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Assignment #2: Thin TV
Limits: 3-5 pages
TMC 310 – Promotion of the Enterprise Dr. Steve T. Cho
Format: word, pdf
This is an assignment about assessing an opportunity and figuring out a minimal viable product and beachhead. Read carefully; there are details that may help you.
This submission is to be one file. However, you may include an Excel file to get partial credit.
Background
In 1993, the display industry was ready to explode. The first PDA had been released, laptops were gaining traction in the market and U.S. cell phone sales had reached 13 million phones per year. [Exhibit 1-2].
Flat panel displays were an exploding business. Displays in PDA’s and cell phones were not yet color. Active Matrix Liquid Crystal Displays (AMLCD) was the dominant technology and had several strong manufacturers, including Sony, Sharp (#1 display company in the world) and Phillips. However, AMLCD suffered from issues with brightness (they did not work well in sunlight) and viewing angle (160-170 deg).
Competing technologies dived in [Exhibit 3, 4]. Organic light emitting diodes (OLED) had the promise of being a disruptive technology (75% less expensive) but it could not produce a color pixel. Plasma (PDP) had issues with power consumption, which did not make it appropriate for portables. The technology that became a focus was field emission displays (FED). FED was based on taking the standard TV technology and making it flat.
Thin TV Corporation was a flat panel display which could provide brightness of a cathode ray tube. Some of its key features were:
• Brighter than LED by 50%.
• Lower power consumption by 30%.
• Long term lower cost (25%).
• No viewing angle problems.
Thin TV was working on two technical issues: building support walls into the display to keep it from collapsing and scaling the process from the prototype 4″ display to 10″, which was an undertaking that could take 2 years (display sizes are based on diagonal length in a ratio of 3-4-5; if the diagonal length is 10″, the width is 6″ and the length is 8″).
Case I: Thin TV
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The Situation
The company had raised over $50M and a working prototype. The issue was where it would sell first. The company split into 3 camps:
1. Go big or go home: 10″. The executives of the company were able to raise such large sums of money because they promised that they would pursue the laptop market. With 10” displays currently selling for $500, a 20% market share for large displays could translate into $0.5B in sales. Furthermore, the company did not want to alienate its investors.
2. Stealth Mode: 5″. The Air Force approached SVC to build aircraft displays, which needed high brightness. The military displays did not need mechanical supports and measured 5″ diagonal. Some executives felt this was a good way to enter the market quickly while ramping up for larger displays. There was the potential to sell 100,000 displays.
3. It’s a small world after all: 2″. A staff member pointed out that LCD technology did not scale well to small sizes. Since the company had a viable prototype and the average size of cell phones was 2″ and they desired a color display, this was a MVP candidate. Furthermore, none of the large competitors (Sony, Sharp, etc) competed in that space.
The discussion went back and forth:
Each position touted its strengths and opposing positions attacked the weaknesses. At the present time (Year 1), there were 20,000,000 small displays being sold per year and growing at 25% in volume per year. The competition in this space had already reached economies of scale. However, the stealth approach had the promise of premium pricing with the government and giving the company time to develop. The go big strategy had the advantage of needing the least amount of sales volume: 11 small displays and 4 five inch ones would have to be sold to stay even with selling one large display.
In terms of rollout,
• Big displays would need two more years of development and could start selling by the 3rd year.
• The stealth approach have no sales for a year, but can sell 5″ displays in Year 2. However, this would delay rolling out large displays, but large displays can be sold by Year 4.
• The small displays only need one more year of development and then sales can begin (Year 2).
In terms of projected sales adoption:
10″ displays: The first year of sales will be 0.5% of entire large display market, Year 2 of sales: 1% of large display market, Year 3: 2% large display market and 30% yearly growth after that.
5″ displays will sell at 1,000 displays the first year of sales, 10,000 the second, 50,000 the third and a flat 100,000 displays after that. This approach will also allow the sale of 10″ displays later.
2″ displays will sell at 1% of the small display volume the first year, 5% the second, 20% the third and 25% growth over the previous year after that.
