Originally created 09/25/01

New high tech gear faces a slow market



Hoping to kick start the plodding high-tech sector, many consumer software and hardware-makers had readied a host of new products for the fourth quarter of this year.

But with most Americans' eyes riveted on news of last week's terrorist attacks and uncertainty swirling around the economy, many analysts question whether consumers will spend $100 for the latest Windows upgrade, let alone $1, 000 for the speediest new Dell computer.

"When folks have their safety threatened, they're a lot less likely to buy non-critical items like expensive toys and luxury items," said Rob Enderle, a technology analyst at Giga Information Group. "And it's even a bigger problem for things like new computers because it's an even higher-cost item. This could be a really ugly period for certain classes of products."

Enderle said sales of PCs, videogame consoles and personal digital organizers are likely to suffer through the rest of the year as consumers stock up on essentials. Still, most consumer technology companies are rolling out their products as planned - a nod to the critical holiday business cycle.

To be sure, the overall economy - and consumer confidence in particular - had slackened considerably in the months leading up to last week's attacks on the World Trade Center and the Pentagon. But with the potential of a long-term military response hanging over the country, the economy and consumer spending may slump further. That could have an especially deleterious effect on the high-tech arena, which has borne much of the brunt of the financial slowdown during the past year.

Two of the highest profile consumer products due to ship during the fourth quarter are Windows XP, Microsoft's latest consumer operating system, and the Xbox, the firm's first foray into the home videogame console market. Company officials stand by XP's release date of Oct. 25 and Xbox's premiere of Nov. 8. But if the economy withers further, analysts say Microsoft and PC-makers - who are relying heavily on XP to buoy flagging computer sales - could be in for a rocky preholiday season.

"This year is the strongest product release cycle in Microsoft's history," said Art Russell, an analyst at Edward Jones. "Obviously, how the economy plays out will have a huge impact on how much of a stimulus it is for them and for PC growth."

Enderle believes fewer consumers will be clamoring for Microsoft's flagship product.

"It's going to be much harder now to sell XP because it falls outside of that critical need area," Enderle said.

And if that happens, the ripple effect could swamp personal computer-makers, which had hoped desperately for a fourth-quarter uptick in sales.

Don Young, analyst at UBS Warburg, recently trimmed his sales forecast for PCs sold by Dell, Compaq, HewlettPackard and Gateway, and cut his December quarter profit forecast for Microsoft, citing slower consumer demand for the machines through the end of the year.

But many tech segments simply had no choice but to release their products, given their place in the pipeline.

On Monday, Handspring began selling its $299 16MB Visor Pro and $199 Visor Neo.

And HewlettPackard still plans to launch its two Jornada handheld computers on Oct. 4.

For many others, especially game-makers, delays or cancellations in the fourth quarter could spell financial disaster. Seventy-five percent of all computer and video game sales occur in the fourth quarter. As a result, most are forging ahead with their introduction plans.

Japan's Nintendo will introduce its bright purple GameCube console in the United States on Nov. 18, as planned.

Konami's Silent Hill 2, a horror-action game, will hit store shelves Sept. 25. Konami officials say a delay was never considered, in part because "it doesn't have any terrorist themes in it."

However, like many other firms that have canceled press briefings on new products and scrapped booths at conferences, Konami scaled back the marketing blitz for the game.



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