WitsView is very honored and privileged to have the opportunity in conducting an interview with Mr. James Li, where he will share his thoughts on the global LCD TV industry changes and its future development trend. Mr James Li is currently the CEO of Syntax-Brillian, a company listed on the US Nasdaq. Mr Li’s background originates from Taiwan’s IT industry. In 2003, he co-founded the Syntax Groups Corporation, where in 2005, it merged with Brillian Corporation in becoming today’s Syntax-Brillian. Through a close collaboration with Taiwan’s supply chain partners, and a successful marketing strategy, the company created the Olevia TV brand.

Question: Amid the arrival of the LCD era, how will it change the TV industry landscape?

Answer: For sets used primarily for TV watching, LCD TVs could become a mere commodity in the next 5 years. However, as the LCD TV has fully embraced the wave of digitization, its potential far exceeds that of the CRT TV. In the future, the LCD TV will become a device that not only delivers TV programs, but through a bevy of functions, it is poised to become an integrated entertainment and digital hub. If the TV industry continues on this path, it will bring forth many new opportunities to countries with a strong IT infrastructure, such as Taiwan, India and China.

Question: When the Olevia brand was first debuted in the US market, a handful of CE giants had already established a very strong foothold. It wasn’t until recently did these manufacturers begin to view the Tier 2 brands as a credible threat. From your observation, can you briefly explain how the Tier 1 players have responded?

Answer: A new strategy adopted by the Tier 1 brands was the widespread use of sub-brands for their LCD TVs, which included Panasonic’s Viera, Toshiba’s REGZA, Samsung’s Bordeaux, Sony’s Bravia and Sharp’s Aquos.

Tier 1 players have also started to add more average priced models to their lineup, creating a lot of pressure on the Tier 2 players.

Question: Two year ago, the industry was curious if the IT companies would become a new power in the LCD TV market. But now people are interested in understanding how Tier 2 TV brands have emerged in challenging their Tier 1 counterparts. IT brands, such as Dell and Gateway, pulled the plug on their TV businesses, while Olevia and Vizio instead rapidly developed. What did the IT companies lack, and what allowed the new TV makers to survive and develop?

Answer: The failure of the IT makers stemmed from their underestimation in entering the TV market. As a result, insufficient resources were deployed during their initial foray. The situation was further complicated by the painful WinTel form factor experience encountered by CE manufacturers, most notably Japanese players, as they sought to enter the PC market. Thus, the Japanese have been especially keen in keeping the IT makers away from the TV market.

In addition, in contrast to the more independent and burgeoning IT industry, the CE market, which encompasses the media, government, entertainment and broadcasting sectors is more secluded. Consequently, the more tightly-knit business relationships make it much more difficult for IT makers to penetrate into.

In terms of resources and production capacities, Tier 2 TV makers are at a disadvantage when compared with the leading global IT makers. If we say the former’s performance is better than the latter, it is mainly attributed to the fact that the Tier 1 IT makers did not initially consider them as a serious threat. However, we are still far away from success. As a matter of fact, we are still in a shaky position. Once the Tier 1 makers decide to slash their prices, Tier 2 TV makers still face a strong possibility of being squeezed out.

Question: In the beginning, Syntax was a private company, with limited capital. How did you persuade your suppliers to lend a helping hand?

Answer: When Syntax was first established, it was anticipated that the Olevia brand would become a sales platform for Taiwan’s industry, where participating suppliers would be able to enjoy the fruits of the platform.

However, more time is needed before people can fully discover the merits of a brand-based platform. Taiwan’s IT companies are currently more at ease with their OEM business models, where they mainly run their businesses by gaining production orders from international brand vendors. Thus, as such manufacturers are more vulnerable to any marketing risks, they are more willing to sacrifice their margins in securing more long-term orders.

Olevia’s supply chain partners, which respectively share our platform vision, mostly originate from southern Taiwan. Some do not come from the IT industry at all, but individuals who have a keen interest in our platform. They probably would never have thought that one day their products would be able to be sold around the world.

Question: It is seen that Syntax-Brillian has raised funds with many of its suppliers, including Premier, TCV, WesTech and Teco. But why hasn’t Syntax-Brillian raised funds from the public?

Answer: Although it is not too difficult to raise funds in the US, listed companies must pay a bigger expense when the capital is provided by investors. By contrast, if players in the supply chain can be persuaded in providing financial support, it will bypass the relevant costs associated with the public fund raising, and deliver larger benefits to Syntax-Brillian’s sales platform.

