Sharp forex swings add to gadget makers' woes

HELSINKI (Reuters) - Consumers and companies hoping for a Christmas gadget spending spree may be disappointed, as sharp foreign currency swings are driving up prices in many markets even as buyer demand slumps.

The relative strength of the U.S. dollar and Japanese yen are hiking costs when currencies in many emerging markets are falling, sapping consumer purchasing power in the few remaining growth markets, like Eastern Europe or Brazil.

"The impact is certainly felt across the consumer electronics sector," said Gartner analyst Jon Erensen.

Components across the electronics industry are priced in dollars.

The greenback is still up 1O percent versus the euro since mid-2008 -- despite a sharp weakening after the Fed's rate cut on Tuesday -- meaning rising costs not only for Motorola (MOT.N) and Apple (AAPL.O) but also for European and Asian providers.

"It's going to play a significant role for companies on the wrong side of equation -- you get slowing consumer demand and the currency impact," Erensen said.

The yen, which hit a 13-year high against dollar last week, is cutting into profits for Japanese firms such as Sony (6758.T) and Panasonic Corp (6752.T), making their products less price competitive in overseas markets. Sony last week said it would raise prices on some electronics products in Europe to counter the yen's appreciation versus the euro.

In October Sony cut its annual operating profit outlook by 57 percent, citing the yen and sluggish demand, while Panasonic last month cut its operating profit forecast for the year to March 2009 by 39 percent for the same reasons.

"At a time when consumers are looking for cheaper deals Japanese firms have to raise prices just to stand still," said Peter King, research director at Strategy Analytics.

Nokia, the world's top cell phone firm, said on Dec 4 "unprecedented currency volatility" on top of the economic slowdown had triggered a sharp pullback in consumer spending in many industries, including the phone business.

Some 50 percent of products Nokia uses are sourced in U.S. dollars, with the yen the other key currency.

RISING PRICES

In Eastern Europe -- one of the key growth regions for the consumer electronics industry -- main currencies have dropped up to 40 percent against the dollar since July and 13-23 percent against the euro.

"Naturally, this hurts retail sales in the region," said Peter Priisalm, fund manager at Tallinn-based Avaron Asset Management, which invests in eastern Europe.

"From a currencies point of view we see no improvement in the short term... we expect Eastern European currencies to stay weak in the next 12-24 months," he said.

It's a similar situation in many other emerging markets -- the Russian rouble is down 17 percent versus the dollar since mid-2008, the Brazilian real is down 48 percent and the Indian rupee is 10 percent weaker.

FEW WINNERS

Even small changes in the currency market can have a devastating effect on the consumer electronics industry because profit margins are a narrow 5 to 6 percent at the best of times, and often well below that.

But there are a few winners.

Korean vendors Samsung Electronics (005930.KS) and LG Electronics (066570.KS), with strong domestic production, are benefiting from their battered local currency, which has lost some 25 percent against the dollar since mid-2008.

(Additional reporting by Kiyoshi Takenaka and Sachi Izumi in Tokyo; Marie-France Han and Soeui Rhee in Seoul; Editing by Chris Wickham)