Consumer Electronics: A Brighter Picture

-- Heated competition will drive down prices on alluring flat-screen TVs and DVD recorders

-- Global sales of video-game hardware and software are expected to surge

Washout. That was the expectation of many Japanese execs heading into 2002, including Matsushita Electric Industrial Co. (MC ) Managing Director Yukio Shohtoku. Consumers in economically depressed Japan, the No.2 market for electronics, seemed in no mood to shop--and things weren't much better in the No.1 market, the U.S. Shohtoku's nightmare: warehouses of unsold DVD players and camcorders.

Last year surprised everyone, however. Global sales of digital cameras rose 25% on a unit basis, and shipments of DVD machines jumped 33.5%. Sales of consumer-electronics gear from factories around the world to U.S. retailers rose 3%, to $96 billion, according to the Consumer Electronics Assn. Post-September 11, Americans showed a strong tendency to cocoon, says Sean Wargo, the CEA's chief analyst: "Nothing is doing as well as home-related technology."

That trend is bound to continue this year, says Shohtoku. Although the output of U.S.-based manufacturers is small, the CEA forecasts that total U.S. consumer-electronics sales will hit $100 billion, up 4%. Hitoshi Kuriyama, industry analyst for Merrill Lynch Japan Securities Co., predicts double-digit growth globally for digital cameras, game systems, car navigation units, and digital TVs.

DVD recorders, which store videos on disks, may be among the winners. Consumers snapped up a million recordable DVD machines in 2002, and sales this year should more than double, thanks in part to prices that could fall below $300 by yearend, predicts researcher In-Stat/MDR.

Ever-improving liquid-crystal displays are becoming de rigueur for desktop PCs, and are popping up as TVs, too. Samsung, LG Electronics, and Philips Electronics (PHG ) dominate the world market in the laptop space and are gearing up to challenge Japan's Sharp Corp. (SHCAY ), the leader in large LCD TVs. Screens will find some new uses, too. Microsoft Corp. (MSFT ), in manufacturing partnerships with ViewSonic Corp., Philips, and others, will be flogging its $800 tablet-size Smart Displays, which connect wirelessly to home PCs and let consumers roam around the house or surf the Net outdoors.

Much of the action will be in digital TV, whether it's huge projection sets or wall-hanging flat panels. The CEA estimates that 3.8 million digital TV sets will be sold in the U.S. in 2003, up about 30%. Also, global sales of digital still cameras are expected to shoot up 25% this year, to 28 million units, according to Japanese industry statistics.

Consumers will have a variety of choices for tying together their home-electronics gizmos. Sony (SNE ), Philips, Microsoft, and others are throwing their weight behind wireless home networks, including Wi-Fi setups. At the same time, more than 50 million devices--from wireless phones to camcorders--rigged for short-range Bluetooth wireless links are expected to ship in 2003. And by the end of the year, manufacturers will introduce a zippy wireless video scheme called WiMedia.

A drawn-out economic slump would probably sap consumer interest in some of these gizmos. But even in a recession, people continue to play video games. U.S. retail sales of game hardware and software in the first 10 months of 2002 jumped 25%, to $6 billion, according to industry researcher NPD Funworld. Rain or shine, these games have a way of keeping the electronics industry humming.

By Irene M. Kunii in Tokyo, with Andy Reinhardt in Paris and Adam Aston in New York

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