Electronics sector braces for sales decline

With high-tech industry relying more on business of consumers, it's just a matter of time before economic woes affect it

October 21, 2008|By Michelle Quinn and Alex Pham | Michelle Quinn and Alex Pham,Los Angeles Times

The high-tech industry's near-term health depends on how badly you need that iPod or flat-panel television.

After catering to corporations in its early days, the industry has grown increasingly reliant on consumers. Even during economic slowdowns when businesses tightened their belts, Americans kept buying bigger TVs, sleeker cell phones and faster computers.

But analysts say that with people losing their jobs, home prices plummeting and retirement savings deflating, consumers won't continue to blithely spend on high-tech gear. For those who do, bargains will be more important than ever.

"Consumers are definitely scared and are going to tighten up," said Michael Spence, former dean of Stanford University's graduate business school and a 2001 Nobel laureate in economics. "If it goes on for much longer, the tech sector will suffer."

The computer industry rose to prominence selling mainframes, databases and other wares to government agencies and major corporations. Although enterprise computing remains a huge business, many companies shifted their attention to consumers as electronics became a key part of our daily lives - seen as more of a necessity than a luxury.

In the past two years, Brad and Jennifer Schafer of Newport Beach, Calif., have purchased three flat-panel TVs, a digital camera, two game consoles, three TiVos, a GPS device, a cell phone and a computer.

"If we want it, we usually buy it," said Jennifer Schafer, a stay-at-home mother of two, as she and her husband, an accountant, shopped recently at a Best Buy in Tustin, Calif.

Sales of home entertainment electronics, such as game consoles, are expected to remain relatively strong. Analysts expect some consumers to justify these purchases as a way to stay busy at home while they cut back on vacations and dining out. In the 10 weeks that ended Sept. 26, flat-panel TV sales were up 43 percent compared with the year-earlier period, according to the Consumer Electronics Association. But TV sales are unlikely to continue at the same pace, which was spurred in part by tax-rebate checks. People will still buy, but mostly cheaper models, analysts said.

Technology companies can slash prices to attract customers. But price cuts can backfire, damaging a high-end company's brand or signaling to consumers that even bigger discounts might be coming.

"If there are more sales, we may buy more," Jennifer Schafer said. "It's something we do real well - boosting the economy."

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