InFocus to Drop Products Aimed at ‘Mass’ Retail Distribution

How quickly InFocus will sell off front projectors targeting CE chains like Best Buy and Circuit City wasn’t clear at our deadline Tues. InFocus also said it was shutting down its 2-year-old South Mountain Technologies (SMT) joint venture with TCL and had proposed paying $6.4 million to settle a Chinese customs probe of duty payments for front projectors. InFocus officials weren’t available for comment.

The decision to drop mass retail was prompted by weak sales of the DLP-based IN72 entry-level front projector ($1,299) featuring 852x480 resolution and 900 lumens, Ranson said. The IN72 suffered from being merchandised in the TV department at Best Buy, Circuit and others, where it competed for consumer attention with flat-panel TVs, InFocus officials have said (CED July 6 p3). Also being discontinued is the step-up IN76 ($2,999) with 1,280x720p resolution, 1,000 lumens and 3,000:1 contrast ratio. It’s unclear whether InFocus will continue the IN78EX, which InFocus introduced at CEDIA in Sept. featuring 0.65” DLP panels, with 1,280x720p resolution (CED Sept 20 p5).

InFocus embarked on an ambitious strategy to create a retail brand in 2002 starting with front projectors introduced under the ScreenPlay banner. It later added 61W and 50W DLP-based rear projection TVs with a 6.85” depth. The sets suffered slow sales at retail before being dropped last fall. That was followed by plans for a sub-$500 projector targeting the videogames market. InFocus later scrapped the model, which was to use TI’s 0.43” DLP chip with 640x480 resolution and be paired with an option docking station containing a DVD player (CED May 6 p3). InFocus’s retail business accounted for 12% of its 3rd-quarter revenue of $81.2 million, up from 10% in the previous quarter, CFO Roger Rowe said. InFocus ended the quarter with about $3.8 million in inventory on consignment at various retailers including Best Buy, down from $5 million in the 2nd quarter, company officials said. InFocus took a $1.6-million charge against 3rd quarter earnings to cover IN72 inventory of that was “selling below expectations,” Rowe said. “We've finished building the product and we won’t put out a product to replace it,” Ranson said. “The results [in the mass retail market] have been extremely disappointing.”

Returning focus to professional markets where its brand is well known, the company expects “solid growth” in the educational channel for models like the IN32 ($1,099) and IN34 ($1,299) that featured 1,024x768 resolution and 2,000 and 2,500 lumens, respectively, Ranson said. The projectors shipped in late Sept., after having been scheduled for 2nd- quarter delivery.

The shutdown of SMT, coupled with the proposed settlement in China, comes as InFocus considers “strategic alternatives” for the company. InFocus hired Banc of America this fall as an adviser as it considered a range of options including a possible sale, company officials have said. InFocus took a $1.1 million charge in the 3rd quarter for SMT’s “wind down costs” and a $5.1 million charge related to a 3-year-old customs probe in China. The proposed $6.4 agreement with custom officials in Shanghai Province was offset by $1.3 million accrued earlier this year. The money had been reserved to fund a possible settlement of federal investigation of allegations that an InFocus foreign subsidiary violated technology export laws. The U.S. Office of Foreign Assets Control issued only a “cautionary letter” to the company, InFocus officials said.

InFocus said its 3rd-quarter net loss narrowed to $19.4 million from $38.3 million, as revenue declined to $81.2 million from $130.3 million. Further weighing down 3rd- quarter earnings was a $1.4 million charge related to the possible sale of the University Network, a subsidiary specializing in displays on college campuses. The charge represented the difference between the carrying costs of TUN and the proceeds from a sale expected to be completed this year, company officials said. InFocus also took a $900,000 severance charge related to layoffs including 30 jobs eliminated as customer service was outsourced to a company in India. InFocus also reached an agreement with Wells Fargo Foothill to reduce a credit facility to $15 million from $25 million. The pact was extended to March 31, 2007, as Wells Fargo agreed to waive violations of covenants governing the agreement, company officials said.

InFocus’ shipments of front projector declined to 74,000 units from 84,000 in Q2 as the average selling price fell 5%. Sales to distributors accounted for 60% of revenue, down from 66% in the 2nd quarter, while revenue from value-added resellers was 27% (23%). Sales for meeting room applications accounted for 61% of revenue during the quarter, Rowe said. About 60% of the projectors shipped during the quarter contain 1,024x768, while the remainder were 800x600, company officials said. DLP-based projectors represented 94% of sales, up from 89% in the previous quarter, Rowe said.

While Ranson emphasized growth in outlining a turnaround plan for InFocus, Caxton International, which owns a 8.3% stake in the company (3.3 million shares), is pushing for “exploiting the full value” of the company’s IP assets. Pursuing sales growth “as the answer, means the board just doesn’t get it,” a Caxton analyst said in the conference call.