The competition among Chinese digital-television manufacturers can only be described as cut-throat, especially for flat-panel TV (FPTV). FPTV prices in China dipped by 30% through August of this year, according to the State Council Development Research Center as reported in the China Daily.

Ken Tompkins
Insight Media Analyst

These price falls have increased the market shares of China’s top brands - Changhong, TCL and Xiahua. The combined share for these brands now stands at 65%.

For these brands, however, the high market share is the good news. The flip side to these phenomenal shares is falling margins, which for CE makers has fallen below that of IT manufacturers. An average 32-inch LCD-TV sold in China is now under $650. At these prices, many manufacturers are selling models at a loss, and the profit picture is not expected to brighten soon for these brands.

So what is happening in China, and will the same pattern of TV losses occur in North America?

The phenomenon of capital leverage is usually available to manufacturers who have next generation fabrication equipment entering production. When producers in certain industries invest in late generation production equipment, the per-unit cost of manufacturing can fall when very large volumes are produced.

While these pages have been filled with stories of next-gen LCD-TV fabs coming on line for ever-larger LCD-TVs, many of these advanced fabs are being built in Korea and Japan. The less advanced fabs are being earmarked for less demanding production of LCD monitors, despite some retrofitting that enables older fabs to produce higher-performing LCD-TVs.

In China, major manufacturers are behind their counterparts across the Taiwan Strait in building the latest production facilities. The general order of advances in LCD production is Japan, Korea, Taiwan, and, finally, China.

Another factor is at play in China.  China’s LCD markets are flooded with B-grade panels.  When major manufacturers produce large batches that do not meet the minimum requirement for an application, such as television, these units are sometimes repackaged for consumption in China and elsewhere.

Therefore, the supply does not merely come from the major Chinese manufacturers themselves.  Rather, the total supply is increased by the large number of inexpensive, one-off models that can sometimes be found in one Chinese city or region, but not another.

Finally, the Chinese consumer contributes to low LCD-TV pricing.  While North American consumers demand a certain quality level, Chinese consumers are more likely to think of consumer electronics as disposable items in the longer term.

While there is a trend in the developed economies of Japan, North America and Europe towards ever-falling LCD-TV prices, there is also a high premium placed on products of well-known brand names.  While Sony’s BRAVIA line of LCD-TVs may not be the best performing LCD-TV line on the US market, it still tends to command a higher price due to Sony’s brand strength.

LCD-TV producers should sit up and take notice of the paltry margins in China, but the situation will not likely replicate itself in North America any time soon.