No End In Sight To The Honeymoon With Digital

Demand is still climbing for everything from cameras to PDAs to music players

Forget toys for tots. Tech toys for the older set are so hot that even Web portal Yahoo! Inc. (YHOO ) is getting in on the act. In December, it unveiled a line of DVD players and home-theater systems bearing its name. The field is becoming crowded with consumer-electronics companies, PC companies, and even retailers like Wal-Mart Stores Inc. (WMT ) and Best Buy Co. (BBY ) selling branded wares as they take advantage of standardized digital components and cheap contract manufacturing from Asia. It's no wonder 2004 U.S. consumer-electronics sales zoomed past expectations of a 4.2% gain to finish the year up 8%, at a record $108 billion. "There's a love affair that Americans have with our products," says Gary Shapiro, president of the Consumer Electronics Assn.

That love is still in the honeymoon phase. Thanks largely to soaring sales of digital music players and big-screen digital TVs, industry revenues are expected to jump an additional 7% in 2005, to $116.5 billion, according to CEA projections.

Much of the action is in the family room. U.S. sales of big-ticket flat-panel TVs are poised for a banner year. Unit sales of both plasma and liquid-crystal display sets are expected to nearly double, to 5.4 million, as the likes of Samsung, Sony (SNE ), and Sharp (SHCAY ) boost manufacturing capacity. The competition will cause prices of some models to slip below $2,000 by yearend, industry watchers say.

For portable electronics, there's plenty of room to grow and some very hot categories. Digital camera sales have surpassed traditional film cameras in popularity, with 53 million units sold in 2004, according to researcher InfoTrends/CAP Ventures. That number is projected to continue to rise, to 82 million units in 2008, as first-timers go digital and current users trade up to higher-megapixel versions.

Thanks to the success of Apple Computer Inc.'s (AAPL ) iPod digital-music player line, which has increased awareness of the category, portable audio player sales will top $1 billion for the first time, the CEA estimates. And notebook PCs increasingly are adding entertainment components such as wide screens and the ability to record TV shows.

One of the biggest consumer electronics battlegrounds will be games. On the handheld side, Nintendo beat rival Sony to market in the U.S. with its Nintendo DS (dual-screen) console. It was expected to sell 1.4 million units in 2004. Sony's PlayStation Portable handheld is scheduled for release in the U.S. and Europe by this March, and researcher In-Stat/MDR predicts consumers will snap up 7 million units by the end of this year.

In consoles, Microsoft Corp. (MSFT ) plans to release its next-generation Xbox in the fall of 2005, as much as a year ahead of Sony's new PlayStation 3 and a Nintendo GameCube successor. Sony is betting it can get more mileage out of PlayStation 2. It has shipped about 80 million units of that platform and aims to extend the unit's life by cutting prices and slashing its size in a major redesign.

As the gizmos multiply, prices fall, and the market grows ever more competitive, consumers are the sure winners.

By Cliff Edwards in San Mateo, Calif.

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