Supply shortages and slumping demand have forced Irvine’s Vizio Inc. to look hard at its founding philosophy of affordable TVs for the masses.
Vizio, which designs and markets digital flat TVs, is shifting from its ultra-low-cost strategy to being a company that leans toward more premium models loaded with features.
“Vizio started out as a value brand whose proposition was to be the lowest price available for an acceptable level of technology,” said Riddhi Patel, an analyst at iSuppli Corp., a market research group in El Segundo. “They have changed that value proposition to provide the latest and greatest technology. They are no longer the brand with the lowest price.”
Vizio upped the ante in the past year on its technology, adding TVs to its lineup that have Web applications, can link to wireless Internet networks, Bluetooth-enabled accessories and have light-emitting diode backlights.
Vizio made a big splash in a hyper-competitive market by selling TVs for hundreds of dollars less than competitors. It sees big sales from no-frills retailers such as Target Corp., Costco Wholesale Corp. and Wal-Mart Stores Inc.
The company runs lean: It designs and markets TVs and has them made by Taiwanese contract electronics maker AmTran Technology Co., a Vizio investor. It also outsources almost all other operations, save for customer service.
Sales
Vizio sold about 6 million TVs in 2009, nearly double from 2008. It recorded sales of $2.5 billion last year, up 25% from 2008.
It’s possible now that Vizio may be shifting away from its low-cost dogma in the face of supply chain issues that have plagued TV makers.
The first half of the year was marked by tight supplies for glass, LED backlights and other components.
“The supply of TV parts and components made available to the U.S. market was severely constrained because of other markets around the world that were growing,” said Laynie Newsome, cofounder and vice president of marketing communications. “The first few months of the year were extremely challenging.”
A shortage of LED materials was the biggest culprit, according to iSuppli’s Patel.
That kept prices for liquid-crystal display TVs higher than they would have been in a normal supply and demand environment.
“The shortages in the first half were associated with the LED backlights,” Patel said. “Those shortages have restricted the drop in LED pricing we would have normally seen.”
Vizio, for its part, fared pretty well due to market share and its buying heft, according to Newsome. Vizio flip flops with South Korea’s Samsung Electronics Co. for No. 1 in market share for LCD TVs sold in North America, and held the No. 2 spot in the second quarter.
Prices
TV sellers generally have kept a firm hand on prices and promotions this year.
“The industry has the mindset that if the technology features are about a year old, the price declines rapidly,” Patel said. “The price compression hasn’t happened as it should.”
In some cases, TV makers actually raised prices to protect profits.
“We did raise prices slightly,” Newsome said.
The flip side, of course, is demand. Without an anticipated drop in TV prices, consumers held off buying.
“Consumer demand, as the year progressed, did not pick up because of the price increases, a lack of consumer confidence and spending caution before large purchases,” Patel said.
These things add up to an oversupply situation in coming months.
That’s good for consumers, who benefit from great deals as retailers aim to clear out unsold sets. It’s bad for TV makers, which inevitably see slimmer profits.
“Anecdotally, I am pretty sure that the profitability at these companies has been hurt,” Patel said. “You can see that the slowdown in demand is impacting the entire the supply chain. The panel makers are slowing down their factory utilization right now.”
She sees inevitable price cuts happening ahead of the holidays.
“There should be some agrressive price moves made between now and the end of September to clear out the inventory to make way for the holiday merchandise,” Patel said. “It will be a good season for consumers, but not so good for anybody else.”
