Published November 06, 2006
| Associated Press
SAN MATEO, Calif. – A fierce battle is brewing for consumer-electronics dollars this holiday season as two new video game consoles join the widening mix of TVs, cameras, portable music players, computers and cell phones.
But some market watchers say the electronics industry could be running up against a season that's more ho-hum than ho-ho.
Analysts predict revenues are slowing for several reasons: prices for a range of products, most notably flat-panel TVs, have dropped significantly; hits of previous years, such as digital cameras, are maturing; supplies of the new game systems are limited; and no other new blockbuster products seem to have emerged.
While mainstays like TVs, Apple Computer Inc.'s (AAPL) iPods, and laptops will still fuel sales, there appears to be little on the horizon to trigger a repeat of the revenue growth of recent years. A sobering forecast looms for 2007 as well.
"I call it the storm before the storm," Chris Crotty, a senior consumer electronics analyst at market researcher iSuppli Corp. said of the holiday quarter. "There is more competition. There are more products out there and it's only going to get worse."
All of that could translate to better bargains for consumers, but less money for gadget makers.
After three consecutive years of rising revenue growth driven by robust sales of digital cameras, the iPod phenomenon, and faster-than-expected adoption of pricey flat-panel TVs, the Consumer Electronics Association is predicting lower growth rates beginning this year.
The industry saw U.S. revenues rise by 7 percent in 2003 and more than 10 percent in both 2004 and 2005, according to the industry trade group. This year, sales are expected to grow 9 percent, to $140 billion, then only 6.7 percent to $149.3 billion in 2007.
Worldwide electronics sales data from iSuppli, which doesn't include computers or cell phones, also suggest growth has peaked for the industry. Revenue climbed 9 percent in 2003 to $234 billion, almost 12 percent to $261 billion in 2004, then up 13 percent to $295 billion in 2005.
For 2006, the research company predicts only a 2.4 percent growth, with sales hitting $302 billion.
The gotta-have-it early adopters of technology helped propel the revenue boom of the past few years. But now, analysts say, electronics companies are facing a second and more challenging wave of consumers who may want the new gizmos but are willing to wait for prices to come down.
Take William Tsui, the 42-year-old UPS Store general manager who lives in Redwood City.
He already owns two digital cameras, two laptops, two desktops, a new cell phone he got last year, and a built-in car navigation system. He would love to have a big, new flat-panel TV to replace his rear-projection model, but the price tag is still too high.
For now, Tsui said, electronics purchases are taking a back seat. The only certain holiday expenditure will be a $200 Christmas decoration of some kind to add to his elaborate annual lawn scene.
"There just isn't a new must-have product like last year," when then-new models of the video-capable iPod and pencil-thin iPod Nano were in demand, Crotty said.
Apple sold 14 million iPods during the 2005 holiday quarter and another 25 million units on top of that through September this year. Apple also trimmed prices for some of the new iPod models it debuted this fall.
The two new kinds of products that could have greatly lifted this year's holiday electronics sales are also limiting their own success, analysts say.
Next-generation DVDs are embroiled in an insiders' war between the Blu-ray and HD DVD formats, likely stalling sales from customers who would rather wait to see one technology emerge as the winner — or for future DVD players that can handle both.
The upcoming PlayStation 3 from Sony Corp. (SNE), priced from $500 to $600, and Nintendo Co.'s $250 Wii — both due to go on sale in the U.S. in mid-November — are in hot demand but will be available only in limited quantities. Widespread shortages are anticipated.
Well-known Wall Street Journal technology columnist Walt Mossberg even advised readers last week to hold off on buying any new Windows-based computer until next year.
To encourage consumers to buy computers ahead of Vista, some PC makers and Microsoft are offering coupons for upgrades.
The NPD Group's annual holiday survey showed more consumers are looking to buy traditional holiday gifts this year, like clothing and toys. Fewer said they were going to buy electronics, said Marshal Cohen, chief industry analyst for the market research firm.
"Last year, electronics was so top of mind, and it became acceptable to give a loved one something with a plug," Cohen said. "This year, there's nothing you have to have, and nothing you have to give. The consumer will be out there spending, but it'll be across a wider number of product categories."
What's more, American households said they intended to spend an average of $200 on electronics gifts this year, according to the Consumer Electronics Association's annual holiday survey.
Buying just one game console will eat up that budget already, "and doesn't leave very much room to spend on other electronics," said Sean Wargo, the association's director of industry analysis.
So the electronics makers' battle lines are being drawn not only against rival products, but also against a smaller share of the consumer wallet; a choosier, price-driven customer; and a backdrop of consumer confidence that wavers on gas prices and job security.
Gadget companies will be fighting to win over people like 33-year-old Andy Ahmed of Foster City, a manager at a clinical research company.
He's already the proud owner of a fresh new MacBook Pro laptop, a year-old iPod, a high-end digital camera, a DVD camcorder and a slick Samsung cell phone.
He's eyeing some kind of Global Positioning System gizmo for his bike rides, a smaller iPod for running, or potentially a home theater system.
But there are other goodies, such as new skiing and bike equipment, on his wish list as well.
"I feel bombarded with all these devices now to choose from," he said. "I haven't said no, but I'm being cautious, too. All things being equal, money is in short supply."
That may not be music to the electronics industry's ears, but it is the season's song.