Is Now the Time for This Mega-Tech Company to Make a TV?
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Apple (NASDAQ: AAPL), the well-known tech company, is currently a top player in the mobile market. With the recent uncertainty surrounding many of the top television manufacturers, we see this as a time that Apple should be considering the possibility of manufacturing a TV of its own. Although Apple may be inadvertently contributing to the TV's demise with its tablets, we believe the TV industry just needs some reinvigoration, if you will.
As the TV manufacturers come under pressure, the potential competition for Apple could be slimming. Major TV manufacturers that appear to be in serious trouble include Panasonic and Sharp, both of which are down big this month (26% and 15%, respectively). The struggles of these two companies are all the more reasons for Apple to take advantage of this opportunity and make a TV of its own, versus simply partnering with other manufacturers.
Further signs of degradation include Sharp’s public doubts that it will survive as a public company. Sharp is now looking to make it through the interim with plans to sell new shares to Hon Hai Precision Industry Co. This comes after the tech company announced it could post a loss nearly double its previous estimates for this fiscal year if it does not receive new capital. It's worth noting that Hon Hai Precision already took a 10% stake in Sharp earlier this year, and Hon Hai is Apple’s main contract manufacturer.
A slowdown in the Chinese and broader global economies, and the boycott of Japanese products by Chinese consumers, have put major pressures on these companies. The boycott comes on the back of Japan’s decision to bring a major part of the Senkaku Islands under state control. Both Panasonic and Sharp have openly admitted that they are having serious concerns about if they can cope with changes in their business after having made sizable investments in the TV segment. Panasonic has cut its TV sales target by almost 30% for 2012, citing pressure from other devices, such as smartphones and tablets.
In addition to Panasonic and Sharp’s troubles, other major electronics companies are seeing weakness, including top electronics company Sony Corporation (NYSE: SNE). Sony does have a more diversified product mix that includes PCs and laptops. Even with this broader base, the company is undergoing restructuring, and its main focus is to turnaround the TV segment. Unlike that of Apple, the recent dismal performance for the TV maker has led to fund interest in Sony being nearly nonexistent, except for a very small position by Ken Griffin.
Samsung and LG Display Co (NYSE: LPL) are the two industry leaders amongst TV manufacturers. Samsung and LG own 28.5% and 15.2% of the market, respectively. The two companies under the most pressure own 5% (Sharp) and 6.8% (Panasonic) of the market. With one or both of these TV companies out of the picture, there will be a large gap left for Apple to move into. To survive, these Japanese companies may have to further cut their workforces, reduce their business fields, or carry out other restructuring efforts. As a stagnant global economy continues to put strains on the major Japanese electronics companies, Apple, which saw its 3Q EPS up 20% from a year earlier, has much more profitability to work with.
Rumors have surfaced that even Google might be gearing up for "2.0" version of its Google TV. Google (NASDAQ: GOOG) made an attempt at a supplemental TV device that was a bit too clunky in our opinion. Microsoft (NASDAQ: MSFT) also has a supplemental TV device in the Xbox gaming console, which allows user to stream shows and movies to the device. Sony's PlayStation offers similar features as its rival Xbox.
It has been years since a new edition of either console has been produced (seven to be exact), compared to the video game industry's historical average turnover of around four years. A new generation of consoles is due, but we see these devices as potentially spurring demand for TVs, as more consumers want the top TV technology, such as 3D, to supplement the devices.
We are not overly excited about the prospects of the TV market given continued decline, but do see value in the opportunity that Apple has. All the major companies in the TV industry, including LG, Panasonic, Sony, and Sharp have incalculable P/E ratios given their recurring EPS losses. LG is the best house in a bad neighborhood, but its outlook is still bleak, operating with a negative 3% profit margin and posting three straight quarters of negative earnings. Comparing Apple to Google and Microsoft, Apple has a very appealing P/E ratio of 13x, compared to Google’s 21x and Microsoft's 14x. We believe that Google has other concerns it will be focused on, leaving the TV segment to Apple if they so desire.
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This article is written by Marshall Hargrave and edited by Jake Mann. They don't own shares in any of the stocks mentioned in this article. The Motley Fool owns shares of Apple, Google, and Microsoft and is short Sony (ADR) and has the following options: long JAN 2013 $22.00 calls on Sony (ADR). Motley Fool newsletter services recommend Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.