Consumer Electronics Show: Are Price Cuts the Wave of the Future?

Despite all the amazing gadgets launched at the Consumer Electronics Show -- the smart TVs, 3-D technology, larger touch screens, and tablet PCs -- the bigger news in Las Vegas this week may be about price cuts.

Sprint-Nextel (S) has introduced a low-price WiMax-enabled handset for $149. Several wireless carriers will start a price fight based on what they charge for the Samsung Galaxy tablet. Prices of tablet PCs in general are expected to drop as much as 40% in the next two years.

Samsung may also bring out a Google (GOOG) Android-powered TV at CES. It will need to compete with what is likely to be a line of TVs powered by Microsoft's (MSFT) Windows 7. AMD (AMD) and Intel (INTC) have just introduced new chips to power many of these devices. One of the benefits of these chips is that they are relatively inexpensive because they will be the brains of small electronic devices that cost less than most PCs.



CES will have 2,700 exhibitors this year. A small fraction of them will introduce products that become mass-market successes. The balance of the products launched at the show will become niche products or will simply disappear. There is only so much room on top of the living room TV, in the car, or in people's pockets.

Electronics companies may find that price is the best leverage they have as they compete for consumer adoption. Large LCD TVs have already come down in price, to some extent because there are so many Asian manufacturers going after the same market.

How much will this price-cutting affect the industry? Price cuts mean that consumer electronics companies face two waves of competition -- for market share and to be the low-price provider in any given sector of an electronics market. When those are the requirements for gaining customers, a lot of companies will lose money on their new offerings.


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