November 11, 2008 / 11:50 PM / 12 years ago

Circuit City bankruptcy a blip for tech firms

BANGALORE (Reuters) - Technology companies whose products sit on the shelves of Circuit City Stores Inc CCTYQ.PK are expected to feel a small but immediate impact in sales due to the consumer electronics retailer’s bankruptcy.

Television monitors are seen inside a Circuit City store in New York November 10, 2008. Circuit City Stores Inc, the No. 2 U.S. consumer electronics retailer, filed for bankruptcy protection on Monday just a few weeks before the start of the key holiday shopping season, becoming the largest retailer to file under Chapter 11 this year. REUTERS/Shannon Stapleton

Beyond the short-term effect on technology companies, the bankruptcy casts more gloom on what is expected to be a sober holiday season for consumer electronics due to the worst economic crisis in decades.

Circuit City filed for bankruptcy on Monday, a week after it said it would close a fifth of its stores and cut 17 percent of its U.S. work force.

“The direct impact of the Circuit City bankruptcy is more an irritant than a disaster (for technology companies),” Oppenheimer analyst Yair Reiner said.

There will be 155 fewer stores this Christmas season for consumer electronics and while some customers will go down the street and find a Best Buy, some sales will be lost, Reiner added.

Richmond, Virginia-based Circuit City is the second biggest U.S. consumer electronics retailer after Best Buy Co (BBY.N).

“What is likely to happen is this, in a broader sense, negatively impacts what has already been a muted season for consumer electronics and computing sold through the retail channel,” Longbow Research analyst Shawn Harrison said.

While one of the retail channels for technology companies will be hurt, they are likely to eventually find other avenues to sell their products, analysts said.

The impact is “more of immediate term” and a year from now, it is not going to really matter as there are plenty of channels left, said Toan Tran, lead equity analyst on technology at Morningstar Inc.

Retailers such as Best Buy, Staples Inc SPLS.O and Office Depot Inc ODP.N are expected to gain over the long haul.

“In terms of the long-term earnings power for any tech company, I don’t think the Circuit City bankruptcy is going to make that much of a difference,” Tran added.

However, the companies that Circuit City owes money to run the risk of losing that money, Oppenheimer’s Reiner said.

Circuit City’s biggest unsecured creditors are Hewlett-Packard Co (HPQ.N) to which it owes $118.8 million; Samsung Electronics Co (005930.KS) to which it owes $115.9 million; and Sony Corp (6758.T).

“It may just be that HP makes it up at some other store what they lose at Circuit City,” UBS analyst Maynard Um said.

But smaller companies with a large exposure to Circuit City are likely to take a slightly bigger hit.

Garmin (GRMN.O), which comes in seventh in the unsecured creditors list with Circuit City owing it about $15.4 million, could lose up to 6 cents a share if the entire balance were to go unpaid, Oppenheimer’s Reiner said. Circuit City represents less than 2 percent of Garmin’s sales.

“The problems of Circuit City may be a sign of challenging weeks and months ahead for consumer electronics retailers and consumer electronics makers in general,” Reiner said.

Circuit City, like its rival Best Buy, sells devices ranging from television sets to digital cameras and computers to MP3 players.

“The question to ask is, if Circuit City closes down, does that mean you’re not going to go buy it (a device)? It’s probably no. You’ll go somewhere else,” UBS analyst Um said.

Additional reporting by Bijoy Koyitty in Bangalore; Editing by Himani Sarkar

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