External Environmental Analysis - The U.S. Television Manufacturing Industry

Introduction

The purpose of this report is to determine and identify the “attractiveness” of the U.S. television (TV) manufacturing industry, i.e. to analyze the opportunities and threats that a company and its industry face due to the external environment. This external environment project will therefore after defining some key terms, analyze the dominant economic characteristics, the driving forces, and the competitive environment of the U.S. television manufacturing industry.

To simplify matters the analysis will be performed from the point of view of an audio and video equipment producer, who is planning on entering the television manufacturing industry.

Key Terms

For a better understanding of the report this section will provides definitions of some important key terms used in the TV industry.

- CRT: cathode ray tube, the primarily technology used for TVs
- LCD: liquid crystal display, newer technology used for flat panel TVs, called LCD TVs
- PDP: plasma display panel, relatively new technology used for flat panel TVs, called plasma TVs
- DLP: digital light processing, relatively new technology used for rear-projection TVs
- LED: light-emitting diode
- OLED: organic light-emitting diode, technology, which is commonly used in mobile phones and digital cameras but is also applicable for TVs and computer screens

- FPD: flat panel display, including amongst others LCD, PDP, DLP, and OLED
- Analog TV: encodes TV picture and sound information as an analog signal
- DTV: digital television, “is a telecommunication system for broadcasting and receiving moving pictures and sound by means of digital signals^[1]”
- HDTV: high definition television, “is a television broadcasting system with a significantly higher resolution than traditional formats^[2]”

Dominant Economic Characteristics

The number of televisions in the United States (U.S.) is growing constantly, with the 2004 market value of the televisions shipped to the U.S. at about $19.2 billion. In terms of units these were 25.6 million televisions. For 2005 the value of shipments was expected to increase by 19.6% to $23.89 billion, whereas the units of television increase by 14% to 29.3 million. The shipments are expected to rise continuously and reach a total of about 37.7 million units by 2009^[3]. Furthermore, the TV market is shifting to a greater penetration of large, flat panel televisions. It is estimated that by 2009 71.5% of the market will be covered by panel televisions measuring 30 inches and above in screen size^[3].

Regarding DTVs and the Consumer Electronic Association (CEA) “for the first time since the arrival of the first DTVs in 1998, the majority^{[i.e. 62%]} of TVs shipped to U.S. …^{[in 2006 has been]} digital^[4].” On the other hand the number of analog TVs will be continuously decreasing during the next two years, “leading to the Feb. 17, 2009, analog cutoff date included in President Bush’s 2006 budget package^[4].” However, the “cumulative DTV shipments …^[were] expected to hit 48.2 million units …^{[by 2006]} and grow rapidly to 137 million units in 2009^[4],” whereas the revenues were predicted to be $23.3 billion in 2006 and increase to $33.2 billion by 2009. According to the CEA the penetration of households disposing of digital TV is incomparable, “surpassing the rate of growth of other groundbreaking technologies^[4].” On one hand for instance, the color TVs needed about 10 years after its arrival in 1956 to get a U.S. household penetration of 5%, whereas on the other hand digital TVs within 8 years after debuting achieved a penetration of 20%. The same growth phenomenon can be observed for consumers receiving digital broadcasting, whereas in 2006 38.7 % of the U.S. households were getting it increasing to 95.6% in 2010, according to the CEA forecasts’. Regarding the DTV technology by market share, “flat panel models^{[such as plasma TVs, and LCD TVs]} continue to chip away at the installed base of direct-view CRT and projection models^[4].” Figure 1 illustrates the TV market composition in billion of factory dollars from 1998 to 2007. It demonstrates that the value of flat panel TVs produced is rapidly increasing as opposed to that of projection TVs and direct view CRT TVs and that the TV market is clearly converging towards a flat panel TV dominated market.

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Figure 1: TV Market Composition in Billions of Factory Dollars from 1998 - 2007

Source: CEA Shipment Data Reports^[5]

Of the flat panel TVs according to iSuppli the shipments of LCD TVs in 2007 will overtake those of CRTs, whereas in 2009 also the shipments of plasma TVs are going to overtake those of CRT TVs^[3]. Overall it can be held that the market share of CRT TVs is observably decreasing, whereas the market for flat panel TVs is growing rapidly.

Figure 2 below indicates furthermore the trend of shifting from standard definition TV (SDTV) towards high definition TV (HDTV), which represents simply a higher quality in TV opposed to the primarily one.

