CES: No Stopping Innovation

A recession is no time to promote big TVs—or is it? As the annual Consumer Electronics Show got under way in Las Vegas on Jan. 8, reminders of the industry's hard times abounded. A day earlier, Intel (INTC), the world's largest computer-chip maker, said fourth-quarter sales would miss an already reduced forecast amid dismal PC demand. Logitech (LOGI), maker of mice and other computer equipment, reported plunging sales and said it would trim 15% of its staff.

Even the Consumer Electronics Assn., the industry trade group that puts on the 42-year-old show, recently lowered its forecast for fourth-quarter U.S. electronics sales growth, to 0.1%, from 3.5%. Analysts say the lower expectation is still too high. Only 5% of consumers recently surveyed by Forrester Research (FORR) plan to increase spending on consumer electronics this year. Most plan to cut back, the survey found.

Despite the doom, Big Tech is still using the show to highlight expensive, high-end TVs, Blu-ray players, and other gadgets—everything from Sharp's $20,000 high-definition television to Cisco Systems' (CSCO) $1,000 digital music system.

New-Product Push Goes On

Why all the glitz amid the gloom? Sure, many pricey products probably won't move off store shelves, leaving manufacturers with growing inventories that may need to be written down.

But one alternative—tapping the breaks on developing groundbreaking new products—could prove even more costly, manufacturers say. "You can't just stop innovating," says Stan Glasgow, president of Sony Electronics' (SNE) U.S. division. At this year's show, Sony introduced an $800 pocketable PC and a line of what it said are environmentally friendly high-definition TVs.

To eke out better profits in the cutthroat $175 billion industry, Samsung, Sharp, Panasonic (PC), and other major players have invested tens of billions of dollars in expensive factories that make everything from the glass panels used in TVs to memory used in PCs and digital music players. They must sell millions of TVs to get a good return on those investments.

Too Late to Switch Gears

Another reason to push ahead with the fanciest wares is that the biggest decline in consumer spending, much of it in the fourth quarter, came too recently—and suddenly—for many manufacturers to switch gears. By then, many manufacturers were already putting the final touches on the devices slated for January release.

Most had little choice but to press on and hope their designs would rise to the top. Their hope is to demonstrate technological prowess, build brand image, and persuade retailers to choose their models over those pushed by rivals.

To be sure, some companies are nevertheless making subtle changes to marketing messages. Previous years saw a slew of "world's first" and "world's biggest" unveiled at CES. There's still some of that, but most companies are playing up perceived bargains, good customer service, and the environmentally friendly aspects of their devices. Sharp, for instance, introduced the world's first high-definition TV with a built-in Blu-ray movie player. "More than ever, consumers are looking for value from the brands they trust," says Bob Scaglione, Sharp's senior vice-president for marketing.

Lower Prices to Lure Shoppers

And some of the biggest names did opt to hold back. Sony executives decided not to introduce a line of HDTVs, which made their debut in Europe in September, that look like giant digital picture frames, with thin interchangeable bezels. Instead, the company made a bet consumers would be more attracted to the environmental message of the less eye-catching lineup it unveiled at CES. Sharp, Panasonic, and others also said they would introduce cheaper HDTVs in smaller screen sizes to lure shoppers who may be getting rid of cathode-ray tube TVs after the digital TV transition scheduled for mid-February.

Whatever the long-range advantage to introducing high-end gear at CES and other trade shows, in the near term the industry will need to brace for a tough start to 2009.

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