Official 70"+ LCD thread - Page 32

Back on topic: I think if we take a 20-30% discount of 70" Elite pricing tomorrow, we can roughly GUESSTIMATE what is the natural price for a NORMAL 70" TV.

My slightly educated guess is that the dealer cost for the 732 thru 735 is ~ 70% of MSRP. For the Elites my guess is 60% of MSRP. "Luxury" goods typically have higher markups. I hope the dealer I have asked for a quote has roughly the same definition of reasonable price a I do i.e the street asking price of the 70X5 will be $5.5K.

Think Chris hinted that margin for 732 is about 10% IIRC (but I'm refering to actual sale price rather than MSRP). 20% margin for mass market TV is a miracle nowadays though common 5 years ago when Circuit City was alive and kicking.

@irkuck I'm not sure I understand what your point 2 has to do with my guesstimate. Natural pricing means like back in 1H10 normalised environment.

Too risky?? Maybe you should advise Sony who just scored 8 straight years of TV losses. Risky is if you don't do anything, you won't have any business left to take risk with.

That's a pretty good guess.

Competition is fierce among retailers which is why MSRP and margins based on it are meaningless, not to mention that manufacturers have been having a tendency to reduce MSRP shortly after a products release putting margins more inline with Specuvestors estimates.

If he thinks that (which I doubt highly), I will help him find the help he needs. Unless of course we are talking accounting fictions, in which case that's another matter entirely. Ask NBA owners who think that they can deceive players into believe amortization of goodwill is a cash outlay!

I know that in the automobile business some mfgs. have sold low volume models that were showcases for their techonological expertise at a loss--The Prius, when introduced, sold for considerably less than the cost of production, let alone R&D costs (supposedly became profitable about 5 years after intro.) The current uber-expensive Lexus Ferrari-killer also reportedly sells at a big loss.

In these cases the parent company is swimming in money made on huge sales of less exotic models.

If any company in the tv business could afford to subsidize a set at the rate of 1 or 2k per copy it'd be Samsung, not Sharp, I would think?

Sharp simply cannot take a 1-2K loss per unit. Their balance sheet would not support it, let alone their income statement. They are going to move what I'd estimate is ~250,000 of the 70" panels this year. At $1K loss per unit, you are talking $250MM in losses from that alone. That doesn't feel slightly realistic.

For what it's worth, I am all-but-certain the panels will be identical. You will be sold a marketing bill of goods that implies that panels are different, but they will not be. I believe the video processing circuitry will be different (reported by others) and that of course the backlighting will be locally dimmed and perhaps contain even more LEDs than the 732 does (perhaps). It's also possible that some of the brightness enhancing films are different and that there are other minor differences in what goes into the "sandwich" that makes up the whole TV. But it would be shocking to learn the underlying panel is different. And, again, while I expect the marketing material to imply it is, I also expect it won't state it directly so as not to come off as lying.

Exactly. Even with early reports giving preliminary promising reviews of the sharp elite model, to me it's still a glorified 732 which is a low end warehouse club store tv.

The samsung 75" will be nicer (read high end) looking (aesthetically) but will be inferior in every way to the sharp elite model but for a way higher price.

Putting me at a crossroads lf Whicj to get between sam un75d9500 or sharp 70" X5, with neither being worth it for the price leading me possibly to the sharp 735 (even it really mostly only adds 3d over the 732) once it hits a real special low price even if short lived like the Hh greg price of $2200? That one grand opening hhgreg had it for and many ppl had success getting other stores (other hhgreg locations and BB alike) to match.

So while I am very anxious for larger then 65" I will be content with my un65c8000 (only took one exchange to get a good one and I'm one of the lucky ones) and 67" dlp until I can get a good higher end 70-75" 3G model for no higher then what I paid for the 65c which at the time was a great deal thousands less then most were getting it for an still the most I ever paid for a tv. My previous max was 2500 and I always got high end and large sets for that price or less by simply waiting for the short lived too good to pass up deals.

4k is enough to spend on a tv and eventually both the sam 75" and sharp elite 70" will drop to that or below. I want size first and only need decent quality. I don't see the need to pay so much extra for elite models that most ppl will never notice is any better then the 732 using the same panel.

Granted I got in on the free buy back program with my 65c800 which I mine as well make use of and sell back to BB for most of what I paid being a year or less later but if it means I have to buy a new tv from them I will only do it if they match the best online price I find especially since I will have to pay tax if buy from BB who is set to have the 735 (now?) x5 (September), and 75d9500 (should also be august).

