Hazy Prognosis For CE In '08

By Steve Smith -- TWICE, 7/21/2008

So whatever happened to the "lazy, hazy days of summer?" The "lazy" part of the 1950s standard introduced by Nat King Cole really doesn't apply to today's CE industry, based on all the activity in recent weeks.

But the "hazy" part of the song might apply.

The prognosis for the industry during the balance of the year is hazy at best — or as foggy as it was in Qingdao, China, during my visit to International SinoCES earlier this month — when you take a look at such trends as higher manufacturing costs and attempts to increase CE prices.

During the week of July 7, I covered SinoCES while traveling with the Consumer Electronics Association delegation to the show. (Check our coverage starting on p. 1 and my blog online at www.TWICE.com.)

There were two issues I took back home with me. One is that the CE market in China continues to boom and will continue to do so over the long term. Double-digit sales increases in China have been the norm during the first half. But China is not immune to the worldwide economic slowdown that will slow its growth in CE and probably across the board.

The second is that higher energy and commodity costs, as well as higher state-mandated labor costs are hitting manufacturing plants hard in China. They are passing along those costs to U.S. suppliers, who in turn are attempting to increase prices to retailers. (See story on car stereo on p. 4.)

When I asked my colleagues at TWICE China during SinoCES about the CE manufacturing situation, Vincent Zhou, editor in chief, through an interpreter put it bluntly, "Some will increase prices, others will leave the market."

CEA president/CEO Gary Shapiro is loathe to comment on industry pricing, but in answering a question at the SinoCES press conference, he took the words right out of my mouth. I agree with him that in the 25 years I've been in the business I've never seen a price increase stick, except when new features are added or a new category is introduced.

But astronomical increases in oil and key commodities across the board probably can't be digested by small or mid-sized suppliers and retailers in the U.S. market for long. China is the hub for much of the CE industry's manufacturing capacity, nd these trends are, of course, not unique to that country.

But this may force many familiar brands to look to other Asian countries, or to Mexico and the United States, for more manufacturing and assembly to cut costs in the next year or two. We will find out in the balance of year how much of this plays out.

With all this news, it was surprising that the distributors TWICE contacted for our annual retail holiday sales report (see p. 16) feel the stay-at-home mentality and the digital TV transition will make the season merrier than many might expect.

Flat-panel TV prices will be lower than last year or now, and that should affect other related audio/video categories.

They aren't predicting a booming holiday season, but they think it won't be a bleak one, and based on all the news in recent months, that's a ray of hope to hold on to.