TCL Makes Risky Gaming Bet

TCL tries out gaming

I have a lot of respect for TV giant TCL (HKEx: 1070; Shenzhen: 000100), which has managed to remain relevant in China’s high-tech gadget space by moving aggressively into products like smartphones and high-end flat-screen TVs. But I’m a bit skeptical of the company’s latest move into the ultra competitive gaming space, following word that TCL plans to make gaming consoles and also specialized gaming TVs. News of this latest move by one of China’s oldest tech names comes just months after TCL announced a tie-up with leading search engine Baidu (Nasdaq: BIDU) to make smart TVs. I was more positive on that venture, though I really do think this new one looks more problematic since it will take TCL into a new area that is very competitive and where it has little or no experience.

According to the latest headlines, TCL will soon release its new gaming consoles that function similarly to Microsoft’s (Nasdaq: MSFT) Xbox and Sony’s (Tokyo: 6753) PlayStation. (English article; Chinese article) It will also release specialized gaming models, though the reports I read didn’t give any further details on what those models would include and on comparable products now in the market.

The TCL executive leading the new charge is Hao Yi, CEO of the company’s TV division called TCL Multimedia. Hao pointed out that TCL made its decision after China lifted a nearly 13-year-old ban on gaming consoles late last year, a move that will allow Microsoft and Sony to enter the market. Microsoft hasn’t discussed plans for the market yet, though it did announce a gaming TV joint venture with Shanghai’s BestTV (Shanghai: 600637) last year. Meantime, media also reported late last year that Sony was preparing to roll out its PlayStation in China after the lifting of the ban, though we haven’t heard anything since then. (previous post)

Hao also added that his company is making its new move as part of a drive to become a more diversified entertainment company, as it tries to move away from the lower-margin hardware businesses of making products like TVs. The company made a move in a similar direction when it announced its tie-up with Baidu back in September to make smart TVs. (previous post) The pair joined a number of other companies with similar products, including LeTV (Shenzhen: 300104), Xiaomi and Alibaba, just to name a few.

I said at the time that I liked the Baidu tie-up, as it combined TCL’s strength in TV development and manufacturing with Baidu’s iQiyi, China’s second largest video sharing site. But I can’t make similar comments about this latest move, which will take TCL into very unfamiliar territory without a strong partner. The report I read mentioned that TCL does have a partner for its gaming move, a company I’m unfamiliar with called ATET.

China’s gaming space is already extremely competitive, with a huge field of players  led by industry leaders Tencent (HKEx: 700) and NetEase (Nasdaq: NTES). Even former industry leaders like Shanda Games (Nasdaq: GAME) and The9 (NCTY) are now struggling in the space, as they battle each other for the limited number of gamers. The console business is likely to be equally tough, with Sony and Microsoft both likely to enter the business along with other names like Xiaomi.

TCL has been quite successful in its core TV business, but has quite a spotty record outside of that. Its mobile phone business has been prone to boom-bust cycles, and its PC business never really gained traction. I do think the company needs to diversify beyond hardware, and that games is certainly a related area where it could succeed. But without a better partner and some more experience, I do have serious doubts about this latest endeavor and would peg TCL’s chances of failure at greater than 50 percent.

Bottom line: TCL’s new gaming foray is likely to end in failure due to its lack of experience and stiff competition in the space.

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