Gadgets still a centerpiece of holiday shopping

By Franklin Paul and Karen Jacobs

NEW YORK/ATLANTA (Reuters) - Shoppers who crave electronics goodies, but are increasingly short on cash, may sacrifice a gym membership or movie popcorn just to get a new gadget like the "Google phone" this holiday season.

Tightened U.S. household budgets in the face of a recession means holiday spending plans for electronics are at their lowest level since the industry's Consumer Electronics Association began its annual shopper survey 15 years ago.

But when they do choose to spend on gifts, consumers have such a soft spot for electronics they will give up items like sporting goods and trips to pay for gadgets, said Tim Herbert, senior director of market research for the CEA, which represents the $160 billion industry.

"These are no longer just luxury items or products that are fun to own. They really are used in a variety of ways to enhance communications, increase productivity, or for education," Herbert said. "Also, from a gift-giving standpoint, there is still a tremendous 'wow' factor with electronics."

Consumers plan to cut overall holiday spending by about 14 percent this year, but their budget allocation for electronics has increased, according to CEA.

That should help keep the momentum behind hot-ticket items like the "Google phone" distributed by T-Mobile USA, Apple Inc's iconic iPod and newer iPhone, or even a sleek 2-pound Dell mini-computer

Advanced video game consoles, 40-inch flat-panel televisions, and smartphones are also expected to move off retail shelves, as well as humbler technology products that simply improve communications and organization.

They include SanDisk's $80, postage-stamp-sized 16-gigabyte memory card, DVD box sets, compact external hard drives that can hold entire music and video collections, and webcams by the likes of Microsoft Corp and Logitech International SA.

But in hard times, traditional electronics retailers like Best Buy Co and Circuit City Stores will be pressed to offer bigger deals on these items to consumers to stand out against the discounts at Wal-Mart Stores Inc.

"The product cycle is commoditizing, so as price points become cheaper you get into the sweet spot of the Wal-Mart customer," said JP Morgan analyst Christopher Horvers.

"Circuit City right now is in a capital-constrained situation and really fighting for their life," Horvers said. "You're likely to see them be more aggressive this year to try to drive traffic."

NO NEW "MUST-HAVES"

So far, no new "must-have" gadget has appeared, unlike previous years when devices like Sony Corp's PlayStation 3, Nintendo's Wii, or Sirius satellite radios and myriad digital cameras were launched shortly before the season to woo shoppers.

Mukul Krishna, global director of digital media for Frost & Sullivan, is betting that advanced high-definition TVs, video game software and smartphones will be consumers' top picks in electronics.

But he agreed that consumers who have scaled back their lifestyles "are going to be looking for some aggressive discounting and couponing by the major electronics leaders," potentially pressuring profit margins of major manufacturers.