Tuesday, February 1, 2011

3D TV - A Contrarian Investment Play

I mentioned two things in the very first paragraph of my very first blog:
  1. I am generally a late adopter when it comes to technology
  2. I own a 3D TV
Admittedly these are seemingly two contradictory statements, given that only a very small percentage of the North American population currently own 3D TVs. I likely wouldn't have bought one (yet) in it weren't for the following:
  1. I got a fantastic deal on the TV
  2. I really, really wanted to play 3D video games on my PS3
 Did I need a 3D TV? No... Did I even need a new TV? No... Do I love my 3D TV? YES!
In my research and in speaking with people on the subject it is clear to me that the vast majority of the population have zero interest in buying a 3D TV, or to be more specific, they THINK they have zero interest in buying a 3D TV.
Common statements I hear include, among others:
  • 3D is just a gimmick
  • I just upgraded to a HDTV a couple years ago
  • Watching 3D gives me a headache
  • I will look silly wearing 3D glasses in my home
  • Why would I want to watch the news in 3D?
I'll address each of the points above, provide my own opinion, and suggest some possible trading ideas to benefit from the upcoming 3D TV wave.
3D Is Just A Gimmick
Those who make this statement usually point to the fact that 3D seems to show up every decade or so and then disappear as quickly as it appears. Those who make this statement fail to recognize that 3D movies in the 60's or 70's have little in common with the current 3D environment.
For one, the technology is completely different. Polarized, or shutter glasses technology bears little resemblance to the old red/blue paper glasses of old. The effects today are far more impressive and immersive than the effects achieved several decades ago. Two, manufacturers have only just recently been able to affordably produce TVs capable of showing high definition stereoscopic images in the home. And three, never before have the major movie houses and equipment manufacturers invested so much in 3D technology. These companies have an incentive for 3D to stick around, and are going to continue to put a lot of effort into it to make sure it does.
I Just Upgraded To A HDTV A Couple Years Ago
Ok, this argument has some validity. Not everyone is ready to go out and buy a new 3D TV this year. But the fact is that those who decide to wait are actually MORE likey to buy a 3D TV (eventually), since it is likely that in 2-3 years time virtually all TVs sold will be 3D ready. Just like today virtually all TVs are HDTVs vs. standard definition.
Watching 3D Gives Me A Headache
This argument is the most sound. Statistically, 10-15% of the population has some sort of problem watching 3D images comfortably. Of course these 10-15% also tend to be the most vocal about their hatred of all things 3D. Nobody said that 100% of the population needs to want 3D in their homes. And just because someone does not enjoy 3D themselves does not mean that their husband, wife, or children do not enjoy it. How many parents have no interest in video games, yet shell out thousands a year on gaming systems and video games for their kids?
I Will Look Silly Wearing 3D Glasses In My Home
This one I actually don't understand at all. I mean really? Most of the population is butt ugly to begin with, and just as many have zero fashion sense. But their main concern about 3D is "looking silly" in their own homes? I understand that 3D glasses are uncomfortable for some people, but we are already starting to see 3d party companies coming out with lighter and more stylish glasses, so I don't really see this as an issue in the long run.
Why Would I Want To Watch The News In 3D?
Those who make this argument are completely missing the point. Even once the majority of TVs sold are 3D capable, most time will still be spent watching 2D. 3D will generally only be used to watch certain movies, sporting events and video games (and possibly porn).
So Does 3D TV Have A Future?
Why is it that 3D TV sales have generally disappointed to date? It all comes down to content. Quite frankly there just hasn't been enough 3D content available to make purchasing a 3D TV a rationale choice for many. I believe that is about to change in 2011. For one, there is going to be many more 3D movies released on Blu-Ray this year. Second, more and more broadcasters are beginning to experiment with 3D channels and 3D video on demand. Thirdly, 3D video games are just beginning to hit the market.
In fact, it's my belief that 3D video gaming will drive 3D TV sales as much if not more than movies and sports in 2011. Most of the early 3D video games had the 3D added to them at the end of the process. While the next batch of blockbuster video games due to be released have been designed with 3D in mind from the very start. The first of these games to be released for the PS3 will be Killzone 3 in late February, and then Crysis 2 in March. Uncharted 3 will be released later in the year. These games all have the potential to be game changers when it comes to 3D video gaming.
Another thing to keep in mind is that the adoption rate of 3D TVs so far has actually been faster than it was for HDTV at this point in its cycle. People tend to forget how long it took for people to buy into HDTV when it first came out. The early adopters loved it, but many couldn't justify the higher cost, and HDTV had the same issue with limited content at first. Fast forward 5 years and almost everyone has at least one HDTV in their home.
Investment Opportunities in 3D TV
If you believe as I do that the potential for 3D TV sales is underestimated by the market, how can you position your trading portfolio to capitalize?
One strategy would be to buy the names of TV manufacturers and TV component manufacturers on the assumption that 3D TVs will drive TV sales in general. Some of my favorites in this category are Sony (SNE), Panasonic (PC) and Corning (GLW).
Of these three, GLW is my favorite as its Gorilla Glass is being incorporated into many of the new lines of TVs, including Sony. GLW's chart is also breaking out. I am long GLW from 19.68. 
Sony is the leader in 3D home entertainment. This will either be a big win or a colossal failure depending on whether people eventually buy into 3D or not. So I look at Sony as a leveraged play on 3D in the home. 
Panasonic is generally considered to make the best 3D TVs available.
The charts for both Sony and Panasonic however are neutral to bearish at the moment, so I would take a wait-and-see approach with these ones, with the intent of buying them once the trend begins to turn higher. 3D TV is a 2011 story, so the current negative sentiment isn't something I expect to change overnight.
Another play I really like is Sensio (SIO.V), a small 3D technology company based in Montreal, Canada, and listed on the TSX Venture Exchange. This company has numerous patents on 3D compression technologies, which allow television broadcasters to send 3D signals across existing 2D channels, among other things. They recently signed a deal with Videotron in Quebec and are expected to sign similar deals with other TV broadcasters. As well, Sensio has patents on various 3D recognition and switching technologies that could be licensed by major 3D TV manufacturers, such as Sony, Panasonic and others. They already have a major contract with Vizio to supply the 3D chips used to decode the 3D signal in all Vizio 3D TVs being produced. Vizio recently announced a polarized 3D TV that does away with the need for shutter glasses, which allows viewers to watch 3D on their TVs with the same inexpensive glasses that most movie theatres use.
Sensio's stock price has been drifting lower in recent weeks and has fallen back to the bottom of its recent range to around 1.10 as of today's close. As with Sony and Panasonic, this one may not turn around overnight, but there is the chance of a substantial gap higher if they sign a deal with another TV manufacturer over the upcoming weeks (which is a definite possibility given comments by Sensio at the CES in Las Vegas in January). I have therefore been buying shares in SIO.V between 1.13-1.25 in some of my longer-term accounts and am willing to wait out the turnaround. For what its worth, I am aware of two analysts that follow Sensio and each of them have a $4+ price target on it.
Longer-term Sensio is also a potential takeover target, especially at current price levels.

1 comment:

  1. I think 3D gaming has a great future. I can't wait for Killzone3 to be released this month!!