China's participation in the consumer electronics business took a giant step forward with the announcement that French electronics manufacturer Thomson and China's multimedia CE products company TCL International Holdings have created a joint venture to merge their television and DVD operations.
By signing a binding memorandum of understanding to jointly develop, manufacture and distribute TV sets and DVD players, Thomson gets immediate access to China's low-cost manufacturing facilities and the retail markets in China and Southeast Asia. At the same time, TCL gains instant respectability toward furthering its interests in becoming a global CE player.
The deal includes the formation of a new company, called TCL-Thomson Electronics, whereby Thomson will own 33 percent of the business, and TCL 67 percent. Annual sales of the new company are expected to top $3.5 billion.
TCL International Holdings is controlled about 55 percent by TCL Corp., which is preparing for an initial public offering and already has a diversified shareholder base that includes some government agencies in China as well as western companies (including Philips, which owns 4 percent).
Mike O'Hara, Thomson worldwide sales executive VP, said he expects the new company to be in operation by the end of the first half of 2004, after clearing regulatory approvals in Europe, China and the United States.
He said the goal "at some point in the future" is to publicly float a portion of the new entity.
TCL, which employs approximately 120,000 people, reported sales of about $1.9 billion in 2002. It is ranked as the No. 1 television manufacturer in China, with over 18 percent domestic market share. The company recently reported 39 percent growth in television sales for the third quarter of 2003, and is the second-ranked Chinese cellphone manufacturer.
"As the market has evolved over the last few years, Thomson's position had slipped down below No. 5 as a world player," said O'Hara. "With the formation of this new venture, we feel we will have a worldwide leading position."
Third-quarter revenue for Thomson consumer products dropped 12.6 percent, down to $859.6 million, compared with $1.1 billion in the year-ago period.
Meanwhile, the asset value of the new company was said to be in excess of $515 million.
Thomson will contribute all its television-making facilities in Mexico, Poland and Thailand to the deal. As part of the agreement, Thomson also is offering its DVD player business and global television and DVD player research and development facilities.
The joint venture will account for substantially all of Thomson's manufacturing and sales of TV sets and DVD players, which make up the "mainstream" segment of its consumer products division. This business accounted for just over 20 percent of Thomson sales year to date, and was 57 percent of the consumer product division's revenue in the third quarter (see TWICE, Oct. 27, p. 45), ended in September.
Thomson said its sales and marketing network would become the exclusive agent for distribution into North America and Europe. Thomson will receive fees for sales and marketing and engineering work, with product service and support being provided under contract to the venture.
Through the agreement, Thomson's current CRT operations, which includes plants in Marion, Ind. and Mexicali, Mexico, would become "the preferred supplier" of picture tubes to the company, with other existing tube sources also being used. Thomson's Juarez, Mexico plant will by used by the new company as an assembly plant for North America.
Thomson will license its Thomson and RCA brands to the new TCL-Thomson venture. In terms of brand strength, the deal will give TCL-Thomson the Thomson brand with about 8 percent market share in Europe, the RCA brand with "double-digital market share in the United States" and the TCL brand with 17 percent share in China, according to O'Hara.
"We think this will position us as a strong leading company with three renowned brands. We will have a strong product offering that will span all product segments from the opening price points up through all screen sizes and technologies like plasma and micro displays" (rear-projection TVs based on chip-based light engines such as DLP).
Thomson said it would retain full control of the "essentials" segment of its consumer products division, namely accessories, personal audio/video and communication products. This largely service-based business accounted for about 43 percent of consumer-products division revenue in the third quarter.