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Are sizzling gadget sales cooling off?

With so many digicam, DVD players and MP3 players in the home today, consumer appetite for new devices could start slacking.

The sizzling market for high-tech gizmos may finally cool down next year, according to a report due out this week.

Despite a forecast for $125.7 billion in device sales this year by the Consumer Electronics Industry Association--that's up 11 percent from 2004-?brisk growth is unlikely to continue over the next 18 months, according to Chris Crotty, an analyst with market research firm iSuppli.

iSuppli plans to report on Wednesday that consumer electronics sales should experience a "slight" but significant dip in growth next year because of a combination of factors, starting with market saturation: Forty-nine percent of U.S. and Canadian households say they have all the gadgets they want. In addition, rising gasoline prices are starting to whittle away at consumers' disposable income, Crotty said.


What's new:
Consumer electronics sales should experience a significant dip in growth next year, according to iSuppli, which cites such factors as market saturation and rising gas prices.

Bottom line:
The consumer electronics market may be cooling after several years of growth, but it's not necessarily headed for trouble. Analysts expect sales to stay healthy as long as consumers covet HDTVs and home networking gear and keep upgrading their older gizmos.

More stories on this topic

Crotty will detail his predictions in an interactive Web seminar titled "Consumer Electronics-Is the Party Nearly Over?" He would not go into specifics until the event, which is open to the public and starts at 8:30 a.m. Pacific on Wednesday.

"I don't think things are going to fall apart, but we are expecting a slowdown in the consumer electronics market next year. The question is: How much of a slowdown?" Crotty said.

While iSuppli makes a case that the consumer electronics market may finally be cooling after several years of surprising growth, Crotty isn't saying it's headed for trouble.

Take digital cameras. Consumer adoption of digicams is expected to pass 60 percent in Japan and about 50 percent in the United States and Europe this year--something the PC industry took about 20 years to accomplish, Crotty said.

Clearly, the U.S. market for digital cameras is starting to saturate. But the sector is hardly in meltdown mode: Unit sales in the first half of 2005 were up 20 percent from last year's first half, according to IDC. Granted, that's well off the 50 percent growth in the first half of 2004, but it's better growth than many other high-tech sectors have seen.

The biggest problem for manufacturers may be pricing pressure from low-cost competitors, the Internet and big-box retailers. Discounters like Wal-Mart are undercutting manufactures and stealing share from pricier retailers like Circuit City and Best Buy, said Ted Schadler, an analyst at Forrester Research.

"Internet retailers are making prices transparent," Schadler said. "The growth in broadband, home networking and laptops makes shopping and price comparisons part of daily life--at the breakfast table, in front of the television and over Thanksgiving Day dessert.

"Put these together and you have a market where consumers win and industry competition gets brutal," Schadler said.

'High growth can't last'
Adds Crotty: "We have already seen signs of a shakeout in the realm of Japanese digital-camera makers who all reported they lost money on cameras back in March when their fiscal year ended. In DVDs, we have seen consolidation of part manufacturers. You may see some shake out in areas like MP3 players, where the large established players have a lot of advantages.

"The prognosis is not horrible, but the high growth can't last unless something else fuels the market," he said.

But sales of high-definition televisions, which have been dropping in price but gaining in popularity, could help.

Current Analysis researcher Sam Bhavnani says plummeting HDTV prices should create enough of a halo effect for other products to maintain consumer electronic sales momentum for at least a few more years.

"It would surprise me that you would find a dip in the market," Bhavnani said, noting the revenue growth from people replacing their televisions with high-definition models. "Many people would certainly consider upgrading their audio system or their digital camera along with their television."

Forester's Schadler said he believes consumer adoption of broadband, home networking, HDTV, camera phones, MP3 players, digital cameras, laptops and digital video recorders over the next five years will stay healthy.

"That doesn't feel like the party's over from a consumers' perspective," he said.

Intel and Texas Instruments are two companies that are very bullish on the growth in gadgets of all shapes and sizes through the next decade.

During his keynote at Intel's developer conference in San Francisco on Tuesday, Intel CEO Paul Otellini said industry growth is "back" with technological advances in PCs and other computers fueling shipments to record levels. Intel is also pushing past the PC with lower-power products Otellini said would lead to a new category of ultra energy-efficient "handtop PC" devices.

"We are rethinking and retooling our efforts to bring people digital content on any device that they want, when they want it and where they want it," Otellini said. "From my perspective, technology should be ubiquitous."

Texas Instruments is currently designed around TI's semiconductors and related technology.

"Take anything where the content is digitizing and you will see where the market will be growing," TI CEO Richard Templeton recently told CNET "Now that broadband is wired to 25 percent of the homes in the world, people are looking at different devices that they would like to connect with. That means great growth for us."