Cautious shoppers shun gadgets, for now

SAN JOSE, Calif. — Atul Ahuja, 41, bought the fancy new Hewlett-Packard computer in January. His six-year-old PC at home was headed to the graveyard, and he couldn't delay getting a new one.

But when it came to buying a Blu-ray DVD player, he decided to wait. He'd been coveting one for months to go with his 42-inch plasma TV. But with so few movies available in Blu-ray, and the economy looking shaky, he's going to be patient.

"I'm being a little bit careful," Ahuja said. "I'm thinking twice about things."

And so are many buyers of consumer-electronics gear these days. As the economy teeters on recession, shoppers are thinking long and hard about whether this is the right moment to pony up extra money to indulge gadget lust.

Cutbacks expected

So far, that indecision, or hesitation, hasn't driven spending on consumer gadgets over a cliff. But analysts and companies are clearly expecting consumers to cut back this year on most categories of consumer electronics.

"I'm not convinced that companies are really feeling it," said Rob Enderle, principal analyst of the Enderle Group. "But there's a lot of discussion about how they're going to be feeling it. The outlook has become pretty dismal."

As often happens when the economy is shifting, it's difficult to get a clear read on where it's headed and how fast it's going there.

Some of the most recent numbers don't seem so bad. For instance, according to the Consumer Electronics Association, sales of flat-panel TVs are up 42 percent for the seven weeks of 2008 compared with the same period one year ago.

Drop seen

On the other hand, the stock of Best Buy, one of the leading consumer-electronics chain stores, has dropped more than 20 percent this year. Three analysts have downgraded the stock over concerns flat-panel sales will be weak in 2008.

Apple recently reported strong growth across its business. But its stock has been beaten down this year by about 40 percent after analysts worried that its guidance was weaker than expected.

Perhaps the best snapshot comes from BIGresearch, a consumer-marketing data company that does extensive polling of consumers' buying intentions.

Its most recent data show that in February the percentage of adults planning to make purchases fell from February 2007 in four out of five categories: DVD players, computers, stereos and digital cameras.

Only the TV category rose, with 10.6 percent of adults saying they planned to buy one this year compared with 9.2 percent in February 2007.

Shawn Dubravac, an economist for the Consumer Electronics Association, says spending on gadgets has shown remarkable resilience, given all the factors weighing on the average person.

As gas prices rise, interest rates climb and unemployment increases, consumers made adjustments in spending.

But Dubravac argues that consumers continue to make tech purchases a priority.

Meanwhile, categories like flat-panel sales have held up because consumers have found them to be a good value because prices have dropped even as the technology has improved.

And by investing in a home-theater system, consumers can cut back on trips to the movie theater.

"They're going to spend $100 for dinner and a movie," Dubravac said. "Now consumers spend more on DVDs than they do at the box office."

The gadget economy could be helped later this year, when consumers receive their stimulus checks from the federal government.

Money temptation

Dubravac and Enderle projected consumers will spend a chunk of the money on new gadgets.

"We've seen in the past that consumers don't always have the most discipline," Enderle said.

But even with that extra cash, some folks are likely to continue putting off purchases.

John Huynh, 26, of San Jose, closed his kitchen-design firm for good in January after business evaporated. He had been eyeing a new laptop. And he wanted to replace his three-year-old mobile phone. But all that's on hold.

"My money now is going toward the essentials," Huynh said. "Food and rent."