A View To A Kill

Locked in a vicious price war with rival display vendors, ViewSonic has decided to go for the jugular, saying this week it will broaden its product line and, for the first time, enter the low end of the market. In a huge departure for the Walnut, Calif., display maker, ViewSonic will bring its brand and channel strengths into the commodity-driven "value" space.

In the next few weeks, the company will begin shipping two new display lines, the VA912 and the VA712, at street prices of $429 and $299, respectively.

"The display is the center of all other things," said ViewSonic Chairman and CEO James Chu. "But as the price drops, it becomes more of a commodity. So economy of scale will decide who will be the winner. ViewSonic wants to make itself much more efficient and, in so doing, we can live with a much slimmer margin. If we can do that, our overall volume will increase a lot," said Chu in an exclusive interview with CRN.

ViewSonic's moves don't surprise Jalil Mahini, founder and CEO of Micronet Systems, a 15-year-old system builder based in Niles, Ill. Mahini said he may shift some of his monitor business to ViewSonic as a result of the new VA line. "None of the vendors can afford to ignore the low-end or midpriced market," he said. And no matter how the battles play out, he believes, a shakeout is inevitable. "There will be consolidation. Not everyone can compete at the low, middle and high end."

Solution providers say the channel will prove to be absolutely critical in determining the winners and losers. Mahini, for one, said he'll stick with those vendors that are financially strong and have a solid history of channel support. "At the low end, all of the monitor makers are fighting for a few pennies," he said. "Only the strongest will survive, and by that I mean those with the best pre- and post-sales support for solution providers."

ViewSonic, by some measures, is playing a hot hand: It grew its sales by 36 percent from the third quarter to the fourth quarter last year and maintained a solid, top five position in North America market share, according to market-research firm DisplaySearch.

But by another key measure, it's under extreme pressure: In 2004, the company bled $17.6 million worth of red ink in a segment of IT that's being driven by draconian pricing and wild fluctuations in product supply. Vendors say that an oversupply of displays last year, brought on by the sudden emergence of massive, new manufacturing operations in Asia, led to a glut of panels and subsequent dive in pricing.

ViewSonic found itself smack dab in the resulting turmoil, which was started by huge cuts by rival Acer America. Despite the potential bloodbath it helped create, Acer, which admits it has driven much of the market pricing declines, isn't exactly seeking forgiveness for starting the price war. "Some of our competitors didn't react as fast as they should," said Maarten De Haas, vice president of Acer America's notebook and monitor business unit.

However, he said that rather than buying market share with lower pricing, Acer just correctly anticipated an oversupply of displays as a number of vendors brought new manufacturing capacity on line. That, combined with what he said was Acer's efficiency to market, enabled the company to win new business and market share.

And that's not all. Acer will be bringing 23-inch displays, wide-screen technology and other higher-end functionality to market in an effort to move upstream this year, while others like ViewSonic gun for a piece of that "value" end. "The monitor business is nuts right now," said Danielle Feith, senior director of marketing for SVA Group (USA), a maker of display products based in Commerce, Calif. "Acer is eating everyone's lunch. It's unbelievable. I just don't know how they are doing it. Manufacturers have got to be hurting. There is no margin in the 15-inch and 17-inch monitor lines. That's why everyone is moving fast into LCD TVs and plasmas. Some players are going to go away because they just won't be able to sustain the losses."

SVA, which recently went on line with a $2 billion display panel manufacturing plant in Shanghai, China, is fighting back by carving out market niches with select system builders and digital integrators. "We can't be all things to all people," Feith said, noting that SVA is teaming with partners that want to promote their own company brand with a higher-margin set of products rather than a bigger consumer-electronics brand like Sony or Panasonic.

Still, she admitted, it's brutal at the low end, where Acer is doing a tremendous amount of sheer volume. "Even Samsung and LG can't compete with Acer's prices," she added.

But ViewSonic will try, and some partners acknowledge it could be tough. "They've never played in the bottom end of the market," said Jordan Malkin, operations manager at Microstandard Distributors, a Redmond, Wash.-based solution provider. "I've seen Acer come in and really beat the hell out of them in terms of pricing."

