Wednesday, April 30, 2008

Is now the time to buy consumer electronics?

They say there's no time like the present, and according to Richard Glikes, executive director of the Home Theater Specialists of America, that goes doubly so for buying electronic gadgetry. The reason? Blame it on China.

Given the state of the U.S. economy, spending your disposable income on high-tech toys may not seem like the best investment in 2008. But if you've already decided to purchase a TV or a new phone, you might be inclined to wait for prices to go down.

That might be a long wait, says Glikes. China is the production center for the vast majority of consumer electronics, and the heyday of cheap labor there may be rapidly coming to a close. For starters, blame the Olympics: In order to clear the air of pollution, many factories are shutting down in June, which could put a damper on the supply of many products. Also, China is tiptoeing towards better relationships with its workers: New labor and worker protection laws have pushed labor costs up 15 percent. The price of many components and metals used in making electronics is also going up.

Perhaps the biggest culprit of all: The falling U.S. dollar. The poor old greenback just doesn't go as far as it used to. Most notably it is falling against the euro, but it's also fallen considerably against the Chinese yuan, about 10 percent in the last year. In other words, if paid in dollars, Chinese companies now earn 10 percent less than they did a year ago due solely to the falling exchange rate. One can imagine that doesn't sit well with them.

In other words: Current prices may simply not be sustainable, and thus price increases may soon be on tap in order to shore up profits. Sure enough, prices are already going up for some LCD products. At the manufacturer level, says Glikes, prices in China are already up from 8 to 20 percent, and U.S. retail prices are soon to follow.

Get ready for a bumpy 2008.

More perspective on the data from TWICE.

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