InFocus Posts $38 Million Loss Amid Oversupply in Front Projectors

The earnings downturn included a $9.2 million writedown of InFocus inventory of 61W and 50W reduced- depth DLP-based rear projection TVs, exceeding a previously forecast $8 million, CEO Kyle Ranson told analysts in an earnings conference call. The 61W at one point was being sold through Costco at $2,4000. As a result of an $16.4 million writedown on inventory and equipment, InFocus posted a 0.4% negative gross margin. It shipped 99,000 front projectors in the 3rd quarter, down 5% from the previous quarter.

Having abandoned its foray into rear-projection TV, InFocus is returning to its core front projector business, company officials said. InFocus ended the 3rd quarter with about $10 million in retail inventory on consignment, down $2 million from the 2nd quarter and flat with a year ago, Ranson said. InFocus didn’t identify the retailers selling its front projectors on consignment, but in the past they have included Office Depot and Best Buy. Retail returns are running 8-10% of units sold, about 80% of which are brought back to stores because of “buyer’s remorse,” Ranson said.

To jumpstart its front projector business and deliver what Ranson called a “mass market” product, InFocus has shaken up its roster of OEM suppliers. It parted ways with Flextronics and is adding Foxconn as well as South Mountain Technologies (SMT) -- the latter the joint venture it formed with TCL late last year. Company officials have said they expect the consumer market for front projectors to broaden when prices dip below $500. Many consumer front projectors are around $1,000, and a category once seen growing 40% this year will now expand at only 1/2 that rate, Ranson said.

SMT, 50% owned by InFocus, largely will develop new front projector platforms for a line of products, the first of which is expected to ship the first half of 2006. Funai will focus on building entry-level front projectors for the business market, while Foxconn will use its “supply chain strength” to deliver mass-market consumer product, Ranson said. Foxconn and Funai are expected to take up the slack in manufacturing existing product as Flextronics halts production in the next few weeks, Ranson said. The new OEM lineup is designed to provide lower cost product that would let InFocus return gross margins to 16-18% in 2006, company officials said. “We weren’t keeping pace with the average selling price declines in the industry,” said Ranson, conceding InFocus lost 3rd- quarter market share. “With these contract manufacturers at our side,” manufacturing costs will be cut as fast as the prices decline, Ranson said.

InFocus supplied $3.5 million to SMT in the 3rd quarter, bringing its total investment in the joint venture to $10 million. It took a $1.6 million charge for its share of SMT’s 3rd-quarter loss. SMT is working with former InFocus CFO Michael Yonker to secure more funding through debt financing or sale of an equity stake in the joint venture, Ranson said. SMT initially will supply InFocus and TCL with front projectors and will seek to add business with other vendors starting Q2 2006, Ranson said.

To help cut expenses 20%-25% in 2006, InFocus is cutting its world work force 15%, consolidating many operations under Chief Mktg. Officer Scott Ballantyne. As of Dec. 31, InFocus had 739 workers, including 70 temporaries. InFocus also is seeking to sell 20 acres of land beside its Wilsonville, Ore., hq, that it had held onto for future expansion, Ranson said. InFocus has opened a sales office in China to sell directly to the Chinese market starting in 2006. By selling within the China market, InFocus will avoid having to pay 30% duty. InFocus, target of a Chinese customs inquiry several years ago, continues to have about $14 million on deposit there.

InFocus is moving to narrow its international marketing. In Europe, it will focus on Germany, the Nordic countries and the U.K., while Australia and China will be its key Asia targets, company officials said.