TVs: Great to Watch, Terrible to Invest In

If you’re looking to buy a new television set, Black Friday undoubtedly is the time to do it — the sales should be phenomenal. Just don’t assume the companies that make those red-hot TVs also make for red-hot investments. After all, every dollar you’re saving on the purchase is one more dollar not being made by the TV manufacturers.

And it’s no small problem. Sharp (PINK:SHCAY), Sony (NYSE:SNE), Hitachi (PINK:HTHIY), Panasonic (NYSE:PC), and more television makers have been losing money — some for just a short while, and others for years. A few of them are being forced to make tough decisions, unable to sell their wares at prices that are profitable but also marketable.

The whole thing prompts one big question for investors: Now what?

Take the (Bigger) Hint

If the idea rings familiar, it might be because Hitachi announced last week that its numbers had finally taken a turn for the better after dropping its TV business in August. The decision to outsource its television production after 56 years of in-house manufacturing might have ended an era, but it also might also made one thing clear — Japan’s manufacturers just haven’t found a way to make TVs as cheaply as South Korean companies have.

It’s not like Hitachi was alone in its plight, though, and it’s not exactly like the plight is new.

Sony has lost money for eight straight years. While the company makes more than just televisions, and despite the fact that Sony doesn’t break out its profit/loss information by business line, the company does acknowledge that its television business has been in the red since 2005.

Sharp and Panasonic are in the same boat as Sony, however, in that it’s not as easy for them to ax the television business as it was for Hitachi. Consumer technology only accounts for about 8% of Hitachi’s sales, as the company also makes home appliances, trains, medical equipment, auto parts, and energy-generation hardware. Sharp, Sony and Panasonic, on the other hand, are primarily consumer technology manufacturers; getting out of the consumer goods business would essentially mean getting out of business altogether.

While the demise of the television industry’s profits might be interesting, at this point, it’s also just academic. The takeaway for investors is simply that Japan’s dominance in the consumer technology industry might have evaporated.

While Hitachi’s shedding of the TV manufacturing business might be the most dramatic change toward a better bottom line, it’s not the only one. Hitachi also got out of the personal computer business four years ago, not to mention getting out of the hard drive business. It’s all helped.

Meanwhile, Japanese competitors Panasonic, Sharp and Sony have stubbornly stuck with consumer goods despite losing money, and despite watching their price-setting leadership in the arena gradually yielded to others.

Where’d the Money Go?

While waning price-competitiveness is one of the reasons Japan’s television manufacturers are under pressure, it would be unfair to withhold two other key factoids from the discussion.

Consumers are buying fewer televisions: The period between 2002 and 2008 was a proverbial perfect storm for TV makers. Not only was the global economy humming, but the price of high-definition flat-screen TVs had fallen from four figures to three figures. Aging (and now non-existent) CRT televisions were no longer being repaired, or even manufactured, and consumers were enamored by the “bigger and better” shtick.

With most of the big-screen televisions purchased prior to 2008 still working just fine, though, the need for an upgrade to something bigger and better is rarely felt. And, the presumed wave of demand for 3D televisions simply never got off the ground.

How bad is it? In June of this year, research firm DisplaySearch reported that year-over-year shipments of LCD TV’s fell for the first time … ever. 2013’s shipments aren’t expected to be any stronger.

Non-Japanese manufacturers are making a dent: Ten years ago, Samsung (PINK:SSNLF) was barely an afterthought in the game, and LG (NYSE:LPL) wasn’t a name in the television business at all. But both companies are the key South Korean companies that are frustrating Sony, Sharp and Panasonic now. More specifically, they’re the companies that have figured out how to make big-screen televisions more cheaply than Japan’s big three have been able to.

Throw in the fact that as of 2012, the engagement factor of TV content is stronger on tablet computers than it is on actual television sets (and actual video-viewing time via tablets catching up with television sets), the writing is on the wall for Japanese TV manufacturers, which can’t be price-competitive as well as relevant.

Bottom Line

No problem is ever insurmountable. But, when the problems seem systemic — as they do here for a select group of companies — solving them will take some serious revamping.

It’s not clear whether Japan’s LCD television manufacturers are currently in a position to make those changes.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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