UPDATE 2-U.S. retail software sales fell in January

Mon Feb 25, 2008 8:18pm EST

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(Adds NPD's adjustment to percentage changes to account for fact that January 2007 included five weeks of sales data)

By Jim Finkle

BOSTON Feb 25 (Reuters) - U.S. retail software sales fell last month in a sign that consumers may be cutting back on discretionary spending as the economy weakens, an analyst with market research firm NPD said on Monday.

Total dollar volume fell 29.5 percent from January 2007, said NPD analyst Chris Swenson. The extent of that drop was exaggerated because the figures tally five weeks of sales for January 2007 versus only four weeks in 2008.

After normalizing the data, Swenson estimates that total software sales were down 12 percent.

"I already expected lower sales in 2008 given all of the releases we had in 2007," Swenson said. "That said, the slowdown in the economy may be pulling down (software sales) even further than I would have expected."

The decline is consistent with a broader trend that NPD reported last week for the consumer electronics sector. While sales grew last year at a healthy 6.5 percent from 2006 to a record $129 billion, they tapered off in the second half, particularly the last two months of the year, according to NPD.

Sales of computer equipment, flat-screen TVs, digital cameras, MP3 players, imaging equipment and other electronics products fell 2 percent to $9.6 billion in the crucial holiday season, which ran from Nov. 18 to Dec. 29, NPD reported last week.

Swenson said that prior to crunching the January software data, he had expected sluggish sales because of a tough comparison with the year-earlier period, when Microsoft Corp (MSFT.O) launched two highly anticipated products, Windows Vista and Office 2007.

Both were released at the end of the month, but Microsoft had pre-sold some units.

Signs of a slowdown emerged in December, when the software industry's U.S. retail sales were up only 1.8 percent from the previous year, Swenson said.

"Before I rush to judgment, I'd want to see several months of a year-on-year decline in sales," he said.

November and December are generally two of the busiest months for software retailers, though sales are also higher than average in January and February because retailers promote software heavily to piggyback on high demand for tax software.

NPD, which breaks the industry into eight segments, saw the biggest percentage decline in computer games, down 52 percent from a year ago, after normalizing the data, Swenson said.

Normalized sales were up in two of the categories. Business software sales -- including Microsoft's Office programs for Windows and Apple Inc's (AAPL.O) MacIntosh computers -- rose 34 percent.

Imaging and graphics products were up 9 percent after adjusting for the differences in lengths of the two reporting periods. Adobe Systems Inc (ADBE.O) is the dominant player in this area, which is crowded with competitors including Sonic Solutions SNIC.O, Microsoft, Sony Corp (6758.T) and Corel Corp CRE.TO.

Swenson said he was surprised that business software was the top performer because it was in that area where the year-on-year comparisons were among the toughest.

Microsoft recently introduced a new product for MacIntosh that boosted business software sales, he said.

Education software sales declined an adjusted 12 percent, finance software edged down, dropping 0.1 percent, Swenson said.

Sales of "personal productivity programs" -- including software to handle a wide range of tasks, from burning CDs to drawing maps -- fell 26 percent.

Sales of anti-virus programs, backup software and other utilities that help maintain and repair computers were down 8.4 percent. That category includes widely used software from Symantec Corp (SYMC.O), McAfee Inc MFE.N and Trend Micro (4704.T). (Reporting by Jim Finkle; editing by Jeffrey Benkoe, Braden Reddall, Richard Chang)

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