AmTRAN Technology: Building a North American Television Empire

Make no mistake, 2011 was a difficult year for the Taiwanese tech industry, its worst since the global financial crisis began in 2008.

Europe’s PIIGS (Portugal, Ireland, Italy, Greece, and Spain) all experienced debt crises that have slowed the entire Euro­zone economy and battered even the US, which is still recovering from its subprime debt crisis. The world’s consumer markets feel besieged and have remained sluggish. As a result, Taiwan’s technology sector, highly dependent on orders from the US and Europe, has had little choice but to wait for the doldrums to pass.

When matters were at their worst last December, some 109 companies had placed more than 13,000 workers on unpaid leave. The entire tech sector, including the semiconductor, consumer electronics, panel, LED, and display industries, suffered.

While most companies were overjoyed at simply not losing money, one company turned in fantastic results, growing its revenues by more than 70% quarter-on-quarter in the fourth quarter of 2011, lifting them to NT$20 billion even as the economy was at its lowest ebb. Though its after-tax earnings for the year as a whole were just NT$1.5 per share, down sharply from NT$2.89 and NT$2.63 in 2009 and 2010, its sales were the envy of its peers.

The company, Am­TRAN Technology, received a Model Entrepreneur Award from President Ma Ying-jeou in 2011.

AmTRAN outsources its TV production to Suzhou Raken Technology, a joint venture with Korea’s LG Display. In the photo, workers at the facility handle the later stages of TV assembly.

AmTRAN was founded by brothers Alpha and Frank Wu. They and their eight other siblings grew up in Kee­lung’s Miao­kou area, sons of a successful businessman who built a thriving textiles company from scratch. Their father taught them early on not to expect handouts: “Don’t think you can rely on family money. You need to be disciplined, teach yourselves, and support one another.” Inspired by his admonitions, the brothers decided to go into business together while still quite young.

Born in 1956, Alpha Wu studied electrical engineering at National Taiwan University before going to work for Philips, where he learned to build black-and-white TVs. He entered the global display and monitor market for himself in 1987 when he founded MAG Technology.

Alpha, who excels at R&D, hired his brother Frank, an NTU political science major five years his junior, to help him build the factory and assist with sales and marketing. Together, they built the foundations of the business.

When Taiwan’s tech industry took off, MAG quickly established itself in the monitor market. Though it grew to account for 60% of the global market, the brothers disagreed with the other shareholders about outsourcing production and other issues, and left the company.

In 1994, the indomitable duo founded Am­TRAN with an eye to producing the displays and monitors with which they were familiar, and to expanding into the booming LCD field.

“At the outset, we were more an R&D lab than a tech company: the Am­TRAN Research and Development Laboratory!” laughs company president and spokesperson Frank Wu.

Like many other tech companies, Am­TRAN began life in a small office with fewer than 10 employees. But the company’s outstanding research and execution, high-quality products, and competitive prices slowly won it large orders from the likes of HP, Sony, Sharp, and Apple. Meanwhile, it was accumulating experience manufacturing and optimizing display panels.

Under the brothers’ steady leadership, Am­TRAN’s sales surged 250% in 1996, catapulting it into the ranks of Taiwan’s top 1,000 businesses. It grew to be Taiwan’s largest designer and manufacturer of LCD TVs and even attracted investment from ViewSonic.

Good times never last. As monitors and LCD TVs standardized, OEM margins grew thinner, sliding from more than 10% in early 1999 to less than 5% in 2003.

What were the Wu’s to do? Clearly there was no future in continuing to compete on the basis of price for slim profits, and building their own brand would have required bearing completely unpredictable market risks. Just as the brothers were racking their brains for a strategy, a Taiwanese-American named William Wang who was a good friend from their days at MAG founded VIZIO and approached them for investment and help manufacturing. The three clicked, opening up new opportunities for AmTRAM.

“In the past, the cooperation between brand names and OEMs was often a zero-sum game,” says Frank Wu. “Both sides wanted to minimize the other’s margins. Typically, it was only the brand owner that profited when sales were booming.”

Wu says that to avoid the problem of the other guy enjoying all the benefits, Am­TRAN and VIZIO formed an alliance, sharing both risks and profits. Am­TRAN has a 23% stake in VIZIO, making it the company’s largest corporate shareholder. (Fox­conn is the second largest with an 8% stake.) It is also responsible for more than 80% of VIZIO’s product design and manufacturing. Am­TRAN even handles the vexing problem of returned products.

Engineers test the color temperature, brightness, and saturation of TV screens repeatedly to establish the optimum settings for viewing.

While consumers frequently update their cellphones, cameras, and notebook computers as fashions and features change, they tend to hold onto their high-priced TVs for a long time and to be relatively brand loyal.

Fortunately for Am­TRAN and VIZIO, their partnership coincided with the US government’s 1999 decision to begin a gradual transition to digital TV. (The US’s over-the-air television signals went fully digital on June 12, 2009.) Because older picture-tube televisions were typically unable to pick up digital signals, consumers were compelled to either upgrade their TVs or purchase a set-top converter.

Anticipating a wave of upgrades, Am­TRAN and VIZIO resolved to assault the market from three angles: products, pricing, and distribution channels.

The first order of business for a company seeking to establish a long-lasting brand is providing consumers with high-quality, standardized products. That wasn’t going to be a problem for Am­TRAN, which already had a great deal of experience manufacturing TVs for the OEM market. The company certainly had the capability to build flat-screen TVs just as good as those of the major Japanese and Korean brands.

