TCL-Thomson Electronics Corporation: A Failed Joint Venture?

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"In the past [few] months of operations, we found out the challenges and difficulties are deeper than we thought." ¹

- Vincent Yan, Chief Financial Officer, TCL Corporation, on TTE's First Anniversary.

"Starting from this type of situation, it is impossible to avoid being beaten black and blue. If the fall hurts, then you must draw lessons from the pain." ²

- Liu Erfei, Regional Chairman of Merrill Lynch³ in China, on the competition faced by TTE, in July 2005.

Introduction

For the first quarter ended in March 2006, China based TCL Multimedia Technology Holdings Limited (TMTHL) posted a loss before tax of HK$ 98 million on the total sales of HK$⁴ 8 billion. Earlier known as TCL International Holdings Limited (TIHL), TMTHL had been posting losses since the first quarter of 2005.

TMTHL reported a loss before tax of HK$ 584 million on a turnover of HK$ 34.55 billion in the financial year 2005 as compared to HK$ 497 million profit before tax on a turnover of HK$ 25.6 billion in the financial year 2004 (Refer Table I for TMTHL's financial performance between 2000 and 2005). TMTHL's core product was television, which accounted for nearly 88% of its revenues. It also manufactured computers and audio-video products. TMTHL's television business was operated under its wholly-owned subsidiary, TCL-Thomson Electronics Corporation (TTE). TTE was the world's largest manufacturer of television sets in terms of volumes. It was a joint venture formed in late 2003 between TCL Corporation (TCL) and France-based Thomson SA.

TTE sold television sets under the brand names TCL (in China), Thomson (in Europe) and RCA (in Asia).⁵ TTE attributed the loss primarily to falling market demand for televisions, greater competition from other brands and a substantial fall in prices of high-end television sets in the US and Europe.⁶

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1] Friedrich Wu, "The Globalization of Corporate China," www.cctr.ust.hk, December 2005.

2] "The Debate on Chinese Enterprise Acquisitions," www.chinasilicon.blogspot.com, July 27, 2005.

3] Headquartered in New York, Merrill Lynch is one of the world's leading financial management and advisory companies. For the year ending December 2005, the company's total revenues were US$ 48 billion and net income was US$ 5.1 billion.

4] As of January 06, 2006, 1 US$ = HK$ 7.754.

5] TMTHL also sold personal computers under the TCL brand name.

6] TCL sold television sets under the TCL brand name in Asia and Rowa and Schneider in some areas of China and Europe.