Thomson To Partner TV/DVD Biz With Chinese Maker - Twice

Thomson To Partner TV/DVD Biz With Chinese Maker

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Paris — 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, while TCL gains instant respectability toward furthering its interests in becoming a global CE player.

The deal, expected to be consummated within the next 18 months, 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.

The combined resources would 'create a new world-leader in the TV industry,' said Thomson, which is contributing 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 accounts for substantially all 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 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.

Third-quarter revenue for consumer products dropped 12.6 percent in the third quarter, down to $859.6 million, compared with $1.1 billion in the year-ago period.

Thomson said the deal would not include any loss of jobs or charges to the company's financial statement, would pass all current mainstream TV and DVD revenue on to TCL-Thomson. The remaining Thomson consumer electronics division would have annual revenue of $1.9 billion and generate a profit, said the company. The CE segment lost nearly $94 million in the first six months of 2003.

Thomsonwill supply tubes and other components to the new company. It also said its sales and marketing network would become the exclusive agent for distribution into North America and Europe. Thomson will license its RCA and Thomson brands to TCL-Thomson.

Thomson and TCL expect the new company to have a profitable future, 'built on the potential to achieve revenue and operational synergies driven by scale effect and global presence.' It is expected to have a 'positive impact on Thomson's margins and profit level.'

Following completion of the deal, about 51 percent of Thomson's current revenue would be derived from its content and network division, 20 percent from components, 23 percent from consumer products and 6 percent from licensing.

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