Sharp takes a gamble on new TV plant in Mexico

PLAYAS DE ROSARITO, Mexico -- If this were the United States, this piece of Pacific Ocean-view land would probably hold luxury houses or a fancy hotel.

But this prime piece of Mexican real estate is home to a far riskier investment: a flat-panel television factory.

Japanese electronics-maker Sharp invested $300 million in the brand-new plant and adjoining complex, which churns out liquid crystal display (LCD) TV sets for the North and South American markets. Inside a pristine white building — surrounded by the tough, dirt-road neighborhoods of this border city — a staff of about 2,300 builds huge flat-panel sets that sell for as much as $8,000. The workers make about $150 a week.

Yet there's no guarantee that the factory will be profitable.

Televisions may seem expensive, but they're actually among the best deals on the planet. An extremely competitive market causes TVs to get better and cheaper every month. Consumers who benefit from this may not realize that competition also puts pressure on manufacturers such as Sharp. TV makers must constantly decide whether add-ons such as good customer service, tech support and design are worth it.

"We have to watch out (for competitors)," Sharp Electronics CEO Toshihiko Fujimoto says through a translator at the opening of the new factory, which drew dozens of executives from Japan and several high-ranking Mexican officials.

On a good day, a TV maker may earn a profit of about 10% on each set it sells, says tech analyst Rosemary Abowd at researcher Pacific Media Associates. But on a bad day — and there are many — they lose money.

Prices fall fast. The price of a typical set tumbled from $2,100 in January to $1,592 in August, a 24% drop, says the most recent data available from Pacific Media. Yet TV makers must frequently upgrade factories and equipment to keep up with the fast-changing technology. Sharp is also spending $3.3 billion to build a high-tech LCD component plant in Sakai City, Japan.

Companies that hit the market just right can make a fortune. But it takes only a few missteps to lose millions, says tech analyst Eddie Taylor at researcher DisplaySearch.

Sharp is reinventing itself in hopes of getting it right. But "It's a risky strategy and a huge investment," Taylor says.

Sharp boldly began phasing out traditional cathode ray tube (CRT) TVs in 1998, when flat-panel TVs were still new, unproven and incredibly expensive. At one point, it was the overwhelming leader in LCD TV sales.