Selling televisions is not a high-margin business these days, even for high-definition LCD screens. So with a plethora of manufacturers to choose from, why's General Electric (NYSE: GE) getting back into the TV business now?
LCD TV manufacturers compete in a competitive landscape. TV sales represent a $200 billion market worldwide, and GE wants a piece of the action -- specifically, the quickly growing LCD segment.
In the second quarter, LCD TV shipments grew 52% over last year, and analysts are predicting 25% to 30% growth this year, a figure that translates into some 105 million new sets being sold in 2008 alone. That level of demand, even in this economy, seems to justify the exuberance of LCD-screen maker Corning (NYSE: GLW).
Yet by scaling back its third-quarter guidance two weeks ago, even the glass-panel maker admits that there are limits. Component-panel prices have been dropping at a rate of about 5% to 6% a month, eating into margins at Corning and rivals AU Optronics (NYSE: AUO) and LG Philips (NYSE: LPL). This situation has led to an inventory glut at manufacturers Sony (NYSE: SNE), Sharp, and Samsung, ultimately pushing down the prices of LCD TVs.
Getting static
And that's why GE's move into the LCD TV market, particularly now, is questionable. Sure, it's interested only in producing a premium-level product that it wants to infuse with Internet connectivity, but we've been promised this living-room convergence before. Witness WebTV, Apple TV, and even the Roku from Netflix (Nasdaq: NFLX). Moreover, there are sets on the market that are already Internet-ready, even if there's no critical mass yet.
Content may separate GE from the rest, since the company can use the rich media from its NBC Universal unit. However, even that wasn't enough to overcome the flawed Unbox model with Amazon.com (Nasdaq: AMZN). Hulu content might have promise as well, but that area is still too vague for anyone to be able to say whether it would work. Add in an oversupply of inventory at rival set manufacturers, and GE itself might end up feeling some pricing pressures.
Channel-surfing
At a time when current TV-set manufacturers and component providers are reeling from falling prices and inventory issues, even a deep-pocketed rival with a formidable brand name can't ensure that it will overcome the challenges as it enters the field. GE's entry might validate Corning's belief that the industry's problems haven't been one of end-user demand, but it doesn't mean that adding another manufacturer to the supply chain will normalize the situation any further.
With its aim of capturing a 5% to 10% market shares of the $200 billion industry, GE has set for itself a pretty heady goal -- but that objective isn't clear enough to suggest that GE can tune in to a winning strategy.
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