With consumer confidence plummeting, some analysts are predicting sales of HDTV sets could be substantially lighter in the fourth quarter than previously expected.
But observers differ on how big a dip in HDTV sales might be, and what a slowdown would mean for cable, satellite and telco TV providers.
In a research note last week, Sanford Bernstein senior analyst Craig Moffett posited that HDTV set sales could be heading for an ominous dropoff in the fourth quarter.
Moffett pointed to Best Buy's quarterly 10-Q filing on Oct. 9, disclosing that same-store sales for September declined 2%, after citing flat-panel TV sales for third-quarter growth. In addition, he pointed to MasterCard research based on credit-card purchases showing that spending on electronics fell 14% year-over-year in September.
“An increasing body of evidence points towards sharply decelerating HDTV unit sales in September and early October — a trend which is likely to continue and worsen,” Moffett wrote.
Riddhi Patel, principal analyst with research firm iSuppli, said TV sales in the past few weeks “have definitely been slower, but even with the loss of consumer confidence and all this negativity going on, they have been still there. It's not like they've completely stopped.”
Unrelated to the economic turmoil, Patel had expected TV set sales to decline year over year anyway. That's because of an aggregate drop in sales of rear-projection and CRT displays that is not being offset by the more popular liquid-crystal display category.
However, she added, manufacturers of leading HDTV brands are prepping “very aggressive promotions” in the fourth quarter. Patel expects the average price of a 32-inch LCD HDTV to fall 18%, from $725 in fourth-quarter 2007 to $595 in Q4 2008.
If there were a sizable drop in HDTV sales, Moffett suggested, that would be bad news for satellite providers, particularly DirecTV, which have heavily pushed their high-def offerings. Cable operators, on the other hand, might benefit from reduced churn because of a lower number of “switching occasions,” he said.
Others, however, said any near-term pullback in sales of high-definition televisions would have no effect on pay TV providers.
For one thing, the total number of HDTVs doesn't translate into high-def households, said Bruce Leichtman, president of Leichtman Research Group: “What might be deferred are second HDTV sets,” he said.
He also noted that millions of people who already own an HD set do not subscribe to a high-definition programming tier. At the end of 2007, 34 million homes had at least one HD set but just 18.5 million received HD programming, according to Leichtman's research — a “huge gap of opportunity,” he said.
“To say a decline in HDTV sales will affect the operators is a big, big stretch,” Leichtman said. “I think we have to keep this in perspective.”
It's even not clear that the sector will take a big hit, Leichtman said, with set sales likely continue to be fueled by dropping prices and the February 2009 digital TV transition that is spurring consumers to upgrade old equipment.
Still, worries about a recession have had a dramatic effect on general consumer expectations about spending.
Last Friday, the Reuters/University of Michigan Surveys of Consumers said its index of confidence plummeted to 57.5 in October, down from 70.3 in September — the largest monthly decline in the history of the surveys, dating back to 1952.
Consumers won't necessarily cancel their cable outright because of financial concerns, but those feeling the pinch are more likely to reduce premium channels or cut back on other options, said Forrester Research principal analyst James McQuivey.
“They will likely postpone the upgrade to new DVRs and premium digital services,” he said.
Meanwhile, the Consumer Electronics Association remained bullish earlier this month. In an Oct. 7 Webcast, the CEA predicted a 4.7% increase in sales of audio/visual products, a category that includes flat-panel HDTV displays, in the 2008 holiday season compared with last year. The CEA's forecasts are based on input from its member manufacturers.
“Consumers, when they're looking at their total spend, are reallocating some of that money that they might have spent on autos or on appliances, other things like that, and moving it towards technology,” said CEA economist Shawn DuBravac.
