Philips Opts Out of LCD TV Business, Funai Takes Over

On April 8, 2008, Royal Philips Electronics announced a five-year brand licensing agreement with Funai. Funai will assume responsibility for sourcing, distribution, marketing and sales of all Philips’ consumer TV activities in the US and Canada. The licensing agreement will take effect on September 1, 2008. Philips will receive royalty payments for Funai’s right to use the brand names Philips and Magnavox in Canada and the US. Philips will take a E125 million charge to cover the cost associated with the transfer. Philips will in turn focus on its TV business in Europe and emerging markets.

Funai manufactures the Emerson, Sylvania and Symphonic brands. Funai has roughly a 3% market share of the US$22.4 billion North American LCD TV market while Philips has 6%. Even with a 9% total market share the brands Emerson, Sylvania, Symphonic and Philips will not be strong enough to compete against the top tear brands such as Samsung, Sony and Sharp. In addition, there are strong second tier brands such as Vizio, Olevia and Westinghouse Digital that have a stronger mindshare among budget conscious TV buyers. It will be a difficult road ahead for both Funai to say the least.

In the European market, Philips is considered a top brand. We have also witnessed many technology developments (i.e. Ambilight) by Philips that have brought some unique viewing experiences to the TV market. With intense price competition in the North American TV market, it is becoming increasingly difficult to generate profits. Even the very best such as Samsung and Sony are engaged in intense competition to simply survive and only the strongest few will manage to squeeze out profits.

Funai was established in 1961 and is headquartered in Osaka, Japan. Funai has manufacturing capabilities in Japan and four locations in China, one each in Hong Kong, Thailand and Poland. JVC has also partnered with Funai in an agreement announced on January 2008. Japan-based manufacturing will continue to dwindle as the cost becomes exorbitantly high relative to manufacturing in China, for instance. Although there are concerns about quality, since most TVs are geared toward the budget-minded, cost reductions are at the center of most of these electronics brands. Even if JVC’s president, Kunihiko Sato, believes the company has a technology advantage to manufacture high quality products, I believe JVC will slowly but surely head toward building products for the budget-minded.

For Funai, the Philips and Magnavox brands will need to be revamped. The Magnavox brand especially is in need of repair since it is considered a cheap, no-thrills brand with bland styling. Philips is considered a pricey brand but that doesn’t quite compete with the three S brands: Sony, Samsung and Sharp.

Source: domain-b

[tags]Emerson, Funai Electric, JVC, LCD TV, Magnavox, Philips, Sylvania, Symphonic[/tags]

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