Rivals Blurring Sony Distinction

Keith Kaplan loves his two Sony televisions, one of which has served him well for a dozen years and continues to chug away in his bedroom in Santa Monica.

But when the 47-year-old limousine service owner decided last week to treat himself with a high-definition flat-screen TV, he picked a Panasonic set.

“I couldn’t find any Sony TVs I liked,” said Kaplan, who plunked down $3,500 at the Best Buy in West Los Angeles for the 42-inch plasma set. “This one just had the best picture, and it was a good price.”

Kaplan isn’t alone among customers who are turning away from Sony Corp. for their TV purchases.

In the shift from cathode ray tube TVs to flat-panel displays, nimbler rivals have nibbled away at Sony’s dominance, narrowing the gap in quality and aggressively undercutting the Tokyo-based electronics giant on price.

“Sony’s products have always commanded a price premium because it was Sony,” said analyst Michelle Abraham of In-Stat, a market research firm in Scottsdale, Ariz. “But consumers’ willingness to pay that premium is eroding.... You can no longer assume that the other brands aren’t going to be as good. It’s an ongoing issue that Sony will have to face.”

That’s a dramatic shift from the days when Sony’s Trinitron sets garnered as much as 50% of the high-end television market and represented about 20% of all TV sets sold, according to market research firm Envisioneering Group in Seaford, N.Y.

Sony still commands considerable clout and market share in the $77-billion global TV business. The company sold $8.9 billion worth of TVs in the fiscal year ended March 31, up 3.4% from the year before; that represented 13% of total revenue.

But the company has struggled lately to keep up with a raft of low-cost competitors operating in China, Taiwan and South Korea, especially in the market for large flat-screen sets. Indeed, Sony last month blamed sour first-quarter financial results on its TV business, which suffered a 21% drop in revenue from a year earlier.

Company executives acknowledged that they were caught flat-footed when TV prices fell far more this year than they had projected. The price plunge has prompted Sony to lower its overall sales projection for its full fiscal year by 3% to $67.8 billion and its net income forecast to $93.5 million, down 88% from its April estimate.

Sony Chief Financial Officer Nobuyuki Oneda, in announcing last quarter’s results, said prices plunged across the world in all TV technologies. Prices for TVs with liquid crystal displays, or LCDs, are expected to drop 50% in Europe this year, he said. In the United States and Japan, the declines are projected to be 20% and 30%, respectively.

Although Sony has deeply discounted its prices, competitors have cut even more.

According to a price survey by El Segundo market research company ISuppli, a Sony 42-inch plasma TV in the three months ended June 30 cost $2,699 to $4,000. That compares with $1,600 to $1,700 for a similar set from Maxent, a brand of Regent Inc., a company based in City of Industry with factories in China and Taiwan.

“Consumers have shown that they are increasingly comfortable with buying lesser-known brands, especially when they see price differences of $1,000 or more,” ISuppli analyst Riddhi Patel said.

To be sure, Sony isn’t the only brand-name company to take its lumps. Take the fast-growing market for LCDs, for example, in which unit shipments more than doubled in the last year. Segment leader Sharp Electronics Corp. saw its global unit market share dip to 23% in the three months through March, down from 42% a year earlier. At the same time, the dozen or so obscure names in the “other” category, including Maxent, boosted their combined share to 43% from 28%.

“Over the last four to six quarters, we’ve had a whole bunch of value brands emerge,” Patel said. “Most of them are Taiwanese and Chinese.”

Some analysts say the Sony brand, though still strong, has less cachet than it used to. That creates opportunities for companies such as Dell Inc., the No. 1 personal computer maker, to sell low-priced plasma and LCD TVs sight unseen through its online store. Because Dell sells directly to consumers and does not need to share profit with retailers, it can generally offer lower prices.

“In our research over the years, we’ve found that the number of people who make their technology buying decisions based on brand goes down every year, while the number who base it on price goes up every year,” said Josh Bernoff, analyst with Forrester Research in Cambridge, Mass. “The advent of Dell shows that people aren’t as brand conscious. Dell caters to people who want value.”

The emphasis on value presents a challenge for Sony, whose traditional approach has stressed high quality at a price premium. But with TV components increasingly coming from a handful of common suppliers, standing out from the crowd becomes more difficult.

“While Sony continues to have a good reputation for innovation, it’s become harder to maintain differentiation in the big-screen TV segment because they’re all starting to look alike,” Bernoff said. “That’s because many of the components for these sets are often manufactured in the same places.”

That’s the case with Sony’s plasma TVs. Sony has had to buy its plasma screens from South Korean and Chinese suppliers and thus rely on what is essentially generic technology. In the first three months of this year, Sony ranked fifth in the segment, behind Panasonic owner Matsushita Electric Industrial Co., Samsung Electronics Co., LG Electronics Inc. and Philips Electronics.

Until recently, Sony had to turn to outside manufacturers for its liquid crystal display screens as well. Its share of the market -- 9.4% in the first three months of the year by ISuppli’s estimates -- was less than half of Sharp’s.

Sony executives say they are taking steps to regain their footing. They are placing their bets this year on LCD and even higher-resolution rear-projection microdisplay TVs, the one sector in which the company has consistently dominated.

Seeking growth in the LCD market, Sony has invested $1 billion in a joint venture with Samsung for a plant in South Korea that manufactures the screens. Sony, which in July began shipping TVs with panels from the plant, expects to ramp up production heading into the crucial holiday and Super Bowl selling season.

“This will be the fastest-growing segment of our product line,” said Greg Gudorf, vice president of television marketing for Sony’s U.S. electronics business in San Diego.

Sony also is shoring up its lead in rear-projection microdisplay TVs by incorporating a high-end chip technology it had initially reserved for its ultra-premium sets costing $13,000 or more. Silicon X-tal reflective display, as it is called, delivers 2 million pixels to the screen, resulting in twice the detail available in standard high-definition sets. Sony plans to employ the technology in its 50-inch and 60-inch microdisplay TVs this fall for $4,000 and $5,000, respectively, Gudorf said.

Analysts expect Sony to further sharpen its product focus when new Chief Executive Howard Stringer releases the company’s reorganization plan, as he is expected to do next month.

“Once the dust settles from Stringer’s announcement in September, we’re likely to see from Sony a much more carefully and narrowly drawn set of priorities,” said Mark Stahlman, an analyst with New York investment bank Caris & Co.

When the business of TV sets was centered on cathode ray tubes, “Sony dominated,” said Tamaryn Pratt, principal analyst at Quixel Research in Portland, Ore. “Now there are so many different technologies that it’s no longer possible for one manufacturer to dominate all of them.

“The markets are divided now. Panasonic drives the plasma business. Sharp owns the LCD market. For Sony, it’s microdisplays. Because it’s so expensive to build these factories, it’s extremely difficult to dominate in every single technology.”

Although Sony will continue to face tough competition and further price erosion, Pratt said, the company has notable strengths, including significant marketing and engineering resources and a top-notch brand.

“If you look at where Sony has decided to put its efforts, in microdisplays, they rule the market,” Pratt said. “Now Sony has decided to invest in LCDs. It’s quite possible they can go back and own the TV business again in those two areas.”