In the U.S. TV market four key technologies which benefit from HDTV are available; these are CRT, LCD, plasma, and DLP. Table 1 indicates these primary TV technologies with certain characteristics, such as the decreasing average selling price, and the top manufacturer of the different technologies. Below that table follows a brief market summary of each technology.

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Figure 2: The Shift to HDTV

HDTV

SDTV

Source: CEA Shipment Data Reports^[5]

Table 1: Four Primary TV Technologies and some Characteristics

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Source: Prepared by ICF Consulting. Data derived from various sources^[3]

CRT TVs

These TVs are technologically mature and accounted for about 75% of the total TVs shipped to the U.S. in 2004. More than 50% of these 19.32 million units had a screen size larger than 24 inches. However, the number of CRT TVs was expected to decrease to 18.76 million units in 2005, which accounts just only for 64% of total TVs shipped. This decreasing trend is supposed to continue insofar as in 2009 only 5.27 million units, these are 13.8% of total shipments, will reach the U.S. market^[3].

LCD TVs

This technology is the fastest growing one for TVs in the U.S. and accounted for 2.75 million units or about 10.75% of all TV shipped in 2004 were LCD TVs. More than 50% had a screen size larger than 21 inches. For 2005, 5.93 million units (20.25% of total TV shipments) were estimated to be shipped to the U.S. increasing to 21.8 million LCD TVs and accounting for approximately 57.8% in 2009^[3].

Plasma TVs

As opposed to the CRT and LCD TVs the plasma TVs have still a relatively small market share. Only 0.75 million units in 2004 were shipped to the U.S. accounting for merely 2.9% of the total TV shipments, whereas a great majority had a screen size larger than 40 inches. However, in 2005 the plasma TVs shipped was supposed to increase to 1.65 million units or 5.6% of the total number of TV shipments and by 2009 reach 5.97 million units, which will then account for about 15.9% of the TV shipments^[3].

DLP TVs

DLP TVs compete in the market of HDTV against LCD and Plasma TVs but is so far a relatively new technology, which is reflected by the relatively small number of units shipped to the U.S. Merely 0.45 million units were shipped in 2004 accounting for 1.8% of TVs shipped. By 2005 this number was estimated to increase reaching 0.8 million DLP TVs shipped but still only accounting for about 2.7% of the shipments. However, by 2009 it is estimated that 2.1 million DLP TVs will reach the U.S. market and comprise 5.53% of the total number of TVs shipped^[3].

Regarding the overall worldwide FPDs, DisplaySearch estimated them “to rise from an 82% revenue share in 2004 to 96% in 2009 on a 12%^{[compounded annual growth rate (CAGR)]} … vs. a 21% decline for CRTs^[6].” FPDs are increasingly taking share from CRTs at larger sizes, whereas CRTs are only expected to survive at the market for smaller size displays. Furthermore, DisplaySearch estimated in particular the worldwide revenues of LCD TVs and plasma TVs for 2006, whereas these for LCD TVs were to be $22.5 billion, an increase of 85% and on the other hand $7.2 billion, an increase of only 28% in revenues for plasma TVs^[7].

[...]

^[1] http://en.wikipedia.org/wiki/Digital_television

^[2] http://en.wikipedia.org/wiki/HDTV

^[3] US Environmental Protection Agency, (EPA), “Preliminary Television Market and Industry Research“, Janurary 2006; http://www.energystar.gov/ia/partners/prod_development/revisions/downloads/ tv_vcr/Preliminary_TV_Market_Research012006.pdf

^[4] John Laposky, “ CEA: Digital TV to Surpass Analog in 2006,” TWICE: This Week in Consumer Electronics, 03/27/2006, Vol. 21 Issue7, p18-18, 3/4p;

^[5] Director Sean Wargo, “2007 State of the Industry”, Consumer Electronic Asso-ciation, January 2007, Las Vegas, NV; http://members.aol.com/cookeh/CES2007StateoftheIndustryPresentation.ppt

^[6] President and Founder Ross Young, “Flat Panel Display Market Outlook: From Cyclicality to Maturity,” NPD Breakfast with the Experts, CES DisplaySearch, Jan-uary 8, 2006; http://www.displaysearch.com/free/articles/ross_young_npd_breakfast.pdf

^[7] Moon Ihlwan, “Plasma vs. LCD: The Battle Heats Up”, BusinessWeek Online, January 17, 2007; http://www.businessweek.com/print/globalbiz/content/jan2007/gb20070117_754438.htm