Current Analysis’ CE Forecast for 2006

by Stan Schatt
Vice President, Research
January 24, 2006

Current Analysis’ analysts attended the 2006 consumer electronics show in Las Vegas and came away with some firm convictions about what the major trends will be this year. In many ways, wireless manufacturers will be their own worst enemies in 2006 as they battle over standards, trying to avoid giving anyone an advantage in developing standards-based products. Many customers will choose to walk away rather than bet on a loser. Similarly, the invasion by Taiwanese and Chinese manufacturers offering low-priced consumer electronics products will force U.S. and Japanese manufacturers to move up the food chain and offer products with far more functionality, often hybrid functionality, to differentiate their products. That battle will be seen most clearly in the MP3 marketplace, but it will be echoed in other arenas.

Just as Americans have chosen to eat at restaurants that offer gargantuan portions, consumers will look for CE products that are bigger. This is evidenced by the huge TV screens on display at the show. In fact, virtually all CE products with the exception of cell phones, cameras, camcorders and MP3 players will swell, while those products along with printers will continue to shrink and become even sleeker in appearance.

It will be a tough year for CE manufacturers and retailers, although TV manufacturers will be helped enormously by the government’s edict to move everyone to digital TV. Still, applications for Microsoft’s Vista will be slow to materialize, and price points in virtually every CE product category will continue to fall like a technology stock in 2000.

When in doubt, accessorize and stylize

Just as movie companies choose to develop sequels to established hits rather than strike out for new territory, vendors will offer a wide range of iPod accessories.. The iPod is responsible for the trend of consumer electronics as personal style. Denim giant Levi Strauss designed jeans that are compatible with the iPod music player. They feature a joystick in the watch pocket to operate the device. Levi's RedWire DLX Jeans for men and women, available this fall, will also have a built-in docking cradle for the iPod and retractable headphones.

The trend is not limited to iPod though. Cell phone manufacturers, for example, will offer new accessories to add to their profit margins. Motorola is working with apparel manufacturer Burton to market a clothing line that features built-in pockets for wireless products. The line of outerwear products contains interactive cell phone and portable music technology that make it easier for customers to integrate their music and cell phones into their daily life without requiring their full attention to manipulate controls.

Designed specifically for youth who like snowboarding, the padded jackets will contain a casing to house a cell phone and MP3 player. A device sewn into the sleeves will allow the wearer to control incoming and outgoing calls, while a toggle will regulate the removable speakers in the hood. The new jacket will be compatible with Bluetooth, so the consumer electronics devices will pair wirelessly with the clothes.

Look what’s parked in the digital garage

Look for the Digital Home to extend to include the garage. This year’s CES show floor contained more automobiles than a used car lot. CE retailers such as Best Buy, Circuit City and CompUSA will offer far more CE products for automobiles. Look for products that mix GPS navigation with voice–activated, hands-free cell phone operation and MP3 playing functionality. Add satellite radio and you have a compelling proposition.

While vendors fight, consumers stroll away

Vendor battles over wireless networking and high-definition storage standards will slow the definition of the standard, which will make consumers slow to embrace products from any camp. The IEEE 802.11n committee will finally adopt a specification that is similar to the one advocated by the consortium that is opposing Airgo (the Enhanced Wireless Consortium or EWC), but it will take until 2007 before 802.11n becomes a significant part of the Digital Home.

The fight over Blu-ray and HD-DVD will leave confused consumers scratching their heads and waiting for a clear winner—no one wants to come up on the wrong side of another Betamax versus VCS battle.

It’s a bird, it’s a plane, it’s a Swiss army knife

More and more CE products will offer two or more unrelated functions. Several digital cameras, for example, will also serve as MP3 players. Some televisions are starting to come with disk drives for content storage. Cell phones will offer TV reception, and GPS functionality will be included in a number of devices, including MP3 players. The jury is still out as to whether consumers will embrace multi-function products rather than choose to go with best of breed or best value.

A Place for everything

One of the big stars in 2006 will be storage. That’s right, staid, boring storage will start to look more and more like a rock star. The reason is that video content requires serious storage space. Double that space when you consider storing high-definition video content. Toshiba and Seagate are two of a number of storage manufacturers that will offer products that utilize perpendicular storage technology to increase storage capacity geometrically. Look for desktop PCs to start offering 300 GB of storage.

Bigger is better

Digital camera manufacturers will beat a hasty retreat from the sub-5-megapixel market and leave the pickings to camera phone manufacturers. Consumers will embrace widescreen monitors. By the end of 2006, 15% of all LCD monitors sold in retail will feature the widescreen format. Half of all monitors sold will be 19-inch models.

Wireless is everywhere

Look for the number of printers with built-in wireless–either Bluetooth or WiFi—to grow at least 50% in the 2006 retail channel. The percentage of networked homes with wireless rather than wired technology will exceed 60%. Wireless USB dongles will take off, particularly for printers. The first wireless products based on ZigBee and HomePlug chips will appear, but neither will take off until 2007.

2006 in a Nutshell

The year 2006 will be one in which the gadgets lead and the PCs bring up the rear of the parade. PC manufacturers made virtually no major announcements at CES this year. Personal computers no longer generate excitement at a consumer electronics show. CE manufacturers have high expectations for revenue from Digital Home-related sales, particularly in the area of high-definition video.

Analyst Steve Kovsky noted the air of optimism that permeated the Las Vegas Convention Center. Digital TV sales are likely to grow because consumers have interpreted the new FCC rules concerning high-definition TV as a government ultimatum: upgrade or watch your screen go dark.

However, from the more jaundiced and likely more objective perspective of Current Analysis’ analysts, 2006 will not be the year of the Digital Home because of a lack of bandwidth. Without high-speed wireless standards and connectivity products readily available at attractive price points, there simply is no way for the consumer to do much more than transport still photos or music files from PC to TV.

That’s a far cry from Intel and Microsoft’s vision of a Digital Home in which all digital content, including high-definition video, is available anywhere on virtually any device. So, in the interim, CE manufacturers will focus on improving the components of the Digital Home already in place. They will also extend the Digital Home to include the family automobile, and will try to make it a natural extension for consumers to take their existing CE products with them on the road.

While visitors to CES 2006 might have been impressed by displays of TV shows on cell phones and remote viewing of TV shows on a laptop, consumers will embrace improvements to the more mundane and practical CE products. That means increased sales for smaller yet more functional MP3 players, smaller yet more functional and less costly digital cameras, and smarter cell phones with better user interfaces. It also means that consumers will choose from a dizzying array of colorful and stylish accessories including bags and covers for cameras, laptops, cell phones, and MP3 players. CE manufacturers will target these products for very specific market segments. Look for more stylish bags tailored for women’s tastes and more colorful covers, bags, and even clothing designed specifically for youthful consumers. It will be a good year for CE manufacturers, but not a break-through year.

Click here to download a PDF version of the Spotlight.

Top