September 29, 2008 / 8:52 PM / 12 years ago

Consumer electronics makers face tough holidays

BOSTON/SAN FRANCISCO (Reuters) - Consumer electronics makers may be looking at the bleakest U.S. holiday seasons in years.

Apple iPod Nanos are seen during an unveiling in San Francisco, California, September 5, 2007. REUTERS/Robert Galbraith

“This is about as bad as it has been in a very long time,” said Diane Swonk, chief economist for Mesirow Financial. “There is less money for all the goodies you tend to buy during the holiday season.”

Two Wall Street analysts warned on Monday that weakening consumer sentiment will hurt sales of Apple Inc’s (AAPL.O) Mac PCs, iPod music players and iPhone mobile phones.

The tech sector had been largely spared the problems affecting the rest of the economy.

As recently as three weeks ago Apple Chief Executive Steve Jobs was upbeat about Christmas. But on Monday Apple shares tumbled 17.92 percent, bringing it to its lowest close in 16 months.

The drop started even before the House rejected a $700 billion bailout for financial institutions that sent the broader market plunging.

In another sign the holiday season will be hostile to electronics manufacturers, a government report released on Monday showed U.S. consumers curbed spending in August.

“Consumers are being hit with a triple whammy of high commodities, declining home prices and a major haircut in many of their investments. With this backdrop, it’s hard to see consumers spending like they did in past holiday seasons,” said Hilliard Lyons analyst Thomas Carpenter.

“This could drive weakness across the board whether it’s cell phones, laptops, printers or gaming consoles and video games.”

Consulting firm Frost & Sullivan, which tracks the retailing industry, expects consumers to buy fewer big-ticket electronic items this holiday season.

That includes flat-panel televisions from Matsushita Electric Industrial Co Ltd (6752.T), Sony Corp (6758.T) Hitachi Ltd (6501.T) and Fujitsu Ltd (6702.T), high-end digital cameras from Canon Inc (7751.T) and Nikon Corp (7731.T) and music players such as the iPod and Microsoft Corp’s (MSFT.O) Zune.

“This could be one of the most disappointing holiday shopping seasons in recent years,” said Aravindh Vanchesan, a consultant at Frost. “The economy is weak and consumers will be looking to spend on just the basics.”

Workers face higher energy costs at the same time they are getting smaller bonuses, less overtime wages, smaller tips and fewer part-time hours, Swonk said.

That will change shopping patterns, said Michael Davies, senior lecturer at MIT’s Sloan School of Management.

“Consumers are pretty savvy about price cuts,” he said. “That might mean that a Christmas present is delayed until next year and becomes a birthday present.”

He expects Hewlett-Packard Co (HPQ.N) and Dell Inc DELL.O to sell fewer top-of-the line laptops and more basic machines. Even the rapidly growing mobile phone industry is at risk.

While cell phones are seen as one of the last things consumers would give up in a tough economy, investors are worried they are already slowing the rate at which they upgrade cell phones for the latest models.

Days after Qualcomm Inc (QCOM.O), the no. 1 maker of chips for cell phones, cited slowing cell phone replacements, Nokia NOK1V.HE warned on Sept 8 that the mobile phone market would be hit by weak consumer confidence in many markets in 2008, as well as tough competition in emerging markets.

Monday’s plunge in Apple shares, which have shed about a third of their value in a month, demonstrates investors are already worried about holiday spending.

“The mood swings are dramatic just based on the gravity of the situation,” said Richard Sichel, chief investment officer at Philadelphia Trust Co. “The economic numbers are not coming through the way anyone would like.”

Additional reporting by Sinead Carew in New York; Editing by Andre Grenon

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