The past year has witnessed explosive growth in plasma TV, with a 56 percent increase in the number of products being offered at major U.S. retail outlets. During the same period, the number of retail competitors has also jumped, by a whopping 27 percent. And all of them are fighting for a piece of the increasingly fragmented plasma TV pie.
Operating deep in the shadows of market leaders Panasonic, Sony, Samsung and LG are Tier 2 manufacturers such as Daewoo. While the big guns all have direct access to captive component sources for the all-important plasma display panel (PDP) glass substrates, companies like Daewoo still must offer products that combine relatively high performance with extremely low prices. This is precisely the niche that Daewoo's 42-inch DP-42SM plasma TV has filled.
Lowering the cost of production and components in this environment of heightened competition will play an increasingly vital role in maximizing manufacturer retail presence and market share. To understand how manufacturers can minimize the production costs of plasma technology, we chose to study the DP-42SM.
Display features
Introduced to the U.S. market in 2003, the DP-42SM is an enhanced-definition television (EDTV) with a 42-inch plasma display. It offers a 3,000:1 contrast ratio, 16.77 million colors and a depth of 3.15 inches, the latter making it perfect for mounting on a wall or placing on a table with the supplied pedestal. The DP-42SM delivers a full, rich cinematic experience with its 16:9 wide-screen aspect ratio. Other features include an EDTV native resolution of 480p (853 x 480 pixels), a 160 degrees viewing angle and a 3-D digital comb filter for enhanced color purity.
The DP-42SM accepts inputs in all major DTV formats (1,080i, 720p, 480p and 480i). It has five selectable picture modes (4:3, 16:9, panorama, zoom1 and zoom2) and five sound modes (standard, movie, music, news and user-selectable). It does not have a built-in TV tuner, however. To watch TV, the unit must be connected to a separately purchased set-top box or a Daewoo TV tuner.
Besides digital 3-D comb filtering of audio/video and S-input sources, the product's picture-enhancing features include a capsulated color-filter system, a 1,000:1 contrast ratio and peak luminance of 1,000 cd/m2. The stereo sound system features a five-band equalizer. The set also offers still-image capture, a four-language OSC screen, a sleep/wake timer and auto off.
Production cost analysis
To study the components and cost of manufacturing for the Daewoo DP-42SM, we assumed a production volume of 400,000 units at a manufacturing facility in South Korea. We estimated the purchase costs of commodity components, the manufacturing costs of fabricated components and the location labor rates. The end result was a $904.54 estimate for total component and related production costs. The cost of assembly and the PDP mechanism accounted for just over 70 percent of the assumed manufacturing costs of this product.
The manufacturer's suggested price begins at $2,499. Assuming the company produces 400,000 television units in South Korea, Daewoo's estimated profit for each unit would be $1,594.46 before accounting for transportation, tariffs and other taxes.
Market analysis
Since it started shipping in the fall of 2003, the Daewoo DP-42SM has held its ground at specialty retailers and e-commerce sites in North America. That's because the model represents the sweet spot of the U.S. digital TV market-42-inch EDTV plasma screens. In fact, 30 percent of the plasma TVs offered by major U.S. retailers fall into that category.
With a street price that often falls below the $2,000 mark, the DP-42SM compares favorably with better-established brands that sell in the $2,500 to $3,000 range. That's enough of a differential to get the consumer's attention and, in many cases, make the sale.
The plasma TV market is at a crossroads. In particular, 42-inch EDTV products are stuck in the middle of that intersection, facing oncoming traffic from LCD TVs, which are pushing up the size curve into the 40-inch-and-above category. Many consumers perceive LCD technology as superior to plasma, so they are willing to pay a premium to own an LCD screen that is comparable in size.
At the same time, the average price of a 42-inch plasma TV continues to nosedive. A year ago, a 42-incher commanded an average sales price of $4,634. Today, the ASP is $2,916, a whopping 37 percent slide since June 2004.
Steven Kovsky (skovsky@currentanalysis.com), senior analyst of digital TVs at Current Analysis Inc. (Sterling, Va.)