Margin = (Sales price – cost of manufacturing)/sales price
The sales price of large displays on the market is based on a 50% margin. The small displays believe they can sell at even a higher price because there is no product like theirs.
In terms of cost, it will take 3 years after start of production to reach maturity (i.e., lowest cost). Cost of displays is expected to drop 10% per year. The cost of an FED display is expected to be about the same as LCD.
The burn rate of the company was $20 million/yr. The price of a 10″ diagonal display (ratio 3-4-5 width-length-diagonal) was $500 in 1993 (Year 1), but was going to drop 10%/yr over the next 5 years.
Exercises
1. List out the metrics for which all 3 approaches should be judged on (e.g., price). Write a table of pros and cons for the 3 approaches.
2. Determine the following metrics:
i. Sales volume (i.e., the number of units projected to sell) for each year for each approach. You are basically filling in the following table (yellow): Yr 1 is considered to be chronological (i.e., right now). So the case says we start selling 2” after a year (which is Yr 2); in the 5” case, it says we can’t start selling until the 2nd year, so Yr 1 sales are zero and Yr 2 is 1,000 (the first year of sales).
ii. What is the cost of a display in terms of dollars per square inch ($/sq inch)? What is it projected to be for Years 1 to 5?
iii. Calculate the area for each of the three display sizes.
3. How would you price each approach and why?
4. Calculate the profit for each approach over the next 5 years.
5. Which approach would you take? Justify your answer.
6. Based on Exhibit 1, was there a chasm to cross for the CRT-TV industry?
What about LCD-Active matrix? If there is a difference between the two, what do you think was the cause?
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Exhibit 1: Projected Growth of the Display Industry
Exhibit 2: Display products and formats; do not use for volume calculations.
Fig. 1: Marketplace: The Display Universe
5-10″:
Autos, Navigation
>40″:
Projection Digital Theater
Games Cell Phones
4-6″:
PDA s lnstruments
THE DIGITAL DEVICE UNIVERSE: 2000
15-21″:
40-60″:
Digital Cameras Camcorders
10-12″:
E-books
Desktops
Home Theater
1 5 10 12 15 17 21 30 40 60
DISPLAY SIZE (DIAGONAL INCHES)
Display Market: 1993
5-36″:
10-15″: Notebooks
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Exhibit 3: Performance of the Different Flat Panel Technologies
Parameter
AMLCD
FED
OLED
PDP
CRT (reference)
Brightness
Moderate
High
High
High
High
Power
0.5X
0.2X
0.1-0.7X
X
X
Color Clarity
Good
Good
Poor
Moderate
Excellent
Viewing Angle
160deg
180deg
180deg
180deg
180deg
Switching Speed (<10ms for video)
45ms
<5ms
<10ms
<10ms
1ms
Cost/sq inch
$4
$2-31
$1-21
$162
$1
Exhibit 4: Competition
Technology Advantage
OLED FED AMLCD PLASMA/PROJECTlON
Kopin eMagin Pioneer UDC
Three-Five Systems (AMLCD)
Candescent Technologies Pixtech
Motorola
Samsung Sharp NEC
Hitachi Philips Sony
Samsung Sharp NEC
Hitachi Philips Sony
1 5 10 12 15 17 21 30 40 60
Table 2: Flat Panel Display Technology Companies.
AMLCD
FED
OLED
PDP
Sharp NEC
Hitachi Toshiba IBM
Matsushita Mitsubishi Sanyo Fujitsu Sony Hosiden Casio
LG-Philips Hyundai Acer
Chi Mei CPT
Hanstar Quanta Unipac Prime View
Three-Five Systems InVISO
Thomson-LCD
Candescent Technologies Corp. Motorola
Futaba eMagin Pixtech
Planar (EL) Cambridge Display Technologies
Uniax IFire
Everest Display UDC
Seiko-Epson Eastman Kodak
NEC
Sony Fujitsu LG
Samsung Hyundai