Trading the 65c I will be tempting to replace with the sam 75 figuring I can always sell my 67" 3d ready led dlp (61" version of t brought a decent price) and justify the 70" 735 for basement. But that's scenario depends on a good price on the sam 75 with an out of their mind 13k msrp and thligh expected to be under 10 street samsung are still of their rocker for edgelit. Ifni get close to 4k for my 65c, I'd maybe put down another 2-3k max for the 75" but that's still max 7k total which is probably too high. 5.5k for the sharp elite is the right price range and the sam won't be worth even 2k more just for 5" and otherwise inferior (though probably nicer looking aesthetically unless sharp improves te design of the x5 elite model over the cheap warehouse club store tv looks of the 732).

glorified 732? I might have to disagree somewhat on that. If it has the Elite badge, chances are its just not a close bretheren. But tomorrow we shall see.

Questions for you esperts:
1. How long does it take the 10g fab to change the pattern of the panels it is producing for either Sharp or Sony.?
2. Based on the above how often do is the pattern of the panels being made changed?
3 Is is possible for the fab to use smaller size glass in order to use a pattern that has no waste for the pattern it is currently using?
4.Since Sony now owns 30% of the Sony/Sharp 10g fab are they obtaining 30% of the output using a pattern that they want?

Well it's more then likely the same panel as has already been surmised.

@irkuck Rogo understands what I'm saying. Sharp cannot be subsidizing $1-2k way below CASH cost. To even assume that's what I'm suggesting means u don't even understand what I mean when I say Sharp is selling at a loss on a ROIC basis.

I'm saying the RETAIL price of $4.5k should be a normalized price for normal profit along the value chain which means the PANEL price should be around $1.5k vs around $1k guesstimate for 732, for normal profit for Sharp (nominal and not taking into account ~15% annual BOM cost down), which will already be an achievement for loss making 10G. NOT that I'm saying they will be able to sell enough panel at $1500 to even achieve that, but that should be their aim at current cost structure. Like I said no one really know the demand for $4500 70". Elites will be where the ka-ching will be but volume cannot be high if we take kuro as a reference.

PS And I won't be surprised if all the Sharp 70" is the same panel isn't it?? That's the crux of all our discussion regarding "scale" or more aptly, operational efficiency for those who have been following the "irrelevant" discussions. They need volume on 70".

And I'm talking about panels, not set. Elite will likely have different LCM and electronics like rogo mentioned to justify the price point with improved PQ. But still another ka-ching for Sharp TV business besides 10G fab business line.

IMO, the MSRP spread of ~ $4k between the 735 and the X5 has Sharp leaving a lot of $ on the table unless they put out an in between model. I wouldn't be surprised to see the 935 announced in October/November and available before XMAS. Local dimming, no THX, plastic basel and video processing with some of the X5 features turned off. MSRP of $6k for a 70"; street = $4.8k.

"This all means that the pricing of the Elite 70" has absolutely nothing to to with the technology (one could argue it would if there would be e.g. 1000+ zones) and it has nothing to do with the sales volumes. "

So you now acknowledge that there can be a fundamental, utter disconnect between retail pricing and cost. I feel we are making progress!

"What is amazing in this story is mind-blowing targeting of products: extremely low pricing of the basic 70" and extremely high pricing of the Elite, with nothing really in between. As much as the 732 is a steal for buyers, the Elite is a steal for Sharp"

What's sad about this aside from being a downer for thrifty enthusiasts is this: Sharp is leaving a fortune on the table. For those of us that value robust competition and want to see Sharp thrive -- especially for single-handedly breathing life into the jumbo LCD market -- this marketing strategy is awful.

Let's say they sell 250,000 of the lower priced sets (all the 73x series combined) and make $500 margin on each of them. I think most of us agree they aren't even making that much, but go with me, the less they make down here, the more the following will show the error in Sharp's "marketing math". For what it's worth, I believe 250K units is within the realm of accurate for the 70" 73x series for 2011. It could certainly be somewhat higher, but it's not going to be 2 million units if anyone is wondering. And, regardless, you'll see from the below, the more the sell, the bigger the likely error.

The Elite 70" is going to sell no more than about 10k-20k units. Really. And even if you again think I'm wrong aside from visiting my "East River Bridge Store" (excellent pricing on slightly used automotive and rail bridges), it's safe to assume the ratio of 73x series to Elite 70s is 10:1 and probably much greater than that.

Retailers get to make money on Elites and the electronics cost more as does having unique cosmetics so let's pretend Sharp moves these out of the factory at about $5000 and clears $2500 per unit.

The total margin they will make this year is:

250,000 x $500 = $125,000,000 (from 73x)
15,000 x $2500 = 37,500,000

Total = $162,500,000 in gross margin

Now, pretend there is one model somewhere in between that splits the difference and actually MSRPs for $5000. It doesn't matter what the features are. It sells through generic retail so it doesn't have "Elite-like" dealer margins, but it carries margin. Sharp makes an additional $1000 per unit on these over the base 73x series, but doesn't make the $2500 it makes on Elites. Again, this is a thought experiment, so we'd have to set the pricing to make this all work with reality, but it can certainly work. I'm suggesting the margin would be $1500 per unit. I'm going to test this concept with $1000 per unit just to prove the point.

