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Tech companies race against relentless downward price pressure

Workers take a break while setting up a display of Panasonic televisions for the 2012 International CES at the Las Vegas Convention Center in Las Vegas, Nevada, January 8, 2012. The glitz and celebrity glamour that hardware makers will seek to attach to their latest and greatest at CES belies a tougher economic climate that has fed a ferocious and inexorable decline in prices.


Amid the 55-inch, ultra-high definition TVs and the platoons of smart mobile devices with which the world's consumer electronics makers hope to wow punters at their annual gadget-fest in Las Vegas this week, there is one thing they hope no one will ask: the price.

The tumbling prices of everything from flatscreen TVs to ereaders have become a bane for makers of digital hardware, even as they enjoy soaring interest in their widening range of mobile devices.

Yet falling prices are also set to be a trigger for the long-awaited boom in access to digital media, as a new wave of connected TVs, computers and mobile devices start to change the habits of consumers.

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"Access points are becoming so affordable," said Richard Doherty, an analyst at Envisioneering. Along with simpler ways of finding media online, "it will reduce consumer indecision and lead to higher sell-through at retail."

Whether most consumer electronics companies are geared up to profit from this coming wave, however, is a different question.

At the Consumer Electronics Show, which gets under way officially on Tuesday, the manufacturers will, as usual, bid to outdo each other with bigger, flashier screens and thinner, sleeker gadgets.

This year, that is likely to include TV sets which come without bevelled edges, making it possible for couch potatoes to align four big screens and watch a single, giant image move across their living room walls, says Shawn DuBravac, chief economist of the Consumer Electronics Association. Other devices notable for their insensitivity to price will be a $30,000 iPod dock from Behringer, setting a new standard in conspicuous consumption.

The glitz and celebrity glamour that hardware makers will seek to attach to their latest and greatest belies a tougher economic climate that has fed a ferocious and inexorable decline in prices.

TV makers, for instance, suffered a seven per cent decline in the average price of a set last year and face another five per cent fall this year, says Mr. DuBravac. With the number of sets shipped also slipping slightly, revenue for the industry is already in decline: with HD and 3D technology becoming standard – and cheaper – that trend is set to continue for the next five years, he adds.

Like TVs, many other categories of consumer electronics are entering a period when recent technological innovations become mainstream and prices fall fast, said Jordan Selburn, an analyst at IHS iSuppli, an industry research firm. While hardware makers struggle not to draw attention to this, "it's the phase we're in," he added.

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Among the devices likely to see the steepest price declines will be tablets, which failed to catch fire after last year's CES was used as a launch pad by many manufacturers to take on Apple . With Amazon bent on bringing down the prices of ereaders and tablets, those machines would soon fall below $100, said Mr. Doherty.

The PC industry, meanwhile, is hoping that its biggest gamble this year, on a new line of thin, lightweight laptops known as Ultrabooks, will protect sticker prices. Early machines, which also come with the "always-on" ease of use familiar from iPads and smartphones, have been priced at close to $1,000.

"The problem is the price point," said Rick Sherlund, an analyst at Nomura, who said that the machines would have to fall to $600 before sales took off. The next generation of Ultrabooks were likely to be well-received by consumers as an alternative to tablets, he added.

Vizio, the US TV maker which quickly rose to number one in the country with its full-featured, low-priced sets, announced a move into tablets and smartphones at last year's CES and is this year announcing its entry into the PC market, with a line-up of laptops and all-in-one PCs.

To counter the relentless price pressure in digital markets, hardware makers are also hoping to tap into new sources of revenue that bring them a share of the digital media markets their new machines will make possible.

That will make business model innovation as important as technological innovation this year, said Mr. Doherty.

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