Screen test: TV makers gird for battle as high-def market comes into focus.

With sales of flat-panel televisions reaching critical mass, several local firms find themselves on the frontlines of the looming sector shakedown.

The next 12 months could be crucial for the TV assembly firm Syntax-Brillian Corp. and TV manufacturer International Ally Inc., both of which have plants in the City of Industry, and Santa Fe Springs manufacturer Westinghouse Digital Electronics.

"We believe that we have a paradigm here comparable to that in the personal computer industry 10 years ago," said Syntax-Brillian Chief Executive Vincent Sollitto. As with that industry, however, there are going to be big winners and big losers as consumers determine which technologies--plasma or LCD (liquid crystal display) screens, for example--will become dominant.

The PC gold rush attracted AT&T, Zenith and other established brands, and while some did well for a while, the ultimate winners had such names as Dell, Gateway and Compaq, which didn't exist before the PC came along.

With deep discounts and heavy promotions, high-end TVs were top sellers over the holidays at Best Buy Co. and Circuit City Stores Inc., the nation's largest electronics retailers, as well as discount retailers like Wal-Mart Stores Inc. and Target Corp. A total of $924 million worth of LCD TVs were sold during December, more than twice as many as during the same period a year ago, according to NPD Group, a market research firm.

Syntax-Brillian, which buys parts manufactured in Asia and assembles the TV sets here, was a big beneficiary. On Black Friday alone, the company sold 17,000 TVs at Circuit-City.

The company issued a statement earlier this month saying it expects sales of its fiscal second quarter, which ended Dec. 31, to have run well ahead of Wall Street expectations at $240 million.

Syntax-Brillian has begun shipping to Target stores, and its Olevia brand of high-definition sets reportedly are selling ahead of more well known brands such as Panasonic, Toshiba and Samsung on the retailer's Web site.

The surge in sales has been driven as much by lower prices as it has been by higher technology. The average price of an LCD sold last month was $689; a year earlier it was $738. A couple years ago, they were much higher.

Who will survive and thrive in the changing market is an open question.

Syntax-Brillian's Sollitto admits the high-def sales boom "is really driven by shrinking margins," which forces any company in that position to cut costs and sell more to stay even.

Syntax-Brillian's revenue momentum will likely continue throughout 2007, according to Robert W. Baird analyst Tristan Gerra. In particular, sales of the company's Olevia brand sets are expected to benefit from its advertising deal with Walt Disney Co.'s ESPN cable network, especially leading up to the Super Bowl on Feb. 4.

Bryan Burns, ESPN's vice president of strategic business planning and development, said the Olevia deal allows the network to help the TV manufacturer with advertising while building the overall public awareness of high-definition television. That's important to the network, which is among the leaders in high-def programming. Between ESPN and sister channel ESPN2, the network now could send high-def signals to more than 135 million homes. Therefore, he said, the issue was elemental for ESPN.

"If you have more people watch," Burns said, "your ratings go up."

The ESPN audience is a key demographic for high-end TV sales, according to CIBC analyst Daniel Gelbtuch. Those sports-minded viewers will be the ones buying before the Super Bowl, when prices are expected to drop again, said Gelbtuch, who rates Syntax-Brillian at "Outperform."

Earlier this month, Brean Murray Carret & Co. analyst Michael Tieu raised the target price for Syntax-Brillian stock to $20 from $18 and gave it a "Buy" rating, based on the revenue figures and record shipments. The stock closed on Jan. 11 at $9.15 a share.

Though they look similar, Plasma and LCD TVs are fundamentally different.

Plasmas, as the name suggests, uses a matrix of tiny gas plasma cells charged by electrical voltages to create a picture. LCD TVs utilize liquid crystal pushed in the space between two glass plates. The crystal is then used to create images by varying the amount of electricity applied.

Fix in the mix

Privately held International Ally has found traction with its own line of Visco high-def plasma televisions that were big holiday sellers at $598 through the Wal-Mart and Sam's Club chains.

Chief Executive Matthew Mills, however, believes International Ally is positioned to seize a key niche in the high-definition TV market: repairing them and providing replacement parts when they break down.

"There is no service set up in the United States that is owned by a major manufacturing firm," said Mills. His firm is equipped to service more than 40 different brands of flat panel televisions, he said.

"It's a great thing form," Mills said. "It's allowing us to continue to grow our business because we've got the knowledge of having this service company that's been around for 26 years."

Though the company's numbers are not public, Mills said that in 2006 revenues were $15.5 million, up from just $3.7 million the previous year. He's projecting revenue from sales of the firm's Visco Hi-Def LCD televisions and extensive servicing contracts to hit $45 million this year.

Westinghouse Digital Electronics exited consumer electronics in the 1990s to concentrate on the manufacture of industrial equipment, such as parts for nuclear power plants. But in 2002, the company created a 15-employee digital electronics unit to make televisions and similar products, with the first TV sets going on sale in November 2003.

Westinghouse partnership

The re-entry has played out well for Westinghouse so far. The firm is currently among the top five LCD manufacturers in the nation, and has benefited from its focus on that technology. Some of its rivals have chosen to cover their bets, developing plasma and LCD sets.

The shift back into consumer TVs and electronics came about because Westinghouse realized its name still rang positive notes with consumers, according to Westinghouse President Douglas Woo.

"The brand had un-aided recognition close to 90 percent, and in the 18-to-35 (age group) it had over 70 percent," Woo said. "There is going to be a huge turnover in the players in the TV industry."

Westinghouse has struck a partnership with Taiwan's Chi Mei Electronics, one of the larger LCD contract manufacturers, that ensures a steady flow of components. While the design of the sets is created here, the actual assembly is done in Mexico.

Manufacturing is only part of the equation.

"Nowadays, it is really easy to build them," said Stephen Baker of the NDP Group. "The big problem is everyone can build the damn things, but not everyone can sell them."

BY DAN COX

Staff Reporter