Is it Time For Consolidation in the TV Industry?

There has been little in the way of mergers and acquisitions in the audio and video equipment industry but it seems reasonable to assume that the large number of companies in the television industry can't all remain long term. While the demand for digital ready flat panel TVs continues to grow, it won't always be this way. The smart companies will consolidate before they desperately need to. After all, who wants to be the Nortel (NT) or Bookham (BKHM) of the TV world?

So, which deals make sense? One could imagine that some larger, long established, tier 1 TV makers would acquire some of the new, smaller, competitors that are significantly cutting into their market share. For example, perhaps Sony (SNE) is getting tired of seeing their market share being eroded by the likes of Vizio. While Vizio is technically an american company, it is well established that most of their operations are really in Taiwan. As it has been pointed out to me, it is unlikely that a Japanese company would attempt to acquire what is essentially a Chinese company.

I understand this logic. So what about a merger of some of these U.S. based companies? One rumor published last week in the Arizona Republic involves Vizio and Syntax-Brillian (BRLC), the makers of the Olevia TV brand. This merger makes a lot of sense from many perspectives. Syntax-Brillian only sells LCD TVs at this time whereas Vizio also offers a line of plasma TVs. In fact, plasma is where Vizio shines. I have never personally been impressed by the image quality of their LCD TVs and they don't have the best ratings. Syntax-Brillian, on the other hand, makes award winning LCD TVs and I have always personally liked their image quality. So, a product offering of Olevia LCD TVs and Vizio plasma TVs would be quite a nice combination. I would have to say that, in the area of design and quality, Syntax-Brillian brings a lot to the table. In the area of sales and marketing, Vizio seems to be stronger. Again, good synergy.

One area where this new company would fall short is with name recognition in North America. While Olevia and Vizio are gaining in popularity, those names still don't carry the weight of Sony or Toshiba. A name most Americans do recognize and respect is Westinghouse. There, again, you have an American company that has most of its operations outside of North America. Westinghouse, the TV maker, has actually purchased the rights to the Westinghouse name as Westinghouse, as we knew it, no longer exists. But, to be honest, like Syntax-Brillian, they make a very nice LCD TV that would make the founders of Westinghouse proud. So, imagine a three way deal between Vizio, Syntax-Brillian and Westinghouse. This could be a powerful combination. Personally, I have purchased two LCD TVs. One is a Westinghouse and the other is an Olevia. Both are impressive in my opinion and both stand up quite nicely to the picture quality of Sony, Samsung and Sharp.

Another intersting thought would be the acquisition of one of these three TV makers by either an audio giant or a computer giant. Harman Industries (HAR) has been involved in merger and acquisition discussions for some time and one recently fell through. I could imagine a merger of Harman and Syntax-Brillian, for example, enabling a company to provide home theater packages. Imagine a nice package deal on an Olevia LCD TV with and integrated Harman Kardon surround sound reciever and Infinity speakers, which are sold by Harman. A techno-geek's dream, if you ask me, and I am an admitted techno-geek. On the computer side, one could imagine great synergy between a Syntax-Brillian and a Dell (DELL) or Hewlett-Packard (HPQ). Clearly, Syntax-Brillian could make a nice combination TV/Computer Monitor and Dell and/or HP would diversify into the business of TVs.

2008 will be a big year for LCD TV makers. We are approaching the conversion to all digital and people will need to buy a new TV or, at the very least, a converter box. And as more people bring these beautiful flat panel HDTVs into their homes, their family and friends will be blown away by the picture quality and will want one in their homes. The more efficient these companies can be, the lower they can charge for their TVs and the bigger the piece of this growing pie they will get. As an investment, a take-over or merger target like Syntax-Brillian fits the old saying, if you "snooze" you "lose".

Disclosure: Author is long BRLC and HAR and has no position in HPQ or DELL or any of the other companies mentioned.

Comments

[a fool]

no doubt the article contains some logical aspects. But how much of it are speculation and where are the facts... I wrote to Santa that a SB merger happens - and I'm waiting for X-Mas :)

[Larry Lazer]

Sure, a lot of it is speculation but, as a person that works and invests in the display industry, I often think about what makes sense for these companies moving forward. I am presenting some of those thoughts here. However, the author of the article in the Arizona Republic seems to have heard rumors that are inline with these thoughts so perhaps we are moving beyond speculation now. Also, it is a fact that Harman has been involved in acquisition talks recently so it stands to reason that would still be searching for such opportunities. If I were the CEO of Harman, this is one I would be considering for the synergy it would bring.

[VT Professor]

The big boys (Sony, Sharp, Samsung & etc) are positioned well via vertical integration and huge investments in technology. These smaller, off brand names, are simply capturing share through price points....It won't last. Their logistics systems are inferior and their means of sourcing product as a primary strategy will never get them much more than a "me too" product. If some of the smaller companies merge, there won't be much synergy....Just two small companies without real direction becoming a bigger entity without direction, and twice the problems (& cost). The big boys all know these facts & this is why they aren't making any real efforts to consolidate....They'll just wait them out, or "die on the vine" as they say. It will take some time, though.

