Read between the lines. This is as about as bullish for ZE as it gets:
TCE/Dec 23
"Citing growth potential for Thomson in variety of new digital categories from camcorders to cable boxes, Exec. Vp-COO James Meyer offered bullish sales outlook for first-generation DTV sets while forecasting continued stability in analog TV market.
In candid assessment of CE business Dec. 13 at annual Sanibel, Fla., media briefing for ProScan line, Meyer projected further growth for current digital set-tops, including DSS receivers and Network Computer Web-browser box, but shrugged off PC Theatre collaboration with Compaq as PC/TV convergence experiment whose future is behind it.
And although Thomson supports Circuit City's controversial Digital Video Express (Divx) proposal and will showcase prototype Divx player at CES, Meyer said he won't serve as Divx "poster boy." Despite "disappointing" DVD player sales, he saidThomson also remains optimistic on open DVD and will launch 2nd-generation models at CES.
Successful transition to DTV will depend on clearly communicating end-user benefits and winning consumer confidence through broad, multibrand product launch, Meyer said. To latter end, he said Thomson, "as in the past with DSS, will support one or 2 other manufacturers" with DTV products.
OEM partner is Hitachi for high-definition (HD) 61" widescreen rear-projection TV. For that report, Thomson told us it also will produce set-top converters for DTV-to-NTSC viewing. It said box will use microprocessors sourced from chip-maker SGS-Thomson, but wouldn't divulge OEM clients. Commenting at Sanibel meeting on OEM deals for DTV, Meyer said: "It's more important to us to see that HDTV is done right rather than to achieve dominant market share. "
Early DTV sales could exceed industry's expectations for slow ramp-up, Meyer suggested. "How many are we going to sell? I don't know. But there's a dynamic in our country -- a lot of wealth has been created in the last 3 to 4 years," he said, citing sustained up-tick in luxury car sales as positive indicator of disposable income and consumer confidence in economy. "If digital TV becomes a status item, we could sell a lot more than expected."
Meanwhile, analog TV yielded "slight revenue growth" for Thomson in 1997 but profit came only from internal cost reductions, Meyer said, adding that "I don't see anything that's going to change this in the next 6 to 8 months." Thomson nonetheless has invested "more than $100 million " in its TV operations because, he said, "we believe in the TV business." On category basis, he said 27"-and-below "is in about as good a shape as it's been in many, many years." Company met goal of keeping tight inventory here, he said, and now has just one-week supply on hand. Meyer attributed lean inventory partly to booming tube sales to Brazil and China that took pressure off Indianapolis-based Thomson for U.S. sellthrough of finished sets. "In fact, our friends in the Tube Division have handed us a price increase," Meyer said.
Tube increase might mean TV price increase for 1998, Meyer said, noting that "inventories at retail are in very good shape" and predicting continued stability next year for core TV products. Like other industry executives, he raised possibility of TV shortages in near term owing to new-found planning discipline among dealers and
manufacturers. "If Christmas is good, there isn't going to be any inventory, and I don't know how quickly we can build in the first quarter," Meyer said of smaller screen sizes, noting that Bloomington, Ind., factory will close by April and new Mexican plant turned out first TV only on Dec. 11. Projection TV could suffer shortages, too, he said: "We could run out of projection in the first quarter. January's a big month for the category." He said industry experienced "slight growth" for rear-projection sets through year "but for Thomson, it's been great."
Inventories are tight, too, in 35-36" and 31-32" direct view, Meyer said, characterizing sales of latter as "good" but conceding 35-36 " fell short of expectations. "The category overall is growing but the console business is dying, so when you combine that with tabletops it's less than we'd hoped -- not near the levels we predicted or the growth rate we expected."
DSS receivers remain bright spot with 20% increase in sellthrough compared with previous year, despite pricing "free fall" in early 1997 when " dealers bought too many and we made too many," Meyer said. Dec. was shaping up as "biggest month in the history of DSS" with sellthrough exceeding 50,000 weekly and month on track to surpass 200,000 receivers. But he called inventory situation "a disaster. We're out of inventory, and the retail pipeline is low." He said factory in Juarez, Mexico, was working weekends to replenish supply. He said Thomson owns more than 50% market share in DSS.
DVD was "disappointing" but VCRs keep booming for Thomson and industry, Meyer said. "Every year, we say it's going to die, and every year it goes up. But it's a very compressed market, with prices under $200, " he said of VCRs, noting that most action is moving to $100-$149. He characterized camcorder business as "very good," with Thomson brands holding steady at "under 20%" market share. "Digital's coming on strong, but I don't know where the price point will come out next year, " Meyer said, citing exchange rate for Japanese yen that recently has risen as high as 130 to $1. As for digital VCRs, he said Thomson hasn't decided when to launch D-VHS. "We were a lot more excited about it before JVC and Echostar introduced one," he said.
"Business is hot" in audio portables and systems, Meyer said. But Thomson sales of communications products such as phones slowed in last 8 weeks after big bubble earlier in year, he revealed, attributing slowdown to possible glut in retail pipeline.
With 2 weeks to go in holiday selling season Thomson was "sold out" of RCA Network Computer (NC) inventory, Meyer said. Web-surfing set-top " really exceeded our expectations," he said, although he conceded " quantities weren't mammoth -- about 50,000" since autumn launch. RCA slashed prices to $199 and $249 from $299 and $349 in late Oct. "There's a market there, but I'm not sure how much," he said of original price points.
Market might be illusory, though, for PC Theatre -- joint RCA-Compaq PC-TV convergence system launched with little fanfare last spring. Officials of each company have conceded in past that system hasn't set world afire, but continue to maintain that experiment yielded valuable technology lessons on convergence products. In response to questions about future PC Theatre configurations, Meyer was noncommittal.
"We're looking at a lower cost PC Theatre and have 3 options, but we won't put a lot more work into it," Meyer said. Previously, Thomson executives have said they might offer 27" and 31" monitors to drop price point from current $5,299 and $3,999 packages with 36" monitor. "It's been a meaningful learning experience for us, but the sales of PC Theatre have certainly been disappointing," Meyer said. He said there was potential for continuing collaborations with Compaq in other areas.
New categories with growth potential for Thomson include electronic program guides (EPGs), digital cable boxes and cable modems, Meyer said. As for EPGs, "we sold a quarter-million products with these in '97, and we started late," he said, and Thomson is "on track" to sell 5 million EPG-equipped video products by 2000. In set-top converters, "we hope to play a major role in digital cable," Meyer said. "In late '98, it could be a catapult for our business." Thomson also will enter cable modem market next year "now that there's a standard," he said.
Industry forecast is "much the same" for next year, Meyer said: "I don't see what's out there to catapult the business 10%." Meanwhile, he discounted likelihood of major downward pricing in CE products from exchange rate fluctuations caused by Asian economic meltdown -- in particular, Korean won. He said that because most Korean companies build VCRs in Mexico, drop in won's value "wouldn't yield a $79 VCR." Meyer contended that most probable effect of currency shifts might be lower prices for Asian-made key components. |
