Using a business model reminiscent of up and coming PC manufacturers a decade ago, Vizio depends on high volume, heavily discounted sales and an unprecedented market boom in several hundred dollar televisions in order to maintain profit margins. While this strategy has clearly been beneficial for consumers over the last few months, it remains to be seen what the long term affect will be on Vizio's bottom line.
A look at the changes that accompanied the computer boom market of the late 1990s should give anyone with a financial stake in Vizio some pause. The most obvious problem with the strategy, as borne out by companies like eMachines and Gateway, is that no boom market lasts forever. Like PCs a few years ago, more people are buying HDTVs than have at any time in the past, or are likely to at any time in the future. In order for a company like Vizio to thrive beyond the inevitable sales decline, they're business model will need to adapt.
A second potential stumbling block, and one that may become an issue before declining sales, is their reliance on suppliers to deliver parts at a price that will keep televisions moving off store shelves while maintaining at least a small margin. Unlike much larger competitors like Sharp and Sony, Vizio's low margins may be a liability that will put them in serious financial trouble.
"In times when there are tight supplies, the premium brand is likely to benefit," said Riddhi Patel, principal analyst of television systems for market analysis firm iSuppli.
The most important fact to remember may be this. Although companies like Dell and Gateway seemed to have rewritten the book on PC sales, Hewlett-Packard, once considered in critical condition with regard to the PC industry, has made a comeback with rejuvenated workstation and server sales, while Dell struggles to return to their glory of a few years ago and Gateway prepares to be bought out by Taiwanese giant Acer.
Source: Washington Post
Written by: Rich Fiscus @ 21 Oct 2007 22:30
