Analyst Says Wal-Mart Saddled with Inventory of Large-Size TVs

Wal-Mart is saddled with inventory of large-screen TVs after over-buying the sets for the holiday season, Collins Stewart analyst John Vinh said in a research note to clients.

Vinh’s note caused Zoran shares to fall. Zoran’s stock closed 1.6 percent lower Wednesday to $11.03 because big Wal-Mart supplier Funai is among the chip maker’s largest customers. Sales to Funai, which markets video products through Wal-Mart under the Emerson brand, accounted for slightly less than 10 percent of Zoran’s $380 million 2009 revenue, Chief Financial Officer Karl Schneider told investors Wednesday at the Wedbush Morgan conference in New York. Funai also sells products under the Magnavox, Philips and Sylvania brands. Funai hasn’t changed its 2010 TV sales forecast, Schneider said. Vinh downgraded Zoran’s stock from “hold” to “buy.”

Another top Zoran customer, Toshiba, has suffered from tight supply of LCD panels for North America, “causing delays in the ramp of 2010 models,” Vinh said. There seems to be “a little more” inventory of large DTVs in North America than of those with smaller screens, Schneider said. Toshiba continues to market TVs in North America, but it has shifted some emphasis to Japan, where it enjoys a larger market share and better profit margins, Schneider said. Toshiba and Funai use Zoran’s SupraHD processors in their DTVs. The companies also are expected to deploy Zoran’s new SupraFRC frame rate conversion ICs, Schneider said. Zoran acquired the FRC technology with its acquisition of Let It Wave.

We couldn’t reach Funai, Toshiba and Wal-Mart representatives right away for comment Wednesday. But Brandsmart President Michael Perlman said he hasn’t had problems with Toshiba orders and “in fact, they filled in for some others."

Zoran’s combined DTV and set-top box revenue will grow this year to $200 million from $150 million in 2009, one-third of the increase tied to sales of FRC chips, Schneider told investors. Production of FRC ICs, handled by Taiwan Semiconductor Manufacturing Corp., is being built up in the first two quarters of the year and will hit volume in Q3, Schneider said. Zoran is shifting some of its processors toward set-top boxes from DVD and Blu-ray players, whose sales are starting to be hurt by video streaming services from Amazon, Blockbuster, Netflix, Vudu and others. Zoran recently struck an agreement with Vudu to include the video service in its next generation of SupraHD chips. It also changed the name of its DVD segment to multimedia products to reflect the arrival of streaming devices including Blu-ray players and Internet-connected TVs, Schneider said.

Zoran is developing a universal demodulator chip that can be deployed in TVs around the world, Schneider said. The IC is expected to be available in 18 months, Schneider said. Zoran earlier deployed a demodulator chip in DTV converter boxes that were sold as the U.S. shifted from analog to all-digital transmissions.