Margins stay up as high-def prices fall

With forecasts calling for lighter-than-usual holiday spending on consumer electronics, top TV manufacturers are expected to cut prices more sharply this fall to keep cash-strapped consumers in the market.

Fourth-quarter price cuts are nothing new in the high-definition TV business, but the sharp declines of 2006 were supposed to be a thing of the past. But with The NPD Group calling for, at best, a 3% increase in fourth-quarter CE spending, retailers and suppliers may be forced to be more promotional than they’d like.

“Given the forecast for the fourth quarter, you’re going to see more price declines,” said Paul Gagnon, an analyst with research firm DisplaySearch.

And if current trends continue, plasma TV prices are likely to fall faster than LCD. Plasma prices have been slightly lower than LCD since early 2007, but have fallen faster in recent months.

“They’ve been consistently priced about 10% lower than LCD TVs,” said Gagnon. “But now, you’re seeing suppliers like Panasonic price their plasma TVs up to 20% lower than comparable-sized LCD models.”

Panasonic and other plasma manufacturers may also be trying to increase their market share in the 40-inch and above screen size, which is currently about 35%. Overall, plasmas account for about 10% of the market, due in large part to the fact that they don’t manufacture small-screen TVs.

And unlike past years, suppliers this fall will be able to lower prices without hurting their margins now that the cost of manufacturing LCD screens has come down.

“The glass required to make the panels was in short supply last year and early this year, but that’s no longer the case,” said Gagnon. “So, suppliers should be able to pass those savings on to consumers with lower prices.”