In addition, during a fund raising campaign, investors have a minimal effect in helping companies bring down their costs. On the other hand, if component suppliers acquire an equity stake, it improves the company’s production costs. These are just a few of the many benefits and opportunities a common platform can offer, where everyone can exist and prosper together.

Question: You are currently trying to expand into other worldwide markets, but at the same time, Olevia’s ranking is slipping in the Northern America market. Is this a price that must be paid when expanding the business?

Answer: Compared to the previous year, Olevia still enjoyed an average growth of 2.5 times YoY. This is not easy for the companies like us, especially when considering the limited resources at hand.

In terms of the market expansion, Syntax-Brillian LCD TV sales are currently focused in the US and China markets only. We have ventured into the South America market, while in Europe, we pursued with the acquirement of the Vivitar camera brand. However, at the moment, we have not yet launched any TV models in the Europe region.

Question: It seems Syntax-Brillian’s acquisition of Vivitar brand is a tactic in entering the European LCD TV market. Compared to creating the Olevia brand for the N. America, different marketing strategies are being adopted for some regions. What are the differences between the US and Europe markets? What is the value of Vivitar?

Answer: In the US market, consumers are more concerned with the price/performance. In Europe, consumers pay more attention on the TV’s style and basic values. In other words, price and specs alone are not enough in attracting European consumers.

Ever since the medieval times, Europe consists of many “polis” linked together, where each one contains several small area-based retailer channels; only dealing with brand makers that they were familiar with. When entering the Europe market, aligning with these local retailers is an important process.

Many Europe brands have already built a relationship with various regional retailers, which have lasted for decades. Thus, the retailers are willing to promote and sell any of the brand’s products. Vivitar was invented in 1938, and is almost nearly 70 years old. We can utilize Vivitar’s brand and channels in promoting our LCD TVs. Slotting Allowance and Product placement fee are free, which shortens the overall learning curve.

Currently, the Vivitar brand only sells DSC related products in Europe. In the future, if more supply chain vendors can join Syntax-Brillian’s platform, Olevia LCD TVs have a better chance in penetrating the Europe market.

Question: Which segments of the supply chain do you anticipate most in joining the platform?

Answer: Everyone is welcome to join. My primary intention is create an open platform for Taiwan’s industry. From any corner around the world, I hope to let everyone know that this (Olevia LCD TV) is made in Taiwan, or designed in Taiwan. Although it maybe assembled in China or in other regions, it is a symbol of Taiwan.

Taiwan’s major IT players, such as Compal, Quanta or even Hong Hai are all adept in vertical integration. Although Olevia now enjoys the support of its supply chain partners, in the long run, closer ties with these major IT player needs to be built in taking the business to the next level.

Question: The traditional TV industry is composed of CEs, MSOs, TV networks and CE retailer. These players have co-worked for decades. As a new comer in the industry, how do you compete with them in winning the market share (or become one of them)? What is the most challenging aspect? Can you give some suggestion for anyone who seeks to enter the LCD TV market?

Answer: By looking at the current market rules and the intertwined relationship among the existing players, it is a market structure that is unlikely to break down. The only method for the newcomer to survive is by joining them. Thus, in order to successfully sell a TV, it is important to maintain an amicable relationship with the mainstream media, entertainment industry, content providers, or even government departments. In addition, grasping the market rules is always a must.

For example, for hotels in the North America market that provide video on demand services, they are mainly dominated by two companies--- OnCommend and Lodgenet. If the TV makers do not adopt to their respective specs, the incompatibility of the TV will render it unusable in the hotel. However, these on commend solution suppliers only offer their licenses to certain TV makers. Therefore, TV makers must find ways in working together with them. These are difficult challenges that both the TV and IT makers must face. Yet, as the IT industry emphasizes on producing rapid results, when first foraying into this game, it may feel particularly uneasy and out of place.

Question: Taiwan is already well known for its IT industry. It has also transformed itself into a TFT LCD powerhouse. Which areas do you think the Taiwanese need to work on before entering the LCD TV market?

Answer: Pertinent software upgrades is just as important as the hardware. This is an area in which Taiwan must try to improve on when entering the TV industry.

Currently, TV makers must pay a USD 8~USD 25 royalty to the likes of Sony, RCA, Thomson, Zenith, and Philips. This also constitutes to a significant portion of the aggregated costs. Moreover, as TVs become more multi-functioned, the required software must be increasingly powerful.

Question: Please share with us your outlooks toward the TV set and industry trend based on the following table and provide a simple explanation if necessary

Answer: