Analyst claims MP3 sales may be recession proof
Technology: What's hot, what's not in consumer electronics
By STEVE ALEXANDER , Minneapolis-St. Paul Star Tribune
(July 9, 2001 1:15 p.m. EDT) - These are nervous times in consumer electronics. In fact, even the Palms are sweating.
Sales of the venerable desktop computer are in deep trouble because of market saturation and the economic downturn. Personal digital assistants (PDAs) such as the Palm and Handspring, all the rage a year ago, could be on the verge of sales declines.
An oversupply of wireless phones suggests that their sales could be flat this year, after several years of solid growth.
Despite the sour economy, the news isn't all bad for consumer electronics peddlers. Industry watchers say they expect gadgets that are sufficiently new, novel or relatively inexpensive to continue selling well this year.
Those include digital still cameras, MP3 players, CD burners and video games - products that either work with existing computers or have relatively low pricetags. But, analysts say, even some hot products might cool off quickly if the economy doesn't recover by early next year.
And then there are the gadgets that are neither hot nor cold. They include DVD players (unit sales are up while per-unit prices are down) and camcorders (sales have been flat recently).
It all adds up to a digital divide of another sort.
By a wide margin, personal computers and laptops have been received the chilliest by consumers. A first-ever decline in the U.S. PC market has brought sharp sales declines and lower prices. Retail unit sales of desktop PCs dropped 33 percent in April from a year earlier, and the price per PC dropped 8 percent, according to NPD Intellect Market Tracking in Port Washington, N.Y. Unit sales of notebook computers dropped 25 percent in the same period, and the price dropped 15 percent, NPD reported.
The result, predicts industry consultant International Data Corp. (IDC), will be a 6.3 percent drop in total PC unit shipments in the United States this year - that's business and consumer - and a 17.3 percent decline in the consumer PC market.
Cold PC sales have led to a hot price war. That benefits shoppers who do their homework. There are predictions, though hesitant ones, that PC sales may pick up in the fall with Microsoft's introduction of its latest Windows operating system Windows XP.
Digital still cameras, however, are hot now because declining prices and improved picture quality have stimulated consumer demand, said George Meier, NPD Intelect director of marketing. Digital-camera picture quality is measured by the millions of individual dots, or pixels, that make up one photo. These days, a camera that takes 1.3 million pixel photos now sells for about $200, while one that takes 3.3 million pixel shots costs about $600, A year ago prices for such cameras were about $500 and $900, respectively.
"It's a new niche product and there's low market penetration, so sales are not sensitive to the economy," Meier said.
InfoTrends Research Group in Boston predicts that unit sales of digital still cameras will rise 55 percent to 9.4 million this year, and that nearly 20 percent of U.S. households will have a digital camera by year's end, up from 12 percent last November.
And sales of MP3 portable-music players have benefited from the publicity surrounding Napster.com, the free music-sharing Web site. MP3 players can download music from a PC that gets music from a purchased CD or downloads it from a music Web site. While use of Napster dropped after adverse court rulings, that hasn't really hurt sales of MP3 players, said Mike Paxton, an analyst at Cahners In-Stat Group.
"The MP3 player is new, small and cool. I think there could be a full-blown recession in the second half of the year and it would not affect sales of small price-point devices like MP3 players," Paxton said.
By the end of 2000, 2.45 million MP3 players had been sold worldwide, triple the amount in 1999, Paxton said. He predicts another tripling this year.
CD burners, also known as CD-RW drives for PCs, became popular largely for the same reason MP3 players did: Napster. Consumers could download free music from the Internet, then record it on disks that would play in any standard CD player.
"Napster was a great thing for the CD-burning market. People got used to burning CDs and became comfortable with the technology," said Peter Brown, an analyst at IDC in Framingham, Mass. "Now the burners are being used for new things, such as recording digital photography."
In the first quarter of 2001, CD burner sales rose 136 percent from a year earlier, NPD said. CD burner prices now range from about $130 to $480, but the low end is well below last year's price, which was in the $200 range.
Video games, which are played on dedicated game machines such as Nintendo 64, continue to sell, fueled partly by publicity surrounding the introduction of Sony's PlayStation 2 last fall. Industry watchers expect video game sales to increase in November when two new game machines hit the market. Nintendo will debut its GameCube and Microsoft will introduce its Xbox.
Handspring and Palm have warned that the economy will hurt future sales of their PDAs. NPD Intelect said PDA unit sales rose 23 percent in April, but dollar sales went up only 7 percent, and the average PDA price fell 13 percent.
"Both companies have seen their stock prices drop, leading them to cut retail prices to try to get market share," said Brian O'Rourke, a senior analyst at Cahners In-Stat Group in Scottsdale, Ariz. "Probably the majority of people who want PDAs already have one."
Wireless phone sales could be in trouble this year. While the economy might be partly to blame for a slowdown in wireless phone sales, consumers also have been less interested than expected in wireless Web access, whose use well below expectations.
AI
