News Article

QDVision Adds Color To Sony's Latest Profit Report
Date: Aug 05, 2013
Author: Peter Cohan
Source: Forbes ( click here to go to the source)

Featured firm in this article: QD Vision Inc of Lexington, MA

Sony reported a $35 million profit on August 1 — putting a smile on the face of hedge fund Third Point founder, Daniel Loeb. In May, Loeb announced that he had accumulated $1.1 billion worth of Sony stock and derivatives and called for the spin-off of its entertainment division, according to DealBook. Since then the stock has risen about 25%.

Behind Sony's sunny profit report was a pair of MIT researchers whose company, QDVision, has restored vibrant red and blue to Sony's high-end TV sets. And that color advantage yielded a burst of demand for Sony TVs — making that division profitable for the first time since 2004. According to AP, Sony's April-June quarterly profit "came on the back of its [$5,000 per unit] 4K TVs, an extremely high-end product."

For insight into why Sony's 4K TVs are flying off the shelves, I interviewed Jamie Goldstein, General Partner, North Bridge Venture Partners, on August 2. "One of the major contributors to Sony's return to profitability has been the Color IQ technology that a local company, QD Vision [North Bridge invested in the company in December 2009 and April 2013], is providing them — and giving their TVs the best color in the market. [The $2,000 Sony BRAVIA Liquid Crystal Display (LCD) TVs that use Color IQ technology] are sold out from all the local Best Buy retailers," explained Goldstein.

The $100 billion a year TV market would seem to be the ultimate commodity in which differentiation is not possible. But along with the proliferation of flat screen TVs has come a lowering in the quality of their colors.

According to Goldstein, "The top-of-the-line LCD TV at Best Buy today has about 60% of the green and 30% of the red that was in the standard color TV back in 1953. Sixty years later, Color IQ technology has enhanced TV color quality so much that TV that use the QDVision product have better color quality than every other TV on the market now — and better than they did in 1953."

To understand Color IQ's technology it helps to know how LCD TVs work. "The LCD TV consists of pixels that are like doors that open when they get an electric charge — and otherwise remain closed. When white backing light is focused on the open pixels — sub-pixels act as prisms to split the white light into either its red, green, or blue component," said Goldstein.

But the problem with most LCD TVs is that the white backing light is not really white — it lacks sufficient green and blue — a problem that Color IQ solves. Goldstein noted, "QDVision produces a long glass tube in the shape of a strand of linguini containing quantum dots -- tiny molecular particles that emit specific wavelengths of light. Blue light emitting diodes in the TV energize the quantum dots which then add the missing red and green to the backing light. The result is much richer color."

The 140-person, Lexington, Mass.-based QDVision was founded in 2006 and has only recently begun shipping its product. As Goldstein explained, "Beginning with the work of two MIT researchers — Vladimir Bulovic, Professor of Engineering and MacVicar Fellow in MIT's Department of Electrical Engineering and Computer Science and MIT Professor of Chemistry, Moungi Bawndei — QDVision has been designing and manufacturing a way to boost color quality while withstanding the harsh conditions in an LCD TV."

What's so harsh? "The average viewer keeps the TV on for eight hours a day, the temperature inside is high, and they have to last 10 years," explained Goldstein, "It took six years for QDVision to figure out how to do that — it makes the quantum dots in the U.S. and assembles the 'linguini' in Asia — and the technology would be hard for competitors to copy."

Thanks to its technical achievements, QDVision faces a vexing business problem. The market for QD Optics is $5 billion — mostly in TVs with some in tablets, monitors and smart phones.

QDVision's revenues will be the highest if all TV, tablet, monitor and smart phone makers use Color IQ. But if they all use QDVision's product, the high color quality will no longer be a point of competitive differentiation for its customers. And that could lead to a drop in prices and compress QDVision's margins.

But if QDVision seeks to go public, it would be better to trade off profit for fast revenue growth. If it can reach $100 million in revenue while growing faster than 30% a year, it will be in a strong financial position for an IPO.

But it should be laying the groundwork to apply its technology to a new market opportunity so it will be able to keep growing profitably after its Color IQ for TVs becomes a commodity.

For Loeb, better quality TVs are a minor sideshow to his hoped-for spinoff of Sony's entertainment business. But for those who remember its glory days of device innovation -- Sony's world-beating TVs are a journey back to the future.