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HANNSPREE’S TVS DON’T NEED TO BE ON TO BE LOOKED AT

By Rodger Brown

Many parents leave Disneyland with little more than kids in tow, a thinned wallet and a pulsating headache. Yu-Chi Chiao left the place with his next big idea — one he hoped would really set off his LCD (liquid crystal display) company from the rest of the pack.

Chiao was chairman and CEO of HannStar Display Corp., Taiwan’s fifth-largest maker of LCD panels. The company was already making panels for the likes of Toshiba and Panasonic, but Chiao was looking to build a consumer brand of his own. He knew he could not do this based on price, however — competition and oversupply were steadily driving prices down. And it would be difficult to do it using innovative technology, because HannStar was behind in upgrading its manufacturing plants to the latest-generation LCD technology. His children supplied the solution.

“They were at Disneyland, and his kids came up to him and said, ‘Why don’t we have a Pooh TV?’ ” said Zoe Cheng, director of retail development and operations at Hannspree, the HannStar unit born out of that serendipitous vacation taken five years ago. “Of course, he owns an LCD manufacturing company, and he felt, ‘Why don’t we make a TV that distinguishes us from the market?’ ”

Chiao rounded up $170 million in startup capital and launched Hannspree in 2002. Parent HannStar holds 20 percent, and Chiao is chairman of the board. After two years of building prototypes and developing production processes, Hannspree opened its first store in 2004, in Taiwan, offering TV panels set inside models of such Warner Bros. characters as Bugs Bunny, Tasmanian Devil and Tweety Bird. Other frames are shaped like Cinderella’s coach. Still others feature the fine veneer used in cellos, or are made of real leather and formed like a baseball, complete with the regulation 108 stitches, or of pink synthetic teddy bear fur.

Since then, Hannspree has opened a second store in Taiwan, and one each in Shanghai, Hong Kong and Tokyo, as well as two in the U.S. Hannspree also operates 23 “shop in shop” display units in certain department stores.

Hannspree’s first U.S. store opened last summer in Beverly Hills, Calif., and the second opened in San Francisco’s Union Square in October. The 9,500-square-foot San Francisco store won a design award from the National Association of Store Fixture Manufacturers.

“Ever since TV was created, the biggest innovation was turning from black-and-white to color,” Cheng said. “We wanted to do something that is not the traditional, typical square-box TV. He [Chiao] thought, ‘Well, why can’t TV be personalized? Why can’t it show individuality?’ ”

Some analysts think Hannspree might be on to something. “Increasingly, consumers want hardware that is unique to them, and companies, too, need new and unique configurations to fit their increasingly unique needs,” tech analyst Rob Enderle wrote in a recent column for TechNewsWorld. Enderle praises Hannspree specifically for “breaking the mold” and having “aggressively moved in a unique direction at a time when unique is becoming vogue.”

And yet the appeal may have its limits. Hannspree’s TVs are personalized, to be sure, but only if one is a fan of Looney Tunes figures or certain professional sports teams. Watching the Final Four in dad’s den on a set that looks like a basketball may add something extra to that experience, but it probably will not do as much for taking in a rerun of, say, Schindler’s List.

Others are skeptical about whether the novelty will have mass appeal in the U.S. “Asia is full of people doing gimmicky things,” said Roger Kay, president of Endpoint Technologies Associates, a Massachusetts-based tech market research firm, in an inverview with the San Francisco Chronicle after the store opened there. “I don’t know about the U.S. If it doesn’t have a real long-term utility, there’s a tendency for these things to come and go.”

It will be interesting to see whether U.S. consumers will respond to the quasi-spiritual bent in some of Hannspree’s marketing.

“The relentless progress of technology seems to have allowed cold logic to overshadow people’s search for spiritual fulfillment,” declares the Hannspree Web site. Parent Hannstar’s slogan, meanwhile, is “HannStar Display, Display Happiness!! We promise the next generation a bright, colorful world filled with hope!!”

Perhaps there’s wisdom in the fact that Hannspree does not seem to be pushing that particular angle too much in the U.S.

“We are targeting trendsetters, early adopters, people who are into affordable luxury,” said Cheng. “We have something for everybody.”

Having initially burst from the gate, Hannspree has recently slowed its pace. “We were going really fast on Hannspree last year,” Cheng said, with reference to some test-marketing done at Best Buy, Dillard’s and Macy’s stores and to an ambitious but currently stalled plan to open more of its own stores. “This year we are trying to adjust our footsteps a little bit. In terms of retail development, channel development, we are being very careful about the channels we go into.”

Cheng did not provide sales figures related to that test-marketing plan, but she did say the company has chosen to shift to such specialty names as Disney Stores, FAO Schwarz and Sharper Image. It is eyeing other U.S. markets too. “We’re looking now at the East Coast, the Fifth Avenue, Manhattan area,” Cheng said. “After that, we’re looking for our first hub-and-spoke stores in the Philadelphia, Washington, D.C., areas in early 2007.”

Cheng says the number of stores Hannspree ultimately opens “depends on the success of the business and the demand.”

Indeed, Hannspree not only closed an office in New Jersey recently, but it has also become cautious about forecasting store openings. This pullback reflects what is going on with HannStar, its main LCD supplier, which has continued to lose money as prices for its mainstay 19-inch computer monitors have dropped. HannStar is the only one of Taiwan’s top five LCD makers without cutting-edge facilities for making TV panels. Eric Lin, an analyst at Yuanta Core Pacific Securities, a Taiwan-based securities trading firm, says this is a problem.

“Without aggressive efforts to map out capacity for TV panels,” he told the Taipei Times, “we feel HannStar will start to drop out of the market.”

So even though HannStar may sincerely want to offer the next generation “a colorful world filled with hope,” it also wants to sell more LCD panels. And that is becoming increasingly difficult for it to do as technology advances and prices drop.

Sweta Dash, director of LCD and projection research at iSuppli, an electronics industry research firm with offices in Asia, Europe and the U.S., says the cycles of technological advance and product oversupply, combined with the price declines, are driving consolidation.

“It is either consolidation or getting out of the market,” she told DigiTimes.com, a news service covering information technology in Taiwan and China. “Japan-based panel makers have exited the market one by one when faced with an unpromising industry outlook. Taiwan-based panel makers need to start thinking about how to survive the cycle.”

HannStar is surely feeling the heat. In February the company announced that it would halt work on its next-generation manufacturing plant and not resume construction until the TV brand took shape. In May HannStar’s shipments of panels were down 17.2 percent from the previous month, leading the company to announce layoffs the following month.

But that’s where Hannspree comes in. Its free-spirited TV brand is doing its part to offset that large-panel sales slide. For the second quarter, Hannspree’s shipments doubled to 300,000 from the previous quarter, according to Taiwan’s Economic Daily News, with most of those sales taking place in Asia. The company’s goal is 1 million units for the fourth quarter.

That’s a lot of Tweety Birds.

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