By Brian L. Clark
For those readers who've been living in a cave, the last few weeks have been earnings weeks, that time each quarter when corporations announce earnings, compare them to analysts' estimates, and either puff out their chests or duck for cover. Well, this week it was Dell's turn, and the news was not very good.
To make matters worse, last week the company recalled some 4 million Sony-made batteries that could spontaneously combust and announced it had been cooperating with an "informal" investigation by the SEC. In all, it was an extremely forgettable week for the nation's second-largest PC maker.
What does this have to do with TV, you ask?
Well, all that bad news made me wonder why tech companies like Dell are still in the highly competitive HDTV business. Shouldn't these companies learn something from Gateway's forgettable foray, particularly given today's corporate focus on cutting divisions that drag on the bottom line? Would they be better off focusing on their core business? More importantly, should I even consider buying a TV from a company that might not be selling them a year from now?
When Dell announced its intent to enter the business, analysts figured its mass production, cost-cutting, direct-to-consumer model would gain the company a foothold and bring downward price pressure on the market. Unlike PCs however, TVs are not commodities—they really need to be seen. As a result, the direct-to-consumer model is not conducive to selling televisions.
For its part, Dell says it is "very committed to our television business," adding "Dell is very much driven to deliver what our customers tell us they want. It is one of the benefits of our direct model—direct customer feedback in real time." I could be wrong, but it's hard to imagine Dell is overrun with customers begging them to sell TVs. Just the same, the company is not planning to do so without a slight change to its business model. Dell now has 175 kiosks around the country and is in the process of opening two Dell Direct stores where people can see the sets in action.
Unfortunately, the Dell price influence hasn't really materialized in the TV market. In fact, go to Dell's site and you'll find a 37-inch LCD for $1,799. Go to Amazon and you'll find a 37-inch Sharp Aquos—which you can also see at your local CE store—for less than $1,700. Few consumers, given the choice of buying a more expensive TV sight unseen from a PC maker or purchasing one from a reputable CE maker, are going to opt for the former.
For other manufacturers, the big issue is shelf space. Getting just a little bit for your product at larger CE stores is a hell of a lot of work—manufacturers really have to convince these people products will be around for the long haul. I know this is true because I did some work for a PR agency that represented the consumer electronics division at a major technology manufacturer. Frankly, the division was so small and brought in so little revenue to this giant company that the constant concern was whether it would be around next year. Everything hinged on shelf space and if the retail folks couldn't get it, the division would die.
Just how important are the home entertainment divisions to these companies? Watch reports on CNBC. Whenever there's an earnings announcement, you won't hear one word about the digital entertainment divisions. It's three years since Dell and other tech companies entered the CE business and still, they get virtually no play.
Frankly, I don't see how these companies can continue to compete against the likes of Sony, Samsung, Sharp or Panasonic. Selling TVs is a tough job and these days PC makers are so focused on their low-margin core businesses, I have to think the focus shifts to software or business services, driving the stepchild even further from the parent. How do these companies gracefully exit a business they never should have entered in the first place?
We may find out sooner than we think.