Low-price TVs spur Samsung and LG rethink

Samsung Electronics and LG Electronics, the world's largest television makers by sales, are enjoying growing global dominance as Japanese rivals dramatically shrink their operations, but are encountering a challenge at home from unexpected quarters.

As flat-panel TVs have evolved from a luxury item into a relatively cheap, mainstream commodity, the two South Korean groups are facing competition from supermarket chains and online shopping malls selling lower-priced TVs with dramatic names like "Dream View" and "Shocking TV".

Faced with potential encroachment on their market share, Samsung and LG have been forced to adjust their strategy of focusing on the premium end of the market including 3D TV and internet-connected "smart TVs."

The domestic competition reflects the broader global environment confronting TV makers. Samsung and LG both have done well selling premium TVs to mature markets like Europe and the US, but analysts say there will be little growth there this year.

Emerging markets, where consumers still favour lower-priced TVs, are set to account for the bulk of growth in the flat panel TV segment over the next four years, with sales growth averaging 11 per cent annually while developed regions decline an average of 1 per cent each year, according to market researcher NPD DisplaySearch.

Though the Korean market accounts for less than 5 per cent of LG's total TV shipments and under 3 per cent of Samsung's, neither company can afford to ignore the rising popularity of budget TVs on their doorstep. "Their price margins will get eroded by launching lower-end models - but they can't just let these new rivals steal market share," says Kang Yoon-heum, analyst at NH Investment & Securities.

The domestic price war started in October when E-Mart, South Korea's biggest supermarket chain, rolled out a 32-inch full HD LED TV priced at Won499,000 ($443), more than 40 per cent cheaper than similar sets from traditionally dominant Samsung and LG. The TV, made by Taiwan's TPV, was so popular with price-conscious consumers that 5,000 units sold out in just three days.

Encouraged by the E-Mart TV's unexpected popularity, other supermarket chains and online shopping malls followed suit. Homeplus, owned by Tesco, upped the ante by cutting the price of its 32-inch TVs to Won455,000, while Lotte Mart laid out plans to sell 32-inch LED TVs for Won499,000. Auction, an online shopping mall owned by eBay, fueled the competition with a 42-inch LCD TV for Won499,000 - the 300 sets on offer sold out in less than one minute.

Seeking a profits edge amid intense industry competition, Samsung and LG have in recent years turned their focus to higher-priced smart TVs that let consumers access online videos and websites as well as specialised applications such as video games.

Samsung, the global leader with 20 per cent market share, is deploying new voice and gesture recognition technology with the goal of smart TVs accounting for half of total sales this year. LG has introduced new models equipped with improved 3D functions with the goal of capturing about a quarter of the overall TV market, from 14 per cent now.

But in a marked changed in their domestic business, both are also preparing to expand their lower-end product line-up. "We'll go wherever there is market demand," says Yoon Boo-keun, head of Samsung's TV business.

Samsung is poised to unveil a 32-inch flat panel TV in Korea starting at Won500,000 while LG plans TVs priced 20-30 per cent below current models. Samsung's top-selling comparable TV at Best Buy, the largest US electronics retail outlet, is priced at $329.

LG and Samsung have kept prices down by producing their own flat panels, which are the biggest expense in TV manufacturing. This has helped them sustain operating profit margins of 2-5 per cent.

But growing competition, particularly from Chinese companies, has spurred Samsung to spin off its lossmaking LCD division as it refocuses on more lucrative next-generation organic light emitting diode displays. It has also forced restructuring at Japanese groups: Sony has shut some TV factories after enduring eight years of losses and abandoned a panel-making joint venture with Samsung, while Panasonic has nearly halved flat panel output.

Nevertheless, with the move to sell cheaper TVs to tap the potential of emerging markets, neither Korean group compromising on higher-end sets, and analysts expect them broadly to stick to their premium TV strategy.

"We don't want to sacrifice quality for price," says Lee Sang-woo, a director of LG's TV product planning division.

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