Analysts have been muttering for some time that Pioneer is unable to make its plasma TV business profitable, and Pioneer President Tamihiko Sudo now publicly agrees. "In flat-panel-TV operations, it will be difficult for Pioneer to bring the segment back into the black with just plasmas, so it is better if we have 42-inch LCD-TVs in our line-up," Sudo said in a recent interview with The Nikkei.

Ken Werner
Senior Analyst and Editor

Pioneer will now be getting those LCD-TVs, along with a healthy infusion of cash, thanks to its recently announced "business and capital alliance" with Sharp. Well, that sounds good, and Pioneer also gets a customer for its optical disk drive technology, while Sharp gets a reliable customer for LCD panels or rebranded LCD-TVs. In addition, the two companies will jointly develop a next-generation video disc player, and will work together on home-network products and automotive electronics, one of the most successful parts of Pioneer’s portfolio.

But wait a minute. Sudo went on to say, "We hope to build up our brand perception with 50- and 60-inch plasmas, while also selling LCDs that are regarded as highly as Pioneer’s [plasma] TVs. We would like Sharp to supply us with LCD panels with special specifications since our strategy is to sell high-value-added products."

In other words, Pioneer wants to apply the same super-premium, super-high-priced strategy to its new LCD-TVs that has produced a flood of red ink with its PDP-TVs, despite their undeniable technical excellence. It’s significant that one part of Pioneer’s portfolio that Sharp expressed no interest in exploiting is, you guessed it, plasma technology. There will be no Sharp-branded PDP-TVs. But the companies will jointly develop organic electroluminescent (or OLED) display technology, which is in the early stages of being developed for television by several companies, including arch-rival Sony.

In announcing their alliance, both companies avoided the word "merger," even as a possibility for the future, but Sudo had an interesting answer when asked in his Nikkei interview if Sharp might assume a role in Pioneer’s management if Pioneer’s earnings don’t recover. "I can’t rule out that possibility," he said. "We need to stabilize our earnings in order to maintain autonomy." And Sharp President Mikio Katayama said, "We aren’t considering an operational merger for now." (The italics are mine, not Katayama’s.)

We believe Pioneer’s super-high-end positioning strategy to be seriously flawed in that we do not believe there is enough volume at these very high price points to provide a viable business model - at least for a large CE company like Pioneer. If Pioneer applies the same strategy to the LCD-TVs it buys from Sharp, it will be replicating its problem on a larger field, not solving it. There is no indication that Pioneer management understands this, but the company nonetheless has a better chance of surviving if it can fill out its overly narrow product line with Sharp LCD-TVs. And Sharp understands how to deliver high-quality images at competitive price points. It also understands how to deliver different TV lines with carefully calibrated price points and selections of features.

Perhaps the most valuable thing Pioneer gets with Sharp’s money is Sharp’s management. Of course, some of the best medicines taste horrible when you finally swallow them. But then you get better.

For more on the Sharp-Pioneer alliance, as well as on the Sharp and Pioneer products shown at the recent CEDIA EXPO, see the new issue of Projection Monthly with Enhanced Flat-panel Coverage.

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