China Consumer

Screen test

Hisense looks to thrive with Toshiba TV bid


It’s a flat screen future

Back in the 1990s, it was more impressive to go on a date wearing a Xinfei Electric uniform than a shirt and tie. That is according to some of the TV manufacturer’s older workers, who told recently that ownership of a Xinfei television was a prerequisite for young men hoping to attract brides in rural areas.

Late last month, the Henan-based firm shut up shop after a run of losses. Its Singaporean parent Hong Leong Asia is now hoping to find a buyer for one of China’s older brands.

Xinfei’s fate highlights the uneven path of China’s TV manufacturing industry, which has spent the past 20 years trying to catch up with the South Koreans and the Japanese. Back in the mid-1990s, the industry had “four golden flowers” comprising Haier, Ronshen, MeiLing and Xinfei. Only Haier has survived, after Hisense took over Ronshen and Changhong purchased MeiLing. Now Changhong is in trouble after reporting a net loss of Rmb75.76 million ($11.45 million) for the first nine months of the year. In contrast, Haier reported a net profit of Rmb4.965 billion.

An article in Caijing concluded recently that Changhong made two fatal mistakes. It forged the wrong partnership with an American firm, which led to big write-offs, and it then bet on the wrong technology: plasma rather than LCD. After ploughing Rmb4 billion into a Sichuan-based plasma factory, the group ended up selling it for Rmb64.2 million four years ago.

China’s two newer TV giants are TCL and Hisense, although for many consumers, their identity is hidden behind ownership of better-known brand names. Most notably both are connected to Toshiba. TCL set up a Chinese joint venture with the Japanese group in 2010, later taking operational control. Then in mid-November, Hisense purchased a 95% stake in Toshiba Corp’s TV arm, getting 40-year branding rights, plus a number of Japanese factories.

Toshiba has been selling assets because of its failed investments in the nuclear reactor business. But Hisense’s Rmb763 million acquisition has not been particularly well received back in China. Domestic commentators query whether it has not only overpaid, but also purchased a company, that could act as a financial drag. Analyst Liang Zhenpeng told that neither Hisense nor Toshiba own the core panel technology that accounts for about 70% of a TV’s cost.

Netizens have been similarly unimpressed. One likened the purchase to the proverb about dropping a melon after picking up a sesame seed. “It’s acquired a business that will soon be out of business,” warned another.

However, the acquisition fits into Hisense’s plan to internationalise its operations and it has been moving up the global league tables. The two biggest Chinese operators now rank third and fourth behind Samsung and LG, with respective market shares of 8.3% (TCL) and 6.3% (Hisense) in the third quarter. As a result of its latest purchase, Hisense will now hold second place in Japan too, with a 20% market share.

Hisense’s 2015 acquisition of five-year branding rights for the use of Sharp’s name in America has also helped, although the Japanese group’s new owner Foxconn seems keen to get them back.

Earlier this year, the Taiwanese company filed a lawsuit in the US arguing that Hisense contravened the terms of the 2015 agreement by devaluing Sharp’s brand. Among other accusations, Foxconn alleges that Hisense exaggerated the brightness of Sharp televisions and broke environmental rules on radiation emissions.

Hisense shot back, taking the issue to the Singapore International Arbitration Centre. The centre has issued a gagging order preventing Foxconn from further comment until the dispute is resolved.

Foxconn’s imputations won’t please the man credited with turning a Qingdao TV factory into a global giant. Zhou Houjian joined Hisense in 1982 and is still a board member. In 2002, at the height of his chairmanship, he gave staff a copy of a TV drama that tracked the rise of a Qing Dynasty pharmacy, Tong Ren Tang, which lasted even longer than the dynasty itself (it still sells its products). The message? Zhou said he wanted to show his staff how the key to longevity is integrity and technical know-how.

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