Skyworth flat-panel TV sales surge
Shenzhen firm doubles forecast to 1.1m units in year to March as it struggles to maintain margins, writes Jeff Pao
Skyworth Digital Holdings, China's second-largest television maker, said it would sell more than double the number of flat-panel televisions than it previously forecast for this financial year, as prices fall and consumers spend more in the mainland's fast-growing economy.
The company, which gets about 85 per cent of its revenue from China, will sell about 1.1 million units for the year to March, compared with the previous forecast of 400,000 units, and forecast 1.8 million units for the next business year.
'Our target of selling 8.5 million sets of TVs in this financial year will be achieved,' chief executive Zhang Xuebin said. 'Thirteen per cent of them are LCD TVs, which will contribute about 45 per cent of total sales during this financial year.
'In 2007-08, sales in LCD TVs will account for 20 per cent of TV sales volume or over 50 cent of total sales.'
Total television sales would grow 5 per cent to 10 per cent to about 8.9 million to 9.4 million units in 2007-08. 'About 15 per cent of customers will buy LCD TVs instead of cathode-ray-tube TVs and this percentage will continue to grow.'
Revenue from LCD televisions jumped 172 per cent to HK$1.9 billion, or 230,000 sets, for the six months to September, accounting for 34.6 per cent of total sales, compared with 15.4 per cent in the same period of 2005.
The Shenzhen-based company was struggling between expanding its LCD television business to gain market share and maintaining a profitable gross margin.
Last month, the company said its total sales surged 21 per cent to HK$5.6 billion in the six months to September from a year ago while its gross margin fell to 16.3 per cent from 16.9 per cent due to the expansion in LCD television business.
The LCD television business had gross profit margin of about 15 per cent in the period, 3.5 percentage points lower than that for conventional cathode-ray tube (CRT) televisions.
Goldman Sachs, which rated Skyworth's shares 'neutral', last month downgraded their target price to 90 HK cents from 94 HK cents because of the falling margin.
'It is difficult to boost gross margin but we will try our best to launch more high-end LCD TVs to avoid competing with low-end manufacturers,' Mr Zhang said. 'We do not want to run a business with a gross margin of less than 15 per cent.'
The company in September introduced a 3G-USB flat-panel television which can display videos by connecting to a computer hard drive through a USB interface. It also launched an auto-adjustable LCD backlight technology that helps to resolve problems of high-contrast common in similar products.
These high-end products can be sold at about 7,000 to 8,000 yuan, compared with lower-end products at 3,000 to 4,000 yuan.
The company's new 640,000 square metres technology park also began production of high-end electronics display products in October last year.
Skyworth lost its No1 status to Hisense, a mainland CRT television maker which made a more successful transition to LCD television manufacturing in the first half. 'We will not give up our net profit to get back the No1 rank,' Mr Zhang said. 'We just want to remain as the most profitable player in the industry.'
The company will also seek to boost its overseas television sales by shipping LCD televisions to developed countries. Exports of CRT televisions, which dominate the company's overseas sales, fell 8.3 per cent in the first half to 998,000 units.
Overall overseas television sales by the company surged 2.7 per cent to HK$666 million in the first half, accounting for 11.9 per cent of total sales. Gross margin of overseas television sales was only about 1.6 per cent, 3.7 percentage points down from a year earlier.
'We will be very careful when expanding the overseas sales because market demand is changing so rapidly,' Mr Zhang said.
In August, TCL Multimedia Technology Holdings, the world's biggest television maker by volume, said its net loss for the six months to June widened more than 16 times compared with a year earlier to HK$1.6 billion as poor judgment on European markets forced it to set aside large provisions for unsold stocks. Sales rose 1 per cent to HK$15.7 billion in the period.
'We underestimated the drastic change in Europe, where 75 per cent of users preferred flat-panel to traditional CRT TVs,'' TCL chairman Tomson Li said.
Skyworth will also continue to increase sales of digital set-top boxes and handsets which accounted for 13 per cent of total revenue in the first half and had gross profit margin of 25 to 30 per cent.
The company plans to sell two million set-top boxes and one million handsets in the year to March. 'We will sell our handsets under the Skyworth brand at an average selling price of about 1,000 yuan per unit,' Mr Zhang said. 'Digital broadcasting in China, which starts from 2010, will boost our sales of set-top boxes.'
Skyworth shares yesterday rose 3.7 per cent to close at 84 HK cents.