Because Sharp now sells at more price points (I hate the term price point, but it actually applies here) -- wait for it -- they are going to sell more total TVs. So in our example above, they only sold 265,000 TVs. Now, they are going to sell 300,000. Again, I'm lowballing. The truth is, with TVs at $3000 and $7000, they are missing out on far more than 35,000 sales.

(I hate parentheses too, but it's worth noting that some of you are going, "Hey Rogo, Sharp has the 735, it's $4500 MSRP and so they already know this and are doing this." I direct you to Cleveland Plasma for evidence that Sharp is not making any real additional money on the 735. It's for dealers to make some more money. It doubtless does bring Sharp some additional margin, but that's why I have the 73x at $500 margin per unit. Spec and Irkuck would both tell you that Sharp is not making $500 per unit at all and they may well be right. But at least by mixing in 734s and 735s with the 732/733 they are upping the margin of of the 73x series. If you repeat my math assuming the 73x series makes an average of $100 per unit or less, you'll see why my way is that much better still.)

OK, so now we have to divide those 300,000 sales. Well there's good news and bad news here for Sharp. Good news is that some of the "middle model" is going to come from the 73x series. Bad news is that some of if it is going to come from the Elite. Best news? Most of it is coming out of the hide of Sony/Samsung/LG/Panasonic. Sharp had nothing to compete with them until Rogo came along and "invented" the Sharp LC70888 (for good luck). OK, so let's say it breaks down like this:

73x series: 225,000 units (some upsell occurs, 10%)
888 series: 65,000 units (25,000 from 73x, 5,000 from Elite, 35,000 from competitors)
Elites: 10,000 units (oops, we lost 5,000 Elite sales to the 888. We won't really lose that many. The Elite buyer is looking to buy the best and know he/she has bought the best. That's signaled by price and so the actual Elite market is capped by the number of people willing to pay $7-8.5K but who then find the Samsung 75" too large or just too stupidly priced if it really comes in at $10K. We can quibble over exactly how big this market is, but if you think it's really very big, I re-invite you to my "East River Bridge Store". It's right over here, c'mon....)

225,000 x 500 = 112,500,000
65,000 x 1,000 = 65,000,000
10,000 x 2,500 = 25,000,000

Total = $202,500,000 in gross margin.

So we improved gross margin by $40,000,000 and we sold more TVs, which will actually improved gross margin more. You see there is still a learning curve in these plants and the more units we make, the further we push down the curve faster. While this effect is marginal, it's real and so we wanted to sell more.

Nevermind that we now have 35,000 more brand ambassadors who have 70" TVs that their friends see and drool over. Nevermind that we have a significant number of people in the online/blog/etc. community who are enthusiasts who might stretch for the mid-level set, but wouldn't even bother considering a $7000-8500 TV. Nevermind that we hit Sony and Samsung in their high-margin zone for a change.

I am not at all stunned that Sharp went so high on the Elites. I am disappointing they went that high -- the Pioneer Elite brand has been coming down into more mainstream territory since Pioneer exited the TV business. But I'm stunned they chose to leave out the space between the Elite and the 735 (which, again, is a fake $4500 MSRP. It's really a $3000 TV with 3-D which can already be had for $3500. I doubt it's ever going to really move at $4500 and regardless, Sharp is not making money on it like a "true" $4500 TV anyway.)

EDIT: Between when I started and when I finished, dsinger's post went up. His logic is pretty sound too.

^^^
Thank you for validating my logic. The 888/935 will be announced after the thunder of the X5 has quieted down.

@rogo what u fail to understand is what I've been saying all along: the 732 is a beachhead product. Sharp would be happy to just breakeven on a CASH basis on the 732, though I suspect they may be losing maybe $50-100 per set on it, but that's just probably $10m of "marketing" $ to find out demand flexibility. Your maths assume demand will be there but REALLY nobody knows so "marketing" dollar is well spent IMHO. And they probably more than break-even on the 734/5... See how the strategy works?

It is all about utilization and cost curve in this strategy, period. Makes no difference to 10G if they are stamping out 70" for elite or 732. But BIG difference that they will be stamping ONE standardize product at volume. They break even (roughly) at 732, trophy product at elite, and rest assure their MAIN product will be at around $4500 maybe 9xx series.

From a marketing perspective, I think Sharp is doing well in 2011. They actually DICTATE what the price range of huge size TV (if there is a market, the pepetual argument) going to be ie $8500-3000 MSRP in for next 24 months I think. Won't be surprised if panny 85" will be going down to $8500 in next 24months


When did I say elite is at $4500? Are you even reading or you are still locked up in your own paradigm? Even at 30% discount the normalized price would be $6000, much higher than even I expected.

