Economic worries mar show

By Reuters
San Francisco/Las Vegas, 08 Jan 2008

The world's major technology companies are trying to convince consumers they need an expensive, digitally connected home with the latest hi-tech gadgets.

But there's a problem: an increasing number of consumers are having trouble just paying for the roof over their heads, much less a 150-inch television.

Few company executives at the annual Consumer Electronics Show in Las Vegas this week can avoid questions about the state of the economy, and the combination of a surge in the US jobless rate, oil around $100; and a worsening credit and housing crisis has many on edge.

"The fourth quarter is full of strange, unanswerable situations related to unemployment, related to GDP, related to everything else," Sony chief executive Howard Stringer said on Monday after a briefing at the show. "So it's too soon for us to be pessimistic, but I read the papers."

Electronics retailer Circuit City Stores on Monday became the latest company to undermine the view of some analysts going into the holiday season that US consumers would keep spending on computers, TVs, digital cameras and music players even as the value of their homes declined and foreclosures mounted.

Circuit City, hurt by a costly restructuring, said December sales at stores open at least a year fell more than 11%, and it expects to post a fourth-quarter loss.

More critical may be the report of December sales coming from Best Buy, the leading US electronics retailer. It is expected to have done significantly better than its rival.

Executives at the show and analysts watching the industry's largest US gathering said they feel confident about the current state of the industry. But they're uncertain about the rest of the year, when some economists expect the United States to slip into recession as the housing crisis worsens.

"We watch very carefully these kinds of general economy issues, and we do feel more and more concerned about the subprime issue and the impact on consumer spending and corporate spending," Jonney Shih, chief executive of Taiwan's Asustek Computer, the largest maker of personal computer motherboards, said in an interview.

"Consumers are under intense pressure," added David Daoud, a personal computer analyst at market researcher IDC.

"With the price of energy continuing to increase and a lot of people seeing the value of their houses dwindle, it will certainly lead to an amount of tension among consumers," he said. "The question now is... are manufacturers responding to that?"

Slowing sales

An estimated 140 000 people are expected to descend on Las Vegas this week to check out the latest in consumer electronics. These include wireless Internet devices, a 150-inch plasma TV said to be the world's largest, leather-bound laptop computers and even a robot that cleans gutters.

Before the holidays, technology had been viewed as a safe haven for investors fleeing housing, banking and consumer-discretionary stocks. The Standard & Poor's information technology index has added 5.6% in the past 12 months, beating the S&P 500's 0.5% decline and the Dow Jones Industrial's 2.6% gain.

But investor sentiment has changed in the past week, after British retailer DSG International sent European retail stocks diving when it warned that full-year pretax profit would miss analysts' estimates because of falling desktop computer sales and weaker-than-expected laptop PC demand.

"The market dynamics will definitely change," Oh Dong-jin, president of South Korea's Samsung Electronics, told Reuters in an interview on Monday.

A series of recent analyst downgrades of technology stocks, including number one semiconductor maker Intel, contributed to declining confidence in the sector.

The S&P technology index is down 7.7% in the past five trading days, making it the S&P's worst performing sector.

While many products at the Las Vegas show may never reach store shelves, collectively they serve to generate consumer enthusiasm for an industry that the show's organiser, the Consumer Electronics Association, expects will generate $171 billion in sales this year.

The amount is a 6.1% increase from 2007's total but less than last year's 8.2% surge, the group said on Monday.

Besides the technology, "the other overriding issue of focus is the state of the global economy, as CES serves as a crossroads for large companies from multiple geographies," Bear Stearns analyst Andrew Neff wrote in a note to investors. "Visibility remains limited."

Fears of a deteriorating US economy and falling DVD sales helped drive Warner Bros' decision on Friday to exclusively back Sony, Blu-ray next-generation DVD format, in a blow to Toshiba rival HD DVD format, a top studio executive told Reuters on Monday.

"We've typically been recession-proof," Warner Bros Entertainment Group president Kevin Tsujihara said at the Las Vegas show. "But the thing we saw in the fourth quarter... was gas prices beginning to affect sales. And since we're considered an impulse purchase, it's beginning to impact us."