Why do I like the hardware industry?
It’s the melodrama. One day, you’re an unheralded company with clunky, me-too products. (We’re the first company to deliver a smartphone specifically designed for bass fishermen!) Three years later, a few analysts and reporters note that your company has moved from number 27 to number 8 in market share. A year later, BusinessWeek prints a breathless account of the danger sports—windsurfing, bull baiting, extreme whittling—the CEO enjoys to keep himself tuned. You’re number one in your chosen markets and your company is expanding!
And then comes the final act: excess inventory, bloated product lines, tight margins and feature stories bemoaning your big bet on those touch screens.
Look at Packard-Bell, Compaq, Palm, AST, Digital, Acer, and all those people that made Internet Appliances back in the late 90s. These companies weren’t stupid or mismanaged. In most cases, they touched the Golden Fleece… right before sliding off a cliff.
And now comes Vizio. It’s one of the great success stories in digital television. At the Consumer Electronics Show this week Vizio unfurled smart phones, tablets and Windows 8 PCs. (Vizio started trickling out the PC strategy in 2012 but this year’s CES has been the launch pad.) The desktops will have large 24- and 27-inch screens while the laptops will emphasize thinness. Still, even with the accent on design it can be seen as a strange move. PC sales are flattening out and most phone companies are struggling in the shadow of Samsung and Apple. Given a choice between trying to interest consumers in Windows 8 or trying to earn a living giving massages at street fairs, you might be temped take Option B.
But, ahh… the history. Vizio has defied the odds before. Founded in 2002 by LCD veterans William Wang, Ken Lowe and Laynie Newsom, the Costa Mesa, Calif.-based company started as a consulting firm serving PC makers trying to break into the TV market. It helped Gateway release a 42-inch plasma TV system. It cost $2,999, but comparable systems at the time sold for upwards of $6,000. Although Gateway’s momentum in TVs petered out, it enjoyed a surge of sales. Gateway sold 4,000 in the first month.
Soon after, it joined a new crop of new-name TV manufacturers like Westinghouse, Polaroid, and Syntax-Brillian – HP and Dell even thought they could make it big in TVs. Vizio’s strategy was to produce the lowest price TVs in the mid- to high-price bands, a plan which allowed it to compete on price while avoiding the most challenging segment of the markets. It also specifically targeted what then were new channels for TV makers: Costco, Sam’s Club and home shopping channels. Electronics retailers, at the time, insisted on gross margins of 25 percent or more. Big Box retailers only demanded ten percent. Vizio used the strategy to undercut prices without undercutting margins too much.
It also kept headcount low. Vizio outsources nearly everything. When it overtook Samsung and Sony for the first time to become the number one LCD TV brand in America, it had only 85 employees.
“We don’t have highly paid executives or fly around on corporate jets. The efficiency of the company is not hiding any kind of latency,” Wang told me back then.
The momentum hasn’t ended: Vizio is still regularly in the top spot with Samsung in the U.S. Now reviewers like Dave Katzmaier often give their TVs high marks. Compare that to Sony or Sharp: Sharp, one of the most innovative companies in LCD technology, is this week seeking an infusion of cash from Intel and Dell.
With that in mind, let’s look at the new products. Vizio’s tablet runs on AMD’s Z60 processors. That means it is compatible with virtually every computer program on the market, unlike Microsoft’s own Surface, which runs on an ARM chip. AMD is also a company on a mission to rebuild itself and so will likely go out of its way to help Vizio make sure it succeeds. The products are attractive, different and Vizio doesn’t carry baggage like HP or Dell.
In phones, Vizio will target the Chinese market, still a new frontier for smartphones.
Then again, it won’t be easy. Vizio did try to sell phones in the U.S. a few years ago. In the summer of 2011, Lowe told me during a panel discussion that Vizio was going to come out with a line of LED light bulbs. Taiwan would produce them and Vizio would sell them. LED prices dropped and I haven’t seen the light bulbs. The company’s breakthrough channel strategy is no surprise anymore.
If these new products don’t sell well, expect Vizio to back of its commitments quietly. But if TV sales begin to flatten, Vizio may decided that its future does indeed belong in portable entertainment and computing. An effort will be made to bring a new definition to form factors. And then someone will suggest…
Image courtesy of Vizio.