Malkin, a member of ViewSonic's Advisory Council, said he believes ViewSonic is willing to be competitive beyond just coming out with a lower-end display. "They seemed to indicate they were willing to do some deals in terms of bundling things from a price perspective to a system builder, to hide some MSRPs so they could give some special discounts," Malkin said. "I have seen them get very aggressive."

But Malkin and other solution providers suggest the company is in a tight spot—and one that is only getting tighter—based on its high-end reputation as well as the new pricing environment.

"For ViewSonic, not only do they have to offer the value proposition of a [quality] ViewSonic product, but they still have to give me a price advantage that I can make work," Malkin said. "I haven't seen that come through yet."

Like ViewSonic, other vendors have decided that not only won't they concede the space to Acer, they are working to offer more to partners to keep them on board. ViewSonic has been actively soliciting input from its Advisory Council, and members say they have been impressed by the company's engagement with them. Elsewhere:

&#149 Samsung, Irvine, Calif., is set to roll out enhancements to its Power Partner channel program later this year, in addition to maintaining a "holistic" offering that provides rebates to resellers on all the peripherals in its IT lineup, including printers and storage.

&#149 LG Electronics, Englewood Cliffs, N.J., will be offering new solution provider programs and incentives later this year, as well as continuing to emphasize its higher-end, stylish, compact 80 series.

&#149 NEC Display Solutions of America executives are saying they won't take the low-cost bait but continue to play as a high-value technology provider in each segment, including entry-level and small and midsize business. The Itasca, Ill.-based company, which recently split from Mitsubishi, will also offer channel program enhancements this year, executives say. &#149 Irvine, Calif.-based BenQ America, while undergoing a management transition and dealing with the sudden departure of a top channel executive last month, is being especially aggressive in courting system builders, co-sponsoring the recent Intel Solution Summit and enhancing its partner program and warranty and rebate structure.

&#149 CTX's products are priced within 3 percent to 5 percent of the lowest-end displays, but executives believe that their performance and functionality give the City of Industry, Calif., company an edge. Nelson Tsay, senior director of product management, said CTX plans to stay the course with that strategy even as it has changed its emphasis of late from 17-inch to 19-inch systems.

&#149 Colorado Springs, Colo.-based Philips, a year after a major restructuring of its North American channel operations, is hoping a new OEM relationship with TPV Technologies will help it get out of the high-volume LCD space and aggressively into what it believes will be higher-end display offerings.

Still, price will be an attention-getter for many. As ViewSonic looks to post a better 2005 than its money-losing 2004, that could make a big difference in winning over the channel and other observers.

"I think the jury is still out a little bit on ViewSonic's turnaround," said Chris Connery, vice president of monitor market research at DisplaySearch. "The launch of these products could be strong for them."

Connery said ViewSonic faces an uphill fight not just against Acer, but against the market-share leader in desktop display shipments—Dell—which according to DisplaySearch had an almost 40 percent share of the market in North America for the fourth quarter of 2004. ViewSonic registered 4.7 percent share in that quarter.

One area where ViewSonic remains strong is on higher-end offerings that leverage solution-based thinking, as opposed to product-based. "We don't want you to sell just a piece of hardware," said Jeff Volpe, vice president of marketing for ViewSonic Americas. "We want you to sell solutions to your customers."

To that end, ViewSonic is keeping an eye on the upmarket. Along with its new VA line, it will also offer new higher-end offerings, the VX924 and VX724, set for street pricing of $499 and $379, respectively. And executives say they are working on the possibility of an all-in-one, server-and-display digital signage solution with other technology providers.

"I think they have the technology and the reputation that they could probably stand well in any market they choose to go into," said Kevin Elliot, vice president of sales at More Direct, a Houston-based solution provider who is also a member of ViewSonic's Advisory Council. "The issue for them is defining what market [segment] is for them. They kept getting beat up on the idea of price. But they do have a quality product. The question is: How do you compete in a price market when you are coming in with one of the better product lines?"