Who is bearing the cost? Of course Sharp. So is Sony. Sharp is bearing the capex cost for sure ie depreciation, and probably a bit cash cost but certainly not the ridiculous $1-2k you assumed I'm saying. What's so difficult to understand when even the cost efficient Koreans and Taiwanese are losing money on a PnL basis?

So with such vast range in pricing you still think 732 is selling at profit because of "scale" as they can sell 1/5 of competitor's price? Like I said I won't be surprised to see LG and Sammy huge size coming out $4500 EQUIVALENT (they don't make 70") in next 6 months if mass market TV remains sluggish and their utilization depressed. Like I said, the elite has already capped the price at the top so even the Korean trophy prices will certainly have to come off.

So what pricing the 9xx series will be? $3000? Don't count on it unless you still refuse to change your thesis.

"@rogo what u fail to understand is what I've been saying all along: the 732 is a beachhead product"

No Spec I get you on that.

"They break even (roughly) at 732, trophy product at elite, and rest assure their MAIN product will be at around $4500 maybe 9xx series"

Forgive me for questioning a strategy that revolves around spending the better part of a year not announcing or selling the "main" product. Sorry, but they'd fail marketing 101.

"Won't be surprised if panny 85" will be going down to $8500 in next 24months "

Maybe less. It seems like they could actually sell the 100" for $8500 if they really wanted to.

"So what pricing the 9xx series will be? $3000."

Wake me up when they announce one. I'm sorry, it's just dumb to not have the "middle" product. The most basic marketing class will teach you that you create the three tiers because you want the bulk of people to fall into the middle tier.

Even if the 732/733/734 is some kind of high-tech "loss leader" and will naturally skew the SKU balance (what a turn of phrase!) toward the bottom, the losses from not having the middle model(s) are acute. The math I posted above is overly generous. They are not really leaving $40MM on the table. As you and irkuck both discuss, the bottom models are skating on the edge of profitability. They are basically failing to capture something on the order of $100-200MM that they could be capturing this year vs. what they are. It's horrendous.

This is not how you rescue a TV division.

No irkuck thinks Sharp is god on the 70" because they got scale and be profitable at 1/5 Korean price

And yes panny 85"/103" is same psychology with the Koreans at huge size. If panny believes there is a market, prices of 85" will come off fast.

But again your assumption is THERE IS DEMAND. Even yourself don't believe in huge size market so what happens when Sharp launch 70" at $4500 and nobody buys? Slash price? The marketing psychology will be totally lost and everyone will be waiting for price to come off for a product with ZERO competitors! Conversely it will be interesting to see how consumers react to prices creeping UP, but key is no competitors (very seldom you can do this strategy) Adding to the mix is 10G plant MUST produce "something"! Their 60" is not exactly profitable either on a panel basis. They can't actually WAIT to sell small quantity 70" at $4500 and hope demand recovers. So there is a pull and push factors at work here for this unique strategy.

And again it makes a lot of sense to increase utilization even at zero cash profit, for the 10G plant manager who wants to be kept employed.

Contrary to many believe, companies WILL take losses if they believe they can turn it around in 2-3 years. Sony is an extreme case when they refuse to cut loss when they are wrong (personally i think they should cut management first... That's probably the bigger problem) and pioneer cut loss ONLY because they are financially exhausted. On the other end of the spectrum Philip can't see future even in 2-3 years so they cut even when they have strong financial position. Sharp is somewhere in the middle. Hard to say they shouldn't continue on for short term losses.

"Even yourself don't believe in huge size market so what happens when Sharp launch 70" at $4500 and nobody buys? "

I believe they could sell 65,000 globally at that price.

"Contrary to many believe, companies WILL take losses if they believe they can turn it around in 2-3 years. "

Not much. And not like they used to. And it depends on the balance sheet.

A genuine question rogo:

How do you come to the figure 65k @$4500? I mean really... instead of "25,000 from 73x, 5,000 from Elite, 35,000 from competitors". What competitors? Did you used Kuro as a dirty reference for the price-demand? I seriously think NOBODY really knows the price elasticity. If true then I think Sammy & LG would be very tempted to do this already, and Sharp would have done it 3 years ago. We're actually in no man's land here...

@irkuck $8500 will be for videophiles and they are not so stupid to be fooled by Sammy and LG on inferior PQ. Unless these 2 can offer better PQ (D-Nice like LG LW9800), it is not a simple matter of "8500 is not that far from 10 grands"

The Sharp/Sony 10G plant is reported to be almost completly/if not completly automated and capable of making 70"panels fully optimized. However, this does not mean that they don't run the plant with other patterns to take advantage of the lower variable costs even instead of making panels smaller then 70" at older less efficient plant. AFAIK they have been producing smaller panels at the 10G plant every since the plant went online 2-3 years ago.