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Digital camera sales soar but issues remain

Sales of digital cameras top $1 billion over the last year and are closing the gap with their film brethren, according to market researcher NPD Intelect.

Digital camera sales soared last year, according to a new report, but while consumer electronics giant Sony may have bowled over competitors, its reign may be short lived.

Sales of digital cameras topped $1 billion and are closing the gap with their film brethren, according to market researcher NPD Intelect. The digital category now makes up about 36 percent of the total market, with 1.8 million units sold in 1999.

Sony led the digital camera charge last year, but the company faces challenges on several fronts: the diminishing appeal of floppy drives for storing digital images and the resurgence of traditional camera makers.

Furthermore, Sony could be caught between two technologies.

"Every time Sony sells a floppy-disk camera, it goes against their Memory Stick strategy," NPD Intelect analyst Neil Portnoy said.

Ease-of-use, Sony's strength, isn't as important as low price, and traditional film camera makers are introducing better-quality digital cameras than the consumer electronics giant.

"But then again, Sony has surprised me in the past. Maybe they will again," Portnoy said.

Digital cameras and camcorders store images electronically, which can then be transferred to a PC or printer. Such cameras usually use a serial or USB port, and digital camcorders often use an IEEE 1394, or FireWire, port. But Sony opted for using floppy disks for storing and transferring digital images.

Many consumers find transferring images using cables attached to a PC difficult, Portnoy said. Sony's method of storing digital images on floppies is straightforward to understand and easy for most people to use.

But over time, Sony's success could be its undoing. New 3.3 megapixel cameras can store only one or two high-quality images on a floppy disk, making it more inconvenient to use. Sony has also been pushing its own portable storage technology, bubble gum-sized wafers known as Memory Stick.

But the strategy is working so far. Sony took 47 percent sales share, up from 42 percent in 1998, according to NPD Intelect. Olympus followed with 17 percent share. Kodak trailed Olympus with 13.1 percent share, with Nikon and Polaroid--respectively at 7.4 percent and 3.1 percent--pulling up the rear.

"Sony has been strong because they've been hanging onto the floppy disk, and we know ease-of-use is a critical component to get people to use digital cameras," Portnoy said. "Moving the picture is the issue here. It's just too difficult for most people."

The digital camera market is also very volatile, with Sony and others facing challenges from low-cost competitors. Polaroid's November introduction of a sub-$200 digital camera stormed the market, selling 150,000 units in less than two months and displacing Sony as the unit share leader, according to NPD Intelect.

Then there are the traditional camera makers, which started late on the digital front but are rapidly catching up. "When you look at the quality and optics of these cameras, then the ball swings back to the more traditional guys like Nikon and Olympus," Portnoy said. "They're bringing megapixel cameras to market, and they understand great photography."

NPD Intelect predicts the market to split high and low, with digital cameras priced below $350 wooing the mass market and higher-priced models appealing to aficionados. Already, low-cost digital cameras are showing up in drug emporiums and convenience stores, potentially stealing more sales from film cameras.

Still, while digital still camera sales jumped 63 percent in 1999, typical 35mm SLR cameras continued to grow steadily, up 25 percent over a year earlier. Digital cameras' assault on its established rival are matters of convenience and the Internet's popularity, NPD Intelect concluded. The majority of users buy cameras for business or personal sharing of digital images, with many sending or posting them over the Internet. About 61 percent of these people spend four or more hours a week using their digital cameras.

More surprising than digital cameras' success may be that of digital camcorders, which in 18 months went from zero to 6 percent share of the total camcorder market, according to NPD Intelect.

Digital camcorders attractiveness over their analog counterparts are features unique to the technology, such as optical and digital electronic zoom, image stabilization and LCD viewing screens, according to the market researcher.

Digital camcorder sales rose to $532 million last year--up from $93.2 million in 1998--on 524,000 units sold.