INFOCUS READIES FLAT-PANEL PRODUCT IN DIVERSIFICATION BID

Displays will be in line of products designed to complement InFocus’s front projectors. Company plans to have flat-panels containing internally developed technology -- speculation is wireless features -- by mid-2004. “We think it’s time to get into that market starting with the 30-inch and up range,” CEO John Harker told analysts in earnings conference call Wed.

While InFocus didn’t disclose source of flat-panel displays, Funai, which is supplier of InFocus’ X1 front-projector, is said to be readying 42W plasma TV monitor for introduction in early 2004. Funai has shown 42W, which has 852x480 resolution, to national retailers in recent weeks and expects to price it around $3,000, sources said. Funai is sourcing panels, but will complete monitor assembly as its own factories. InFocus has dabbled in plasma in past, having shown 42W model at Infocomm trade show 2 years ago and sampled panels from Pioneer and Fujitsu.

InFocus also is said to be in discussions with Chinese manufacturer Aspire Digital on speakers that would be packaged with front projector and sold as home theater system. Among speaker packages said to be under consideration is Aspire’s AD- 375TR, which consists of floorstanding front and rear speakers and center channel with peak total output of 375 w. Speakers have 2.75” drivers, 87 dB sensitivity and 250 Hz-20 kHz frequency response range. Aspire also markets AD-1100 home theater system that consists of 5 speakers, subwoofer and DVD player with karaoke feature. InFocus executives declined comment, but sources close to Aspire confirmed companies had had discussions.

Harker revealed InFocus’s new product plans as company swung to $40.2 million 2nd-quarter loss from $1.1 million profit year ago as revenue slipped to $134.2 million from $165 million. It took $3.7 million charge in quarter to cover severance in round of layoffs announced in late April. InFocus earlier put charge at $4.5-$5.5 million. In June, InFocus lowered its 2nd-quarter earnings estimate to $123.3-$130.6 million. In addition to severance charge, InFocus had $7.5 million write-down on inventory of spare parts for its front projectors.

Average selling price (ASP) of projectors fell 12% in quarter and company was hampered by continuing probe by Chinese authorities into its Shanghai operations. ASPs are expected to drop another 6-12% in 3rd quarter as emergence of $999 front projectors continues to take hold. Sub-$1,000 pricing so far has been limited to front projectors with 800x600 resolution, but Harker said it was likely to spread to those with 1,024x768 resolution as well. Projectors with 1,024x768 resolution accounted for 53% of InFocus’ revenue in quarter, while 800x600 rose to represent 47%, up 6% from first quarter. “The business model has change and no one is blinking,” Harker said. DLP-based front projectors accounted for 68% of sales in quarter, up from 65% in first quarter, while LCD models were 32%, down from 35%, company said.

Chinese govt. began investigation in May and impounded $12.8 million in assets, including $2 million in bank accounts that were frozen, CFO Michael Yonker said. Funai, which builds X1 projector in China, hasn’t been affected by investigation, Harker said. Investigation has focused on front projectors imported into China. InFocus imports data projectors where they're converted to also handle video. In China, imported data/video projectors carry 26% tariff vs. none for data-only models. InFocus is seeking to resolve investigation in “timely and positive way,” while at same time “exploring alternatives” for selling product to customers in China, Harker said.

In its DLP light engine business, InFocus has shipped product to Shanghai Video in China, and Thomson. Latter is installing InFocus’s light engines in DLP-based 50W and 61W rear- projection TVs that are expected to ship in Sept. DLP light engines aren’t exclusive to Thomson, but InFocus currently isn’t seeking out other TV manufacturers, Harker said.