NEC Goes It Alone

April 1 marks NEC's official separation from Mitsubishi. NEC will now go it alone in the display arena under the name NEC Display Solutions of America. This divorce means NEC can sell a much wider range of display products in the United States. T.J. Trojan, president and COO of NEC Display Solutions of America, discusses potential new markets for the company and explains why a total channel focus will fuel its success in an interview with Editor In Chief Michael Vizard.

CRN: With NEC and Mitsubishi parting ways, what does that mean for the channel?

TROJAN: It opens up new opportunities for the company that we didn't have under the joint venture. The articles of the joint venture pretty much limited us to the desktop monitor space. With the joint venture ending, we don't have those limitations. With the convergence of the desktop monitor and the television and entertainment, those were categories that we were fairly restricted from in the past. We're not going to be in the future. The other thing is that NEC is a huge company. So we are discussing what other kinds of IT products we may want to consider.

CRN: Why is the joint venture dissolving now?

TROJAN: When they originally put the joint venture together, NEC was focused in the LCD category primarily and Mitsubishi was focused in the high-end CRT aperture grill, which are the high-performance CRT products. But Mitsubishi stopped manufacturing the CRTs about three months ago. We're winding down that product line. The CRT market is becoming smaller and smaller as pricing falls in the LCD category. It's really a small percentage of the overall business. Mitsubishi, from the production standpoint, wasn't bringing a lot of that technology to the joint venture anymore.

CRN: How big of a branding issue does this move raise?

TROJAN: In the United States, more than 90 percent of the products we market and sold had the NEC brand name. This will be our 20th anniversary for the original MultiSync product. So we have a long history with NEC MultiSync products. They're first in the category. With Mitsubishi no longer providing the production capacity, and as we got out of the CRT business, we only had three Mitsubishi branded products, and NEC wanted to take sole responsibility for branding in North America. So the timing was really good for NEC to take responsibility.

CRN: Does having NEC as the parent company bring benefits to the channel?

TROJAN: Now we're working with the other NEC [units] like NEC Financial and NEC Leasing. We provide financial support for the channel as well for their end users. So we can offer leasing and other programs, and these will all be launched after the new NEC ownership begins.

CRN: What is the bulk of the display market today?

TROJAN: About 85 percent of the market right now is 15- and 17-inch LCDs. We are definitely focused on the higher-end product. In our case, probably over 30 percent of our business is 19-inch and above vs. that segment representing about 15 percent of the market. The 19-inch category and above will continue to grow because prices will fall. In the 15- and 17-inch category, from a production cost standpoint, there's not a lot more room for reduction in cost. But for the larger size, as the new fabs come online, there is opportunity because they're able to get more pieces out in larger glass. You'll see a pretty dramatic reduction in price in 19-inch and above. And the larger the size, the more reductions you'll see over the next year.

For instance, plasma is a really big market opportunity. Because of the cost of large plasma screens vs. large LCDs, there's still a tremendous difference between the two. But as production continues to expand, and some other glass sizes continue to expand, you'll see significant price erosion in the 30-inch and above LCD categories. CRN: Will there be any new go-to-market strategies for the company?

TROJAN: We launched three new segmentation programs. One is called Consumer Select, which is aimed at resellers that still have retail consumer focus. That's still 40 percent of the market right now. But they feel they really can't compete with the big brick-and-mortar guys like the Best Buy and Circuit City, and they don't get to participate in the programs that some of our competitors will provide to the big anchor accounts. So this program is really going after secondary and tertiary system builder and white-box guys that still have storefronts. This program allows us to take a segment of our products that typically would be focused on traditional brick-and-mortar [sellers] and allow them to advertise these products, get mail-in rebates, get demo pricing and those types of things. All of the things that a company would provide to a large retail chain, we're going to provide them to these smaller storefront retailers out there.

CRN: Are you doing anything on the corporate side?

TROJAN: Another thing we're doing is Solution Select. The PC companies--especially Dell and HP--are focusing on attachment rate in the display category. That is having a big impact on all of the display companies as well as the channel right now. It's crazy what they're doing. They're very aggressive with promotions--a lot of bundling, free upgrades, etc. But over the last three years, we've really been focused on developing not just display technology but also all the things that make a display a full solution for the channel. So we did two things. A year ago we launched a program called the Solutions Partnership program, where we got about 25 other manufacturers and software vendors that provide either content or related display technology. Now with these manufacturers, we've actually put together full solutions for vertical markets, and then we take that solution to the VAR base.

CRN: How does that work exactly?

TROJAN: For example, one might be for digital advertising. You can put a big 30-, 40- or 46-inch screen up for digital advertising and retail. But you're going to want a wireless kiosk. So we work with a partner like Mercury Online Systems, which puts together these kiosks. And they're going to need content. So we can work with a company like Allure, which can provide the advertising content for it.

CRN: How do you sell that?

TROJAN: We don't sell this product to the customers. We have a field-sales organization that works with the end user to try to create this solution, but then we bring the channel in to fulfill this solution. We'll go in together to the end user and sell a full solution. This provides additional profit and revenue for the VAR, and it assures that the display is the key component of the solution. It assures us that we're going to get the business vs. somebody else. The beautiful thing for the VAR is that they get the benefit of all of the integration and the revenue. We get the benefit of the display sale.CRN: What are the key vertical markets you are targeting?

