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With Technology, Know When to Fold 'Em

It doesn't matter if one of the competing technologies has been developed by consensus-or if it appears to be more logical, more cost-effective, or even a superior performer-it can still lose out.

LAST MONTH I TALKED ABOUT THE BATTLES ACROSS OUR industry (and parallel industries) to adopt one technology or another as a “standard.” It doesn't matter if one of the competing technologies has been developed by consensus—or if it appears to be more logical, more cost-effective, or even a superior performer—it can still lose out.

I made the comment that commerce often trumps consensus (and sometimes common sense), which is why DisplayPort will have such a tough uphill battle against the long-established HDMI interface. DisplayPort may have the weight of VESA behind it, but Silicon Image got there first, and HDMI is now a ubiquitous video/audio/data interface, found on everything from DVD players to set-top boxes, HDTVs, and video scalers.

THREE STRIKES AND YOU'RE OUT

Lately, commerce has been swinging its scythe with vigor, mowing down some prominent names in the electronics industry. The most notable is Pioneer Electronics, which announced in March that it would cease all production of plasma display panels (PDPs) used in its high-end HDTVs and industrial monitors.

Although it could be argued that Pioneer had the best-looking plasma displays out there (not to mention some of the best-looking HDTVs, period), it was always a small player in a land of giants, in terms of PDP fabrication capacity. Consider that the world's largest plasma manufacturer (Panasonic) is aiming to produce over 11 million panels next year from six factories, with Samsung SDI nipping at its heels and LG Electronics close behind.

In contrast, Pioneer would be lucky to ship half a million plasma modules from its three factories in Japan, one of which will now be mothballed. The other two will remain open to assemble HDTVs from PDP modules that Pioneer will outsource from elsewhere—presumably from Panasonic.

What led Pioneer to this do-or-die decision? For starters, three straight fiscal years of red ink, beginning with a massive $700 million loss in fiscal 2006 that slowed to $60 million-plus in fiscal 2007 and then zoomed back to $145 million in fiscal 2008.

To make matters worse, Pioneer was the only plasma manufacturer not to benefit from the Q3-Q4 2007 “bounce” in plasma HDTV sales that was attributed to shortages in LCD product.

While Panasonic, Samsung, and LG all saw their 2007 market share zoom upwards, Pioneer's dropped 39 percent from 2006, to 3.2 percent, according to NPD DisplaySearch. (Even Hitachi posted a modest 17 percent increase in market share for 2007.)

The third strike was Pioneer's Don Quixote–like attempt to maintain higher retail prices in a business that has cannibalized profits and margins. There simply weren't enough high-end home consumers or professional customers willing to pay the substantial premiums Pioneer wanted for its product, something the folks at Fujitsu finally admitted last year when it exited the home theater plasma business.

Going forward, the big question is what happens to Pioneer's Kuro plasma technology. The guess here is that no matter which company Pioneer signs an OEM agreement with (and the smart money is on Panasonic), it will wind up sharing all of its accumulated patents and intellectual property to keep Kuro going. But prices will have to drop on all Pioneer-branded products, no matter what the outcome.



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