THOMSON AND TCL TO FORM VIDEO JOINT VENTURE

The new venture, TCL-Thomson Electronics, also would give TCL an edge in the race among Chinese manufacturers to establish manufacturing facilities in N. America in the wake of ITC’s antidumping probe of the CRT business. The ITC is expected to release a preliminary decision Nov. 21. TCL would own 67% of the joint venture and Thomson 23%.

“It gives TCL a huge foothold in the U.S. and Europe,” said Thomas Heiser, sales vp of Hitachi Electronic Devices, which counts Thomson among its customers for rear-projection TV CRTs. Part of the strength of that foothold would be the joint venture’s ability to sell plasma, LCD, DLP and CRT-based TVs as well as DVD products under the RCA and Thomson brands in N. America and Europe, respectively. In China, the joint venture would sell products under the TCL banner, which has an 18% share of the domestic market, Thomson Worldwide Exec. Sales & Mktg. Vp Michael O'Hara said in a conference call with reporters Mon. Should the ITC move to impose antidumping duties on TVs imported from China, the joint venture would be able to use assembly facilities in Thailand and Juarez, Mexico, to supply the U.S., market, O'Hara said.

Under the agreement, Thomson’s CRT operation would be a “preferred supplier” to the joint venture, providing up to 36” tubes. But OEM sources including Hitachi, Samsung and Toshiba, which have supplied up to 50% of Thomson’s CRTs in the past, will continue to be part of the mix, a Thomson spokesman said. Thomson’s OEM suppliers said they had been told that no changes in their supply agreements would occur for at least a year. Thomson’s facility in Juarez would be the venture’s assembly plant for N. America, building sets using tubes manufactured at the company’s Marion, Ind., and Mexicali, Mexico, factories, a Thomson spokesman said. But Thomson has slashed jobs at Marion, where a 3-year labor contract expires in April, and at a TV glass plant in Circleville, O.

In addition to TVs, the joint venture would develop and manufacture DVD players and recorders and could become a new member of the Blu-ray DVD consortium, a spokesman said. Thomson would retain its set-top box (STBs), cable modem, accessories, telecommunications and portable audio businesses. In addition to deriving revenue from the joint venture’s product sales, Thomson would receive fees for providing sales and marketing, R&D and other services to TCL-Thomson Electronics, O'Hara said. The venture also would serve as a licensing agent for Thomson in China, O'Hara said. Thomson last year complained that China’s TV manufacturers had infringed on some of its patents and requested fees for the use of 20 of them for a period covering 2002-2005, the S. China Morning Post reported.

TCL-Thomson Electronics would have combined revenue of $4.2 billion, $2 billion of which would come from TCL, the rest from Thomson. TCL is expected to reduce its ownership to 40% within 2 years as the venture sells 27% of itself in an IPO that was expected to result in it being traded on the Hong Kong Stock Exchange, O'Hara said. TCL-Thomson Electronics would acquire 9,000 employees from Thomson, including its product development group in Carmel, Ind., and a substantial portion of TCL’s work force of 20,000. TCL also operates a cellular phone business that now is part of the joint venture but eventually would be split off. Some $1.8 billion of TCL’s $2 billion in revenue in 2002 was derived from the TV business, O'Hara said. The venture would have combine TV assembly capacity of 17 million units, O'Hara said.

While not part the joint venture, Thomson’s components business, which includes its CRT manufacturing operations, also probably would see some benefit. Thomson has focused on expanding its CRT manufacturing in China since opening its first factory there in Foshan in 1999. It purchased Chinese CRT maker Xinyuan Highway Development for $83.4 million earlier this year (CED July 21 p1) with a goal of doubling its production capability in China to 7 million tubes by the end of 2004. Thomson also is adding a 2nd production line at the Foshan plant for sizes 32” and up. “This is probably a good move for Thomson’s components business because now you have an inside track in the China market,” said Toshiba Senior Engineering Mgr. Michael Milostan.

As the companies work toward signing a definitive agreement for the joint venture by the end of the first quarter, many of their prior agreements with other manufacturers probably will have to be reconciled. TCL rival Changhong, for example, had a TV tube supply agreement with Thomson for S. America and TCL is an assembly source for Philips sets, some of which are sold in the U.S. Thomson also had an agreement with Cable & Wireless to assemble rear-projection TVs in China. Also unclear was whether Go-Video would figure into the joint venture. TCL has a 30% stake in Lotus Pacific, which acquired Go-Video in the spring. A Go-Video spokesman declined comment Mon.

Thomson’s proposed spinoff of its video products group was the result of months of discussions with a roster of Chinese manufacturers that was said to have included Changhong as well as Hisense, sources said. It also capped Thomson’s multiyear effort to sell all or part of its CE business that began in 1996 with unsuccessful talks with Daewoo Electronics. In recent years, Thomson increasingly has focused on building businesses outside the CE market in buying broadcast equipment supplier Grass Valley Group and replicator Technicolor. The joint venture, if completed, would mark the most significant change in the company’s CE business since Thomson acquired RCA in 1987. RCA and GE had merged in 1986 and the latter brand would continue to be used by TCL-Thomson Electronics, Thomson officials said.