But if VIZIO were to build TVs of such quality, how would it sell them more quickly and cheaply than its competitors, and induce brand-conscious consumers to buy them? The solution lay in an Am­TRAN specialty: strategic alliances.

Its most important partner is Media­Tek. Wu explains that American and Japanese firms used to dominate the production of Advanced Television Systems Committee (ATSC) complaint chips. But, recognizing that ATSC chip manufacturing was a mature technology, Am­TRAN sourced its chips from Media­Tek. By dealing with a Taiwanese company, Am­TRAN was able to reduce costs and allow its engineers to communicate with their supplier in their own language, greatly simplifying troubleshooting and cutting development times.

AmTRAN president Frank Wu is a graduate of NTU’s political science program. In addition to acting as chief executive, Wu oversees sales and marketing at the company, a winner of a 2011 Model Entrepreneur Award.

AmTRAN’s second key partner is Korea’s LG Display, the world’s second-largest LCD panel manufacturer. In 2008, the two companies invested US$48 million in establishing Su­zhou Ra­ken Technology in Su­zhou, China, a transnational venture that joins a panel maker and a TV manufacturer. (LG Display owns 51% of the venture, Am­TRAN 49%.)

Like Am­TRAN, the LG Group produces televisions. Why would it be willing to help a rival? Wu explains that only Sam­sung has the capability to handle the entire upstream and downstream process—everything from manufacturing to sales and marketing—on its own. Every other player in the industry today has to cooperate with other firms. Sony, for example, sources its panels from Sam­sung and AU Optronics.

For Am­TRAN, the alliance with LG Display offered it a stable supply of panels and a huge reduction in shipping, unloading, and packaging costs. For LG Display, cooperation meant a new client at a time when business was slow. The joint venture enabled the two to cooperate on R&D and design, and to integrate their manufacturing processes, greatly increasing their productive efficiency.

AmTRAN’s 3D televisions contain breakthrough technology, including lightweight glasses and a technique that eliminates the flicker that plagues most 3D TVs.

Carefully calibrated alliances enabled Am­TRAN to sharply reduce VIZIO’s manufacturing costs, cutting them to a level 40% below those their rivals faced for similarly sized flat-screen TVs.

Once they had cut costs, their next task was to make consumers aware of their products.

Wu says that Americans used to buy their TVs from major home electronics chains like Best Buy and Circuit City, but these distribution channels demanded margins of at least 30% on the items they stocked. If VIZIO had chosen to compete in this arena, consumers would have seen little benefit.

The company therefore decided to go a different route, targeting the market for consumers with annual incomes of less than US$40,000. VIZIO founder William Wang himself brought samples of his products to ­Costco, a warehouse retailer that at the time didn’t sell TVs. In an interview with the media, Wang recalled that ­Costco managers had asked him why they should carry his products. He told them, “Because we’re the next Sony, the next Toshiba.”

VIZIO sent shockwaves through the industry when it released a 50” plasma TV for just US$2,499. At the time, Japanese and Korean manufacturers were still selling comparable TVs for US$4,000, and the 40% price differential shook consumers’ faith in the more established brands. In the first week of a test run at 10 ­Costco locations, they sold a record 2,000 units. Just three or four months later, sales had grown to 9,000 units per week.

Costco began stocking VIZIO at all its more than 300 locations around the US, and chain stores such as Sears and Wal-Mart also approached the company about carrying its TVs. With its reputation for quality at an affordable price and its massive distribution channels, VIZIO quickly established itself in American living rooms. Its growth was truly astonishing, its market share soaring from 1% in 2005, to 12% in 2007, and 21.7% in the first half of 2009. In the process, it surged ahead of the likes of Sam­sung, Sony, Sharp, and LG to become the number-one TV brand by sales in North America.

For the last two years, VIZIO and Sam­sung have traded the top spot repeatedly. Meanwhile, former market leader Sony has suffered badly in North America, with its TV division hemorrhaging red ink for the last eight years.

In 2007, VIZIO began selling its products in Taiwan, but is yet to have the kind of success here that it has enjoyed in the US. It currently ranks 10th in the Taiwan market.

Commenting on the company’s greater success abroad, Wu says that Taiwanese like showing off, that we want the TV we have in our living room to be of a well known brand. VIZIO has underperformed in the domestic market because it isn’t nearly as well known here as the major Japanese and Korean manufacturers, and it hasn’t attempted to compete in the small-TV segment where other domestic brands shine.

Nonetheless, Am­TRAN has continued to pursue Taiwanese consumers by offering them a comprehensive five-year warranty on its products, a warranty more than twice the length of that provided by the typical Japanese manufacturer. Home electronics discussion forums such as mobile 01 have reacted positively to the offer.

Noting the efficiency with which Am­TRAN was running VIZIO, JVC, which had withdrawn from the US TV market for a time, approached the company in 2010. Discussions led to the two companies forming a strategic alliance that gave Am­TRAN the right to manufacture and sell JVC TVs in the US. These new “JVC” TVs are now being distributed throughout the US.

Wu has no worries that the mid- to upper-tier JVC brand will negatively impact VIZIO. “Having brands in two different segments will expand our market and attract still more consumers to our products.”

AmTRAN has grown from a tiny R&D lab into a major enterprise employing more than 4,000 people and generating more than NT$60 billion in annual revenues. Its use of vertical and horizontal alliances, its pragmatism, and its ability to grasp opportunities when they present themselves are a textbook example of how to succeed in business.