All Eyes Turn to TV in TCL Comeback

By newsdoug on August 15, 2011

TCL Corp’s (Shenzhen: 000100) latest results reveal its comeback story is still alive, although the focus has shifted from cellphones to its older TV business as the company refinds its footing in both areas. The latest results show that TCL’s profit more than tripled in the first half of the year to nearly $100 million, while its revenue grew a more modest 18 percent to about $4.2 billion. TCL TVs power H1 profit growth (English article) The driving force behind its profit growth was the TV business, TCL Multimedia (HKEx: 1070), which returned to profitability after a loss a year earlier and generally poor performance in recent years after its difficult purchase of Thomson Electronics’ TV business in 2005. Strong performance in emerging markets like Brazil and Indonesia were largely to credit, as TCL returned to its roots as an emerging market specialist. The cellphone business, TCL Communication (HKEx: 2618) underwent a similar steep downturn after its purchase of Alcatel’s (Paris: ALUA) cellphone assets around the same time, but came back last year with triple-digit gains on both the top and bottom line as it finally managed to leverage the Alcatel brand name to score major overseas deals. Not too surprisingly, the blistering growth for cellphones slowed quite a bit in the first half, with revenue up just 27 percent and profit up 50 percent. TCL’s charismatic chairman Thomson Li held a news conference to discuss the results, in which he chastised reporters for writing off the Alcatel and Thomson acquisitions as disasters. (Chinese article) I was one of those reporters who considered both purchases disastrous, but will admit that Li seems to have salvaged both deals, largely by shifting all of Thomson’s and Alcatel’s production to China while continuing to use their global brands to develop international sales. For now at least, the big story at TCL’s comeback seems to be shifting to the TV business and its future potential, while the cellphone business looks set for a rapid slowdown.

Bottom line: TCL Corp looks like a good investment bet based on a comeback for its TV business, while its cellphone business looks set to slow sharply after a strong comeback last year.

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