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At its Apex

California firm rallies to become home electronics stalwart

By Greg Botelho
CNN New York Bureau

apex dvd
Apex Digital sold more DVD players in North America in 2002 than any other company, according to the California-based enterprise.

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NEW YORK (CNN) -- A few years ago, DVDs were a high-priced, far-fetched fantasy to most people. Nowadays, they are everywhere -- and so is Apex Digital.

The marriage and emergence of the two is no coincidence: Apex sold more DVD players in North America this year than anyone else, including venerable home electronics giants like Sony and Panasonic, according to the California-based company.

With products available at more than 15,000 retail outlets, Apex expects to top $1 billion in revenues for 2002, more than double what it made the previous year. Not bad for a company that did not make its first noteworthy sale until 2000.

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Even though it spends no money on advertising, Apex created a buzz from the outset. Its first DVD model, the AP-600, was the first to incorporate MP3 technology -- in the middle of the online music craze and controversy fueled by Napster.

Many stories, and many more rumors, circulated about a secret flaw that allowed people to copy DVDs from Apex players onto VHS tapes. (The glitch was quickly corrected.)

Then, as now, Apex really set itself apart on the bottom line. When it first came out, the AP-600 cost $179 at Circuit City, hundreds of dollars less than most other players.

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Today's Apex players, with models priced under $60 at Circuit City and Wal-Mart, still routinely go for $40 less than comparable players.

"That's why Apex is doing so well," says David Katzmaier, an associate editor at CNET, the tech news Web site. "They consistently beat everybody's price, and their players work just as well."

Good management and good luck

Apex Digital and its growing line of products were born, in a sense, from a scrap heap.

Ji Hsu
Ancle Hsu, left, and David Ji co-founded Apex Digital in 1999.

David Ji and Ancle Hsu, immigrants from China and Taiwan respectively, founded United Delta Inc. in southern California, initially selling scrap metal and other recycled materials to China.

By the late 1990s, they turned to home electronics, relying on a new product -- the DVD -- in which movies and other programming could be recorded and viewed digitally.

Ji and Hsu formed a UDI offshoot company called Apex Digital, devising a business model in which microchips -- a DVD player's "brain" -- were made in California and shipped to China where the player itself was manufactured.

Apex also forged ties with major retailers such as Circuit City and Wal-Mart that would handle marketing, advertising and sales.

Then there were intangible factors. Around 2000, the rise of Napster and other online music-swapping services made MP3s headline news -- even if relatively few people actually burned custom-made CDs on a regular basis.

Even with prices averaging $400, sales of DVD players were soaring, on the way to becoming the "fastest selling electronics product of all time," according to the Consumer Electronics Association.

Twenty percent of U.S. households had DVD players within four years of its mass introduction to consumers in 1997; it took VCRs 10 years to reach that level.

"It was pretty much a hit right out of the box," said Sean Wargo, a senior industry analyst for CEA. "The price fell rapidly, and it was a product that was compellingly different from VHS. The sound quality was better and the picture quality was better."

Circuit City went all out to promote Apex's first 5,000-unit shipment of MP3-enabled AP-600 models in February 2000, and the players flew off the shelves. New models, and just as impressive sales, came quickly and steadily in the subsequent months.

"The timing was exquisite," says Steve Brothers, Apex's senior vice president of sales and marketing. "It was the right product, at the right time, at the right price."

Room to grow

"[Apex] came in early enough that they were still able to introduce new technology, but also late enough that the price was to a level that people were looking around and saying, 'Wow, I can get a great deal,'" said Katzmaier.

TVs
Apex this summer introduced a line of televisions, from standard sets to HDTVs.

As DVD player prices fell across the board, Apex stuck to its philosophy of "bringing the latest technology to the most number of consumers," said Brothers.

With wealthy consumers favoring high-end brands like Sony, says Brothers, Apex geared its product and approach to the "other 70 percent" of customers.

While not able to match the experience, customer loyalty and finely tuned interfaces of some veteran companies, Apex built a customer base with cut-rate prices and positive feedback.

"Brand loyalty is much less of a consideration when people look at something digital," said Katzmaier. "[Apex] got a little bit of inertia and not too many people complained about them, so they gained respect in stores."

While both Apex officials and industry experts said the prices of DVD players have bottomed out, there is still plenty of room to grow.

More than 65 percent of U.S. households still do not have DVD players, Wargo said, and Apex public relations director Colton Manley said many of its customers have more than one player.

"The price points are reasonable, so they don't mind buying one for upstairs as well as downstairs," Manley said. "When they buy them, the customer is often pleasantly surprised."

Flush from its success with DVD players, Apex this summer introduced a line of 23 TVs, from standard sets to HDTVs, and the company plans to sell digital cameras and air conditioners in the future.

Chang Hong, China's biggest television manufacturer, will build the TV sets with input from Apex.

"Getting a foothold on the DVD market really gives you leverage in the TV market," Wargo said.

"If they get a DVD player and like it, they'll say, 'Why don't I look at the TV as well?' And when little else is different, they'll go for price. The risk is justified in the savings."



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