Samsung TVs go upscale in a downturn

NEW YORK (Fortune) -- If you are a consumer electronics maker looking for profit in a time when would-be customers are counting their pennies, what do you do? One tactic: launch a new line of pricey products.

Amazon (AMZN, Fortune 500) is doing it with its $489 Kindle DX electronic book reader. Apple's (AAPL, Fortune 500) new iPhone 3G S, unveiled this week, will start at $199 with a cellular service contract. And Samsung Electronics, the South Korean company, is plowing ahead with a new line of luxury televisions that retail for $1,600 and up.

Luxury gambit. Samsung, the world's biggest television maker, in March launched a family of flat-panel TVs that use LEDs, or light-emitting diodes. The company initially launched the products using the brand name 'Luxia' but has since backed away from the elegant (and expensive) sounding moniker. Today Samsung simply refers to the line of televisions as "LED TVs."

But Samsung hasn't back pedaled in its commitment to the high-end category:

Indeed, the company continues to promote LED technology as an improvement to regular flat-panel televisions, which Samsung also sells. "LED is not viewed as an experiment," says Jonas Tanenbaum, vice president of marketing for LCD TV at Samsung. "It is viewed as a strategic push."

LED is an electronic light source which is considered environmentally friendly, since it produces more light per watt and lasts longer than the current light bulbs or fluorescent tubes. And while many electronics manufacturers have introduced individual LED TVs in the past few years, Samsung is the first major brand to launch a whole lineup of them. (LEDs are a subcategory of LCD - liquid crystal display - TVs.)

Here's how it works. An LCD panel is made of pixels filled with liquid crystals and placed in front of a light source. In ordinary LCDs the light comes from cold cathode fluorescent lamps (CCFLs); with LED TVs the light source is a bunch of LEDs arrayed either at the back or the edges of the screen.

The advantages. Compared to traditional LCDs, LED-lit TVs boast a better picture quality, reduced energy consumption and a much thinner screen.

For TV makers the biggest advantages of LEDs are the commercial ones. The prices of flat-panel TVs have been falling so rapidly in the recent years that it has been hard for companies to make profit on them. Leading flat-panel manufacturers, such as Samsung, Sony (SNE) and LG Electronics, are hoping that LEDs will help change that trend.

Indeed, Samsung has a lot riding on the project. It is the top-selling brand in the global TV market. In the first quarter of this year one in every five LCD TVs sold worldwide was a Samsung unit. But there has been trouble in paradise. In the North American market Samsung has been surpassed in LCD TV sales by value brand Vizio, and the global TV shipments declined 6% in the first quarter of this year from a year ago. Revenues fell 12%, according to the market research company DisplaySearch.

Samsung and others hope LED televisions will appeal to technophiles and media junkies who love new gadgets, thus boosting sales. The high-end of Samsung's LED TV line offers also an Internet widget gallery, with services like Flickr, Twitter and Yahoo (YHOO, Fortune 500) News.

Samsung Electronics is a unit of the gigantic Korean Samsung conglomerate, which sells everything from engineering, ships and chemicals to life insurance. The combined annual revenue of the group in 2007 was more than $170 billion, with Samsung Electronics bringing in over $100 billion.

Sales outlook. Analysts are closely watching Samsung's push into LED televisions. "Samsung is a leader in this area, and if it proves to have a lot of success this year, you could definitely see some of the other brands adopting the technology a little bit faster," says Paul Gagnon, director of North America TV research at DisplaySearch.

Samsung says it has sold 350,000 LED TVs in the first 10 weeks following the launch of the new line. The company's overall sales target for LCD TV sets in 2009 is 22 million, up 10% from 2008, but the company declines to give sales targets for the LED subcategory.

Analysts expect LED TVs to grab up to 15% of the global LCD TV market in the next five years, up from only 1% to 2 % this year. Samsung's competition, Japanese brands like Sony and Toshiba, are expected to come out with their own LED lines by the end of this year. As the demand for LEDs is increasing from other applications as well, the price of LEDs is likely to come down, bringing the prices of the TV sets down with it.

According to an iSuppli forecast, global LCD TV shipments in 2009 will amount to 120 million units, with 1% using LEDs as the light source, but by 2013 the portion of LEDs will to grow to 16%.

The next step up from LED-lit TVs are OLEDs, or the organic light-emitting diodes.

In OLEDs organic pixels radiate light themselves, so there is no back- or edge-lighting. OLED TVs have an even better picture quality, but at the moment they are very expensive to make.

Samsung hopes consumers eventually will embrace all these next generation televisions; just don't call them luxury (or Luxia) products.