Consumer devices selling briskly as prices plunge
By Jennifer Baljko
EBN
March 6, 2003 (12:05 p.m. EST)
SAN MATEO, Calif. — Suppliers of hardware to the consumer electronics market are enjoying growing demand for their products, but also are under intense competition that is squeezing profit margins, according to analysts at iSuppli Corp.
As with other segments in the high-tech sector, consumer electronics manufacturers continue to deal with a weak economy, low consumer confidence and the threat of war with Iraq. Four key areas — DVD players and recorders, digital cameras, set-top boxes and video game consoles — are experiencing good unit growth but are struggling to preserve profits, said analyst Jay Srivatsa.
With Japanese OEMs losing market share, Taiwanese and Chinese ODMs, as well as traditional PC makers such as Gateway and Dell, are expected to more aggressively play in the market, he said. That will bring with it some changes among supplier and semiconductor relationships.
"The domination of the Japanese OEM is starting to wane. We expect to see Chinese and Taiwanese ODMs play a stronger part in this market," Srivatsa said. "In the past, many semiconductor companies had to work with the Japanese OEMs. With the advent of the Chinese and Taiwanese companies, semiconductor companies can participate directly with those companies and bypass the Japanese OEMs."
In the DVD area, even though consumer demand remains robust, profits margins continue to come under pressure, said Srivatsa. In many stores, DVDs are selling below $90. "I saw a DVD player over Christmas that was selling for $38. At that price no one is making money," he said.
However, the low selling price will continue to attract consumers for the time being; iSuppli forecasts that 55 million units will be sold this year.
By 2004 or 2005, though, DVD recorders, which are selling for $700 to $800, will drop in price and eventually replace DVD players, Srivatsa said.
"There is real opportunity for digital cameras to replace traditional film camera over next few years," he said. Srivatsa is forecasting that digital camera unit sales will rise from 30 million this year to 55 million by 2007.
Digital set-top boxes will also come under pressure as hardware brand awareness fades and services around digital cable, direct TV and other multi-media devices gain importance.
"When people say they have DirectTV, they don't often say they have a Philips box," he said. "It's becoming more of a software business and the value of the hardware brand is going away."
In the video game console segment, Srivatsa expects to see more outsourcing of manufacturing, driven by the need to deliver lower-cost devices to the broader consumer market.
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