Is the Business of TV Manufacturing Worth the Trouble?

Is the TV Manufacturing Business Worth Getting Into?
Is the TV Manufacturing Business Worth Getting Into?

The TV biz just ain't what it used to be.

Once upon a time, Japanese heavyweights Sony (SNE) and Panasonic (PC) were the cream of the crop when it came to TV manufacturers. Nowadays, the leaders of the pack are Korean conglomerates Samsung and LG Display (LPL). In an interview with NPR News, industry pundit Jack Plunkett said:

The fact is that consumers worldwide today perceive Korean goods to be of high quality and to be very high value. So why should they pay a lot more for essentially the same product from Sony or Panasonic when they can get a great value and great quality from the Koreans?

What's a Sony to Do?

The stiff competition has lead to eight consecutive years of losses for Sony's risky TV segment, and its losses are getting worse before they get better. It's not surprising that the whole company is now facing its fourth straight year of operating losses. Sony had previously been planning to overhaul the entire division and CFO Masaru Kato said everything would be under review.

Then came talk that Sony was cutting its LCD ties with Sammy, as the pair has a joint LCD manufacturing venture. The company subsequently decided that it's splitting up the TV business into three areas: LCD televisions, outsourcing, and next-generation products.

This month, Sony announced a "TV Business Profitability Improvement Plan" that includes a revised forecast of 20 million unit sales for its fiscal 2011, compared to its prior estimate of 40 million units in fiscal 2012. LCD panels have flooded the market over the past several years, and LCD panels are Sony's largest variable cost of TV production. The company has been already been able to bring down fixed costs substantially, and its next priority is reducing variable costs.

How About Panasonic?

It's not like Panasonic is looking much better, as that company is scaling back flat-panel production because of its heavy losses. It will close a plasma and LCD factory, while its losses this year are pegged in the ballpark of $5.4 billion.

For Panasonic's Digital AVC segment, which includes its TV business, revenue over the past six months has fallen 14% year-over-year, primarily to weakness in flat-panel TVs and mobile phones. The segment comprises roughly 39% of overall sales, and Panasonic sold roughly 15.8 million units last year.

A Better Buy

While the Japanese pair is stumbling, one potential back-end play to consider is Corning (GLW), maker of a slew of glass products. Corning also makes the popular Gorilla Glass, which is found in just about any mobile device you can think of due to its resiliency. Gorilla Glass has been the growth driver in its specialty materials segment, which put up an 88% jump in sales last quarter to $299 million, yet it still pales when compared in dollar terms to the display technologies segment.

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Display technologies brought in $815 million in sales, showing a 26% year-over-year jump, and is the segment that manufactures LCD glass for flat panel displays, including televisions and desktop/laptop displays. It's worth noting that Corning has numerous joint ventures with key players, including Samsung.

The challenging economics of the TV business add a twist to Apple's (AAPL) inevitable offering. Cupertino is probably the only player that has the weight and willpower to disrupt the broken industry and revitalize its profits, while keeping a healthy chunk for its troubles.

Chances are that even Apple's TV set will inevitably tie back to Corning, since Apple gets boatloads of displays from Samsung, which circles back to the company's Samsung Corning Precision joint venture, of which Corning owns 50%.

I've been watching Corning for a while for its specialty materials segment growth -- not that the display technologies segment is a laggard by any means -- and it looks downright cheap at these prices.

Fool contributor Evan Niu owns shares of Apple, but he holds no other position in any company mentioned. The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Corning and Apple; and creating a bull call spread position in Apple.

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