samsung and other foreign TV makers would be happy to hear Li's reasoning. Using their technological advantage, they have been striving to win back market share lost to domestic rivals who snatched nearly 90 percent of the booming rural market with their low, sometimes reckless pricing.

The LED TV war in China is on, the latest battle in an arena that has suffered through two decades of cutthroat price wars, new technology blitzes, overproduction and an eternal tug-of-war between foreign and domestic manufacturers.

LED TV is a kind of liquid crystal display television with LED backlighting, which gives a television a sharper image encased in a thinner, energy-saving console. It is considered the new wave in television technology.

New niches

After TV makers suffered shrinking profit margins in the latest round of fierce competition, overseas companies started to seek new ways of making market inroads while avoiding price wars.

Technology giant Samsung introduced nine LED models in April, which helped it reshape the territory and become the largest LED TV maker in China, with a 44-percent market share.

As the industry leader, Samsung invested US$90 million to set up a LED manufacturing facility in north China's Tianjin Municipality this year. It began developing LED TVs back in 2005.

The other two firms in the "S" family, Sony and Sharp, rapidly followed on Samsung's heels, enabling foreign LED TV makers to grab 70 percent of China's LED TV market.

The profit of an LED TV set is almost triple that of a conventional LCD model, said Lu Renbo, deputy secretary-general of the China Electronic Chamber of Commerce.

The foreign dominance of the LED TV market also helped overseas makers improve sales of LCD TVs. Their combined market share rebounded to 32 percent in the third quarter, from a low of 22 percent in the second.

"Foreign makers are clever enough to chalk up as much revenue as domestic players despite lower sales volume," said Lu. "Although domestic brands seem to have a bigger market, they have lower profit margins."

The chamber of commerce predicted LED TV sales will amount to 1 million units by the end of this year and the number will quadruple to next year and double again to 8 million units in 2011.

According to All View Consulting, LED TVs will more than double their share of the TV market to 30.6 percent in 2011, with sales of LED TVs forecast to total 16 million, or half the LCD market, by 2012.

As usual, domestic television manufacturers are playing catch-up. Beginning in September, Skyworth, Konka, Hisense and TCL rolled out a series of LED TVs ranging from 30 inches to 64 inches and selling them through retail giants Gome and Suning.

In the third quarter, 80 models under both foreign and domestic brands were on sale, accounting for 30 percent of new sales in the period.

As Johnny-come-latelies, domestic companies have cut prices to attract consumers, triggering a new round of price wars.

"The ultimate competition within the consumer electronics industry is about price," said Luo Qingqi, a senior director of Pully Consulting, which monitors the household electrical appliances industry.

"The industry is about how fast you can develop more advanced products and how swiftly you can make them popular at favorable prices," said Luo.

Japan's Sharp was the first to develop LED TVs in 2005, which it initially marketed in its home market. The sets were aimed at upmarket consumers, with a price tag of 130,000 yuan.

It took Samsung to bring prices into a more affordable range. Its 55-inch model costs 26,999 yuan, and its 46-inch set sells for 21,999 yuan.

Now, domestic players are stirring the pot with even lower prices.

Price cuts

Domestic brands usually sell for about 5,000 yuan less than their foreign counterparts, but still retail 30 percent higher than an average LCD set.

For example, a 42-inch Samsung set is priced at 14,000 yuan, compared with 9,588 yuan for a same-size Hisense. The average 42-inch LCD costs 6,000 yuan.

"LED TVs will be popular and will replace LCD TVs once prices fall into the range of LCD sets," said Wen Jianping, vice president of All View Consulting.

And so the cycle starts all over again. In the LCD TV market, once domestic TV makers caught up with their foreign rivals, they went on to snatch market share with cheaper products. In the second quarter, they accounted for about three-quarters of LCD TV sales.

Wen said that makes it hard for foreign makers to maintain their sales momentum.

"The situation may probably turn out the same as happened in the LCD TV business," Wen said. "It's always a case of catch-up creating a new balance between foreign and domestic brands."

Still, foreign players have an ace up their sleeves.

"China's TV industry heavily relies on imported flat panels, which are the major cost of a TV set," said Luo from Pully. "And that part of profits all goes into foreign makers' pockets."

Analysts estimate the flat panel component accounts for 70 percent of the manufacturing cost. China imports flat panels valued at about US$15 billion annually from South Korea's Samsung, the world's largest flat-panel supplier, and from other manufacturers in the region.

"The problem for domestic players always lies in the flat-panel making technology," said Luo.



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