[Manny]

Keep in mind SB makes their own video processor and rewrites the software from the ground up

[RC Martin]

VT Professor,

Wasn't it the American auto industry that adopted that very same approach decades ago? How has that worked out for them?

[Steven L.]

Oh the Vizio and BRLC rumor is much more then just a rumor. That is all I can disclose right now. However me and my fund has covered our short position and went long. It might not be a bad idea for other investors to do the same.

[RC Martin]

Oh the humanity

[Larry Lazer]

Another article from Andrew Johnson:

www.azcentral.com/ariz...

[VT Professor]

RC Martin- The auto industry is a totally different animal. First, their competitors (Honda & Toyota) weren't "sourcing" all their product. Secondly, the big 3 got in trouble and are still in trouble due to their poor cost position....Namely the union(s). Their cost per vehicle is approximately $1000 more per vehicle due to the higher wages, pension commitments, and LT health care obligations. Conversely, their foreign competitors have also vertically integrated, but built state of the art plants in the US....North Carolina for example....And the workers are non-union, but still have good benefits. Earlier this Fall, GM took a major stride towards changing their LT cost position by unloading the health care fund on the union.

[RC Martin]

VT Professor-I agree,the Big Three got in trouble because they were bloated and their costs were far higher than the upcoming competition. Sound familiar here? Deja vu all over again.

Vertical integration , horizontal integration, diagonal integration, the esoteric jargon doesn't change a thing, the end result is the same. Consumers will gravitate to the low cost producers as long as there is no significant loss of quality.The market share captured by Vizio and Olevia, demonstrate that quite clearly. Seems what you're saying is Sony, Sharp, and Samsung might have to change their models to compete.

The Vizios and Olevia are capturing their market at the expense of the BIG THREE. Say hello to the NEW Honda and Toyota, they're not going to disappear. To suggest this is a temporary phenomenon is to be fooled AGAIN.

Buy an Olevia and with the savings over a Sony or Sharp grab an X-Box360 too.

[VT Professor]

RC- I guess we agree to disagree. I think the big guys are positioned well through their combination of cost structure AND quality. Vizio and Olevia are crappy tvs....I've looked at them myself as I was attracted to the price, but at the end of the day, you get what you pay for. Yeah, they look ok in the store, and I admit, most are buying on price, but once the mass market really learns about HDTV, they won't make the same mistake a second time around. Most consumers are so busy orgasming at the point of purchase, they don't even know what their buying. I've actually heard stories where people have returned HDTVs because they think they'll get everything in HD just b/c they have a HD TV! And because Vizio has thrown themselves to Wal-Mart and Sams, wait until the next contract is up and the big box store squeezes every penny out of them by threatening all their new found share...That's the Wal-Mart way (and Target by the way). Their lack of a good channel structure will backfire. You can't become as sustained market leader by being a sourced, "me too" product. It just doesn't work.

[RC Martin]

VT Professor-"Vizio and Olevia are crappy TVs."

Anyone can make a broad brushed statement such as that, a generic catch all when you prefer something else.

What exactly is it that makes them crappy? If you expound on that allegation with specific facts of features or lack there of it might actually make a convincing statement.

You've looked at them? So based on a glance in a department store you've concluded they are crappy? Give the readers a little meat on that bone of contention. Tell the readers what makes them crappy and makes Sony and Sharp superior. What technical aspects make them inferior?

[The RealSamuel]

We're buying BIG Time now.

Avoid the crush before the new year begins and buy now.

[The RealSamuel]

Has the site been hacked and personal data compromised? Who is changing the pseudonyms next to my comments? I am NOT SANDY SANMINA

[VT Professor]

I referred to them as "crappy" because they are....Just my observation. When I purchased a number of sets for my home, I did extensive research. Most of the video magazines give them average at best ratings. The cabinetry is cheap looking, as compared to their competitors namely Sony Bravia, Pioneer standard and Elite, Sharp, and Panasonic. Re: performance, they look ok in HD, although the colors are washed out. However, in standard definition, the bigger brands blow them away. This is an important aspect because with the limited HD offering to most consumers, standard channels are the primary viewing option(s). At the end of the day, they are decent tvs, especially for the money, but as the saying goes "you get what you pay for." And, I stand by my original concept that once the general consumer really understands what they are buying, things will change.

[RC Martin]

VT Professor-
You said, "
"I referred to them as "crappy" because they are..."

"At the end of the day, they are decent tvs,"

I'm sensing confusion on your part.

The experts seem to disagree, "
Syntax-Brillian's Olevia 747i Named Best TV in Wired's Test Issue
Monday October 29, 6:35 am ET

biz.yahoo.com/bw/07102...

Perhaps you'd like to read it.