November 15, 2006 2:46 PM PST

Home electronics for the holidays

SAN JOSE, Calif.--The average shopper continues to go bonkers for consumer electronics, according to the Consumer Electronics Association, but the party won't last forever.

Worldwide shipment revenue of MP3 players, digital cameras, DVD players and the like will come to $140 billion in 2006, and then climb to $149.3 billion next year, Sean Wargo, the association's director of industry analysis, said at the Samsung Executive Summit here on Wednesday. In 2002, worldwide revenue came to $98.4 billion.

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He added that 2006 has been somewhat spectacular in terms of growth. Worldwide revenue in the second and third quarters grew by 20 percent from the same periods the year before. The industry has never seen back-to-back quarters like that, he said. Revenue for the fourth quarter is expected to climb 15 percent, he added, and that's a fairly conservative estimate. Last year, revenue grew 13 percent in the fourth quarter from the year before.

Part of the growth comes from how electronics have become ensconced in the home. In 1975, the average American home had 1.3 consumer electronic products in the house and spent about $84 a year on such goods. In 1985, that rose to 5.4 products and spending of $344 a year. In 1995, the figure rose to 13.5 products and an average annual spending of $833. Now, Americans have 25 consumer electronic products in the home on average and will spend about $1,500 on electronics a year, Wargo's data showed.

The strongest product category right now is flat-panel TVs. Not only are consumers flocking to LCD and plasma TVs, they are upselling themselves and buying more expensive TVs than in the past. Prices on individual products are declining, but people are opting for more glamorous models, rather than budget ones.

Consumers worldwide also seemed to be in the midst of an upgrade cycle on digital cameras. MP3 players, of course, continue to sell strongly. Only 500,000 MP3 players sold in 2000. This year, between 33 million and 36 million will leave factories, Wargo said. The watershed year for these came in 2005 when shipments went from 7.1 million in 2004 to 24.8 million. Game consoles will be popular too, but revenue will really kick in next year when all three console makers are shipping in large volumes, he said.

The big loser this holiday season will be Blu-ray and HD DVD players. Because of the format wars, shipment forecasts for 2006 have declined from 750,000 to 250,000.

Convergence and price cutting, however, will begin to take its toll in a few years, Wargo added. Convergence, which involves jamming two products into one case, could cut down the number of products shipped. So far, it hasn't been significant. Consumers like that single-function, simple-to-use device, but that could change. One area to watch will be phones. Some believe that phones could begin to erode demand for MP3 and cameras.

Pricing, however, is almost certain to come down.

"These are the Camelot years," he said. "We do expect the trend to slow somewhat. Retailers are killing themselves trying to bring customers in with pricing."

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