HP to enter TV gamut

SAN FRANCISCO: Reports that Hewlett-Packard Co. will sell flat-panel televisions came as no surprise to industry analysts, who noted the growing trend of personal computer companies expanding into consumer electronics, where profit margins are fatter.

"We knew it was going to happen, it was a question of when," said Bob O'Donnell, a research director at technology research firm IDC, who added that he expects HP to unveil the flat-panel TVs at the Consumer Electronics Show in Las Vegas in January, and to ship them in the spring.

"If anything, it's a surprise they're waiting until the spring," O'Donnell said. "They don't have to move into TVs but it's a wise move for all the PC companies."

Consumer electronics companies typically have profit margins of 35 percent to 40 percent on their wares, while PC companies have long made do with margins of 10 percent or less on PCs and related hardware, O'Donnell said.

HP, which is the No. 2 maker of computers after International Business Machines Corp. and the No. 1 maker of computer printers, would follow Gateway Inc. and Dell Inc. into the market.

Above and beyond selling their own branded TVs, Gateway, which is the market share leader in plasma televisions, and Dell already offer digital cameras, "living-room PCs" that play digital music, videos and games, as well as other gizmos traditionally sold by consumer electronics companies.

Plasma TVs are wide-screen televisions that are typically 40 inches across, measured diagonally. Flat-panel TVs, either LCD or plasma, may be as thin as 6 inches deep, or less, and may or may not provide high-definition pictures.

An HP spokeswoman said the company does not comment on unannounced products. Cnet Networks Inc.'s News.com Web site reported last week that HP was considering making TVs while the Wall Street Journal on Wednesday, reported the same, citing "people familiar with the matter."

FLAT TVs, FAT MARGINS

HP could certainly use the profits. In the Palo Alto, California, company's most recent quarter, its struggling PC business yielded a meager 0.4 percent operating margin after a $21 million operating profit on $6.0 billion in revenue.

Additionally, for PC companies that already sell flat-panel computer displays, the move into flat-panel and plasma televisions is a no-brainer, O'Donnell said.

"If you're making LCD (liquid crystal display) monitors already, it's trivial to get into LCD TVs," O'Donnell said. "You're going to use a lot of the same suppliers and component vendors."

IDC expects about 4.1 million flat-panel TVs to ship this year, a drop in the bucket compared with the roughly 165 million traditional TV sets sold in any given year, he said, which explains why HP may not be too late to the party.

"If they're a few months late, it's not a big deal," O'Donnell said.

IDC expects significant volumes of flat-panel and plasma TVs by 2007, when prices will have declined dramatically. For now, the cost of the newfangled TVs are pretty steep, at about $3,400 for a 30-inch LCD television. Prices for various high-tech TVs range from $500 to more than $10,000.

"That's a lot of money," O'Donnell said.

Jennifer Gallo, another analyst at IDC who tracks LCD monitors and televisions, said that the rush among PC companies to enter the market could create an oversupply, but she considered that unlikely.

"That is a risk, but I think what's going to happen is prices are going to come down, and that's going to happen anyway, because if you want people to buy these things, prices have to come down," Gallo said.

That, in turn, will fuel demand.

As the PC companies move into these new markets, challenging traditional consumer electronics companies such as Sony Corp. and others, there could be too many brands, but not necessarily too many products, O'Donnell added.

"The market place is going to be broken wide open by all these new players," he said, adding that it won't happen right away. "It's going to upset the apple cart over the next three to five years."

(Additional reporting by Caroline Humer in New York)