Here’s a telling indicator. Logitech International—which just announced major layoffs—Cisco Systems, and Belkin are among several big-name companies that have opted not to exhibit on the show floor. Instead, they’ll be showing products in nearby hotel suites.
“Logitech is a quintessential gadget company, and they’re backing out of CES because they don’t think it’s going to be enough value for the cost,” says Andy Hargreaves, analyst at Pacific Crest Securities. “What’s going to come out of CES is that there’s not a lot of new technology for the next year or two, so companies are going to have to get really creative or cut a whole lot of costs to generate the kind of profits they have over the last few years.”
Rough Waters Ahead
CES will be something of a preview of what’s to come for the consumer electronics industry. Market research firm iSuppli forecasts a 0.8-percent decline in OEM factory revenue across the consumer electronics industry (excluding PCs, mobile phones, and GPS navigation devices).
“The economy has taken its toll both from a demand perspective and pricing,” says Sheri Greenspan, iSuppli senior analyst. “So you have a reduction in volume and a reduction in average selling prices.”
Consumer confidence is at an all-time low, and it is evident in a drop in sales of consumer discretionary products.
Or, as Gilson puts it: “I would like a new TV, but I don’t need a new TV. In today’s economic environment with unemployment and bad news, like or want has been replaced by need."
Big-ticket items such as flat-panel TVs are the most affected by the economic downturn. Greenspan notes that weakening consumer demand has led to excess inventory, which is driving prices down even further.
Along with TV manufacturers, that’s bad news for consumer electronics retailers like Best Buy . Although the company stands to gain from Circuit City’s woes, the combination of consumer weakness and a lull in the development cycle for many product categories means rough times ahead for retailers.
“Whether or not the consumer weakened, the flat-panel TV product cycle is going to end or at least significantly slow,” Hargreaves says. “The gaming product cycle is decelerating, the notebook product cycle has run its course, DVD players, GPS systems, MP3 players are all declining. From a product standpoint, they don’t have anything they can point to and say, ‘You guys have gotta’ come to the store.’”