Tier One Brands Competing for Black Friday Deals

Faced with slow sales and excess inventory, tier one brands are competing aggressively for Black Friday spot promotions that once were the province of secondary suppliers, industry executives said. Black Friday deals are cut between May and July, they said. While top tier brands used to be reluctant to tarnish their image by offering cut-rate prices during the annual post-Thanksgiving ritual, concerns waned as sales fell short of goals, industry officials said. Manufacturers are unleashing aggressive promotions in August. Samsung is expected to ship a 50-inch 3D 720p plasma TV at $989.

"Companies were reluctant to participate in the past, but that doesn’t exist any more,” a CE executive said. “It’s a legitimate sales promotion and we all have numbers to hit. Because sales have been slow there is inventory that is backed up, … we all wish the picture was a little different, but it’s not."

The oversupply started in Q2 and came after panel makers increased capital spending to $16.9 billion this year from $11.8 billion in 2009, said Sweta Dash, senior director of LCD research at iSuppli. LG Display and Samsung are expected to spend $4.6 billion and $4.3 billion on capital projects this year, due partly to expanding 8.5-generation glass for large-size panels, Dash said. LG Display said last week it may slow production plans in the face of an industrywide oversupply of panels. The panel supply was expected to tighten in Q3, but high inventories in China are making panel purchases “lower than previously predicted,” Dash said.

The strong position of tier one brands in Black Friday sales hit Zoran’s sales of TV processors, CEO Levy Gerzberg said in a conference call. The competition is especially heated at entry-level prices and two of Zoran’s “key” customers were expecting spot deals with retailers that didn’t materialize. Some of those agreements were snatched up by tier one brands. “The tier one brands do not sustain business in the very low end for a very long time,” Gerzberg said. “They decided to go after the low end and it’s very difficult for them to be profitable there."

There has been compression at the low-end of the market and top tier brands are going after the spot deals and putting a lot of pressure on the value brands, Gerzberg said. Zoran didn’t identify its “key” customers, but they're believed to be Funai, which sells products under the Emerson, Magnavox, Philips and Sylvania brands, and Toshiba. The companies use Zoran’s SupraHD processors and its new SupraFRC 201 frame rate conversion ICs. Zoran acquired FRC technology in buying Let it Wave.

The ramp of Zoran’s Internet-compatible chip sales also has been slower than expected due in part to delays in its customers getting the needed FCC approvals for products, Gerzberg said. Some tier one brands also have moved video processors to internal sources or original design manufacturers (ODM), instead of third party suppliers like Zoran, Gerzberg said. To expand its line of FRC chips, Zoran is developing models capable of controlling CCFL or LED backlights, he said. Zoran also is moving new TV and FRC chips to a 40-nanometer production process at Taiwan Semiconductor Manufacturing Corp. (TSMC) in Q3 and expects to have the ICs in CE gear by Q1 2011, company officials said. Sample production of two chips will cost $2 million and increase Zoran’s Q3 operating expenses, Chief Financial Officer Karl Schneider said. Inventory rose to $36.1 million from $27.1 million

Zoran’s Q2 loss narrowed to $6.6 million from $13.8 million a year ago as revenue declined to $93.4 million from $102.7 million. Hardware sales dropped to $82.7 million from $92.1 million. Software and licensing revenue rose to $10.64 million from $10.54 million.