Thursday, August 12, 2010

Sony, Panasonic TVs Star in Price Battle in China Showrooms


Sony Corp.’s and Panasonic Corp.’s ambitions for higher earnings this year depend on convincing Yin Weiguang, a retired construction worker in Beijing, that he chose the wrong television.

“I don’t really care about fancy features,” said Yin, 55, who paid 2,799 yuan ($413) for a 32-inch set made by Skyworth Digital Holdings Ltd. “I just use it for basic entertainment: watching news, weather forecast and TV series.”

Sony and Panasonic, the world’s two largest makers of consumer electronics and Sony camera batteries, are slashing some TV prices by a third in China after being outsold six-to-one 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.

“The price battle in China will likely intensify as local manufacturers, South Korean makers and Japanese companies all fight for market share,” said Yoji Takeda, who heads the Asian equity management team at RBC Investment (Asia) Ltd., which oversees $1.1 billion. “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 price for that size, targeting customers in regional cities and rural districts, said Yuki Shima, a spokeswoman for the Tokyo-based company. To help cut costs, Sony has increased outsourcing of TV production to Foxconn Technology Group, the world’s largest contract manufacturer of electronics.

50 Percent Cut

Panasonic, the world’s biggest maker of plasma TVs, may cut prices of some models in China as much as 50 percent this year, Hitoshi Otsuki, senior managing director of the Osaka-based company’s overseas operations, said in an interview last week.

“The market is totally different from the U.S. and others,” Otsuki said. “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.”

Sony slipped 0.7 percent to close at 2,681 yen in Tokyo, narrowing its gain this year to 0.4 percent. Panasonic fell 1.2 percent, extending its loss in 2010 to 17 percent. Skyworth Digital dropped 0.4 percent at the midday break on the Hong Kong Stock Exchange.

Biggest Flat-Panel Market

Sales of liquid-crystal-display TVs in China will rise 15 percent to 45.5 million next year and overtake North America shipments, according to DisplaySearch estimates. China will become the biggest flat-panel TV market, including plasma sets, in 2012, according to the Austin, Texas-based researcher.

Skyworth is the market leader in China with a 15 percent share, followed by domestic rivals Hisense Electric Co. and TCL Corp., according to AVC Consulting in Beijing.

Japan’s Sharp Corp. was the top non-Chinese vendor with 4.9 percent, followed by Samsung Electronics Co. and LG Electronics Inc. of Seoul. Sony and Panasonic, the maker of Viera-brand TVs, each had 2.4 percent.

“Sony has started to take more serious action in China,” Shima said, citing the introduction of the lower-priced model in December. “We need to become sensitive about changes on products and business models for China.”

A price war may reverse the optimism sparked last month after the Japanese companies increased profit forecasts, said Yuuki Sakurai, chief executive officer of Tokyo-based Fukoku Capital Management Inc. Sony and Panasonic on July 29 cited better-than-expected sales of flat-panel TVs for raising their full-year projections, sending shares of both companies higher in Tokyo trading the following day.

Sony estimates 60 percent growth in worldwide TV sales by volume and Panasonic 35 percent.

“There’s no way Sony and Panasonic can compete with Chinese producers in terms of prices,” Sakurai said. “Even the South Koreans are struggling. Chinese consumers aren’t very keen on top-quality products.”

Samsung, the world’s largest TV maker, 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,” said Chenny Kim, a spokeswoman at Suwon, South Korea-based Samsung. “We won’t compete with local companies in pricing.”

Skyworth’s annual shipments in China rose 12 percent to 7 million units in the fiscal year ended March 31 from a year earlier, the company said April 19. Revenue from the business increased 55 percent.

Competition, What Competition?

Skyworth, whose shares trade in Hong Kong and Frankfurt, isn’t concerned about international competitors, said Shen Jian, a spokesman. Brands from abroad account for about a quarter of the TVs sold in China, according to DisplaySearch.

“Domestic branded TVs are cheap and durable,” said Yin, who receives a monthly pension of about 4,000 yuan.

A 40-inch, international-brand TV sold for an average of about $902 in the second quarter, or about 33 percent more than Chinese marques, according to DisplaySearch.

“Our advantage is we are a local brand,” Shen said. “We don’t worry about the competition at all.”

Still, the price cuts may be helping overseas companies make inroads. Chinese producers’ combined market share fell to 76 percent in the first quarter from 83 percent the previous three-month period, according to Hisakazu Torii, a Tokyo-based analyst at DisplaySearch.

Value For Money

Liu Lin, 29, said non-Chinese TVs are worth the extra cost.

“The quality of Sony’s picture is really good,” said Liu, who bought a Sony 46-inch Bravia set for 5,999 yuan, or more than half her monthly pay. “Quality and price are of the same importance in buying a TV set.”

Japanese TV makers also face the hurdle of a stronger currency that’s giving them less room to cut prices than South Korean rivals. The yen has gained about 7.4 percent against the yuan this year, while the Korean won has weakened 1.2 percent.

They may get a boost from the falling prices of flat panels and used monitors, typically the costliest TV component. LG Display Co., the world’s second-largest LCD maker, last month forecast that panel prices would decline an unspecified amount through August.

“Price is my top concern given I’m not that well-paid,” said Pan Ying, who earns about 5,000 yuan monthly at a Beijing health-care company. “I’ll consider a foreign brand if the price is good.”