Dell aims high in flat TV business

NEW YORK — As Dell Inc. announced a new line of upscale PCs last week, the unveiling of two new flat-screen, high-definition TVs came as almost an afterthought.

But the No. 1 personal computer maker takes its move into consumer electronics very seriously and has big goals for the television market, said Mike George, the vice president responsible for Dell's U.S. consumer business.

"We will become a major player over time in selling TVs," George said in an interview after the product announcements in Manhattan. He said people were once dubious about Dell succeeding in selling consumer PCs and now the company leads by a wide margin.

"I don't fundamentally see any reason that will be different with TVs," he said.

The market for flat-panel LCD and plasma screen televisions has grown explosively in recent years and prices have dropped sharply, two trends expected to continue.

More than 4.3 million flat-panel TVs will be sold this year, generating $4.8 billion in revenue, according to Consumer Electronics Association estimates. Only about 54,000 sets were sold in 2001.

Dell has already broken into the Top 10 in North American flat-panel markets dominated by traditional consumer electronics companies like Panasonic, Phillips and Sharp, said David Naranjo, vice president of TV market research for DisplaySearch.

In the second quarter of this year, Dell was No. 10 in LCD TV shipments with about 26,000 and No. 7 for plasma screen shipments with about 11,000. In comparison, LCD leader Phillips shipped about 200,000 TVs and plasma leader Panasonic shipped 113,000.

"They are on the radar screen," Naranjo said. He said Dell got there, in part, by charging less.

The 50-inch plasma model Dell announced on Wednesday, the company's biggest TV to date, is priced at $3,799, about $200 less than the cheapest comparable Panasonic model, Naranjo said. Dell's other new model, a 32-inch LCD costing $1,799, is also priced competitively.

Consumers have benefited from aggressive TV pricing from PC companies like Dell and Hewlett-Packard, said Phillip Swann, a television market researcher who runs TVPredictions.com.

"They've really put a lot of pressure on Sony and Toshiba and all those fellas to lower their prices a little more quickly," he said.

The average retail cost in August for a 50-inch high-definition plasma TV was $4,513, down from $6,688 a year earlier, according to the NPD Group market research firm.

Rapidly falling TV prices are an advantage for Dell, which has experience with the PC market's extreme price drops, said NPD Group analyst Stephen Baker.

"As the television has turned into more of a technology product versus being that big thing in your living room, there are other ways of objectively comparing televisions without having to necessarily look at them," Baker said. He said shopping by specifications alone, like for a personal computer, "plays into Dell's hands."

Selling direct to consumers is at the core of Dell's strategy.

"One thing I'd hate to do if I were a PC company or a consumer electronics company trying to join the 10,000 other companies jumping into the digital TV world is to fight for shelf space at Best Buy or some other super store," Dell's George said.

"That's an ugly world. That's a world where the retailer has a lot of choices and demands a certain fairly high level of markup so they can make a pretty big profit," he said. "We're confident that the structural economic advantages we bring by eliminating the middle man create a pretty unique and hard to copy advantage for us."

However, companies like HP and Sony also sell direct online and more traditional TV makers are expected to follow, Baker said.

For Dell to be successful among the biggest TV makers "it's going to take a lot of patience, a lot of investment and a lot of years," Swann said.

He said much of that investment has to go into advertising to get people to associate the Dell brand with quality flat-panel TV sets, an expensive purchase.

"When they see Dell on a television, it may not say that right away," he said. "It's not an easy obstacle to overcome."

That problem is a big reason why Gateway, once as ambitious as Dell, has all but given up on the TV business, Swann said.

Dell's reputation in the PC business is helping it overcome problems faced by lesser-known brands, Naranjo said.

Dell is trying to increase consumer awareness with TVs displayed at more than 150 kiosks around the country at places like malls. The company plans to open more at airports and commuter train stations, George said.

Dell also announced a deal last week with GameStop to display plasma TVs at 25 stores in a pilot program that could expand to hundreds of locations within months.

"Part of winning in TV is staying out of retail, but expanding the physical presence of TVs for those who really want to touch and see them," George said.

For the future, George said, Dell is keeping a close eye on TV trends like the incorporation of digital video recorders and "clearly the linkage between the PC and the TV is becoming more and more important."

David Ho is a nnational correspondent for Cox Newspapers.