TROJAN: The key ones are digital advertising, financial services, multiple-screen display opportunities--those types of areas. We want to develop a set of resellers that have special expertise in these categories. We'll leverage specific vertical-market expertise to go out there and increase sales of our displays. They'll have to show us that they have vertical market expertise in certain categories to be a part of the program. Once they become part of the program, they'll get more discounts. They'll get demo units. They'll get special technical support.

The other thing we'll do is have a registry program for these resellers so that when they go into their client base and try to sell these solutions, we'll protect them through the pricing strategy. That's a big issue. They can go out there and spend a lot of time on an opportunity, and Dell will go in there and pick it off on price. We protect them through a registry program because they're providing value, and we don't want another reseller or Dell to go in there and pick off that business from them.

CRN: Has pricing for LCD displays reached a point where there will be a massive upgrade cycle?

TROJAN: There are millions of CRT products out there. In the past, some folks were slow to move to LCD even though the total cost of ownership was better because it uses less power and less space, is easier to move and lasts longer. When we first launched LCDs, we talked about the total cost of ownership, power and all these things. But the problem was the acquisition cost of the LCDs was so much higher than CRTs that it was still better to buy CRTs. But now with the the acquisition cost of LCDs going down, a 17-inch monitor a year ago selling for $599 is now selling for $299. So now that TCO makes sense. One of the initiatives we have is going to end users and resellers and saying, 'Upgrade your CRT to LCD and save money.'

CRN: Can partners resell NEC services?

TROJAN: We are launching, probably in April or May, a new program called Custom Care, where we can take warranty exchange and other traditional services and allow the reseller to upgrade the services we provide to the end user. Right now, we have a standard three-year warranty, and if you need to replace it, we get it there in 72 hours. If they want it in 24 hours, we're not going to sell it to the end user. The channel is going to sell it to the end user so that they can make another $15 for that, or whatever it is. We fulfill it; they sell it.

CRN: Any other unique NEC programs?

TROJAN: One other thing that we're really going to be focused on--and that everyone has to be focused on in the future--is the environmental programs. We are a plug-in partner with the EPA. We have a really close relationship with them. In fact, we're the only ones now that are compliant with the new 4.0 Energy Star. We actually helped write the spec. Another differentiation is that a lot of our competitors are using lead, and there's a new standard out called RoHS [Restriction on Hazardous Substances]. It's happening in Europe in 2006. California is probably going to adopt this as well in 2007. We're going to be moving to lead-free solder this year in our technology. All of this stuff is more expensive. But we have a recycling and replacement and trade-in program that can provide additional profit opportunities for the channel. We also sell extended warranties on these products. The majority of states are now mandating that these products be recycled or properly disposed of. This program will allow them to do that. It also will allow them in some cases--depending on the quality of the product--to get money back for their old products. So if the product has a value, then they'll actually get some money back in exchange for purchasing new products. It's all going to be forced by the state and federal governments. There are a lot of hazardous materials in these products, so that's why they're mandating this recycling.

CRN: Besides the PC vendors, there are already more than 25 companies competing in the display space. Is there room for everybody?

TROJAN: I don't know if there is room for 25 guys. We've been dominating this category for a long time in the stand-alone side. We still think there are a lot of folks out there who still underestimate the value of the channel. There are companies focusing on price, but they're not providing any services or support to the channel. There is a short-term opportunity because price does matter. But in the long term, the channel is going to support the vendors that support them. I think we now have nine different channel segments. We put a lot of investment into the channel so they can be profitable selling our product. It's going to be kind of noisy out there. There's an excess supply. There are a lot of new vendors. Everyone's trying to make a play. There are a lot of folks making price plays with low-quality products and B-grade panels. Some of our competitors considered loyal to the channel are selling direct. Maybe resellers don't know that. But I wish they did.

CRN: At the end of the day, what makes NEC different?

TROJAN: No one has as nearly an extensive segmentation strategy in the channel [as we do]. Everyone can participate in one or multiple programs, provided they have the expertise to support those vertical markets or specific opportunities. That doesn't mean we're going to be the only product they sell, but our hope is that they'll focus on us. It wasn't long ago when there were box-movers out there in the channel. There are no box-movers out there anymore. They may sell low-cost products, but the only way they're going to survive is by providing critical market solutions and services.

We say we're a display company. We have the greatest displays in the world. But that doesn't mean anyone's going to sell it. But if we go in there and say, 'We sell the greatest display product, and it works in this environment better than anyone else,' that sells. And that's what we're trying to tell our channel. Hopefully, that allows them to focus on us vs. somebody that's giving them a low price, no programs, no services, a one-year warranty, maybe using B grade panels and no price protection. Eventually, the market will settle down, and end users and resellers will realize that there is a reason to go with a premium brand. That's because it's not just the display they're buying. It's really all of the things that go around that display and how long it's going to last, what kind of technology it's using and whether it's environmentally friendly. All of those questions will come up, hopefully.