The first batch of quarterly results from technology companies this week showed there is no stopping consumer spending on gadgets. Mobile phone makers reported a whopping 30 percent average increase in shipments in the traditionally slow January-March quarter.
Two of the top global five vendors sold even more in the first quarter than in the previous fourth, typically the biggest sales quarter of the year.
Spending on flat televisions hardly slowed from the fourth quarter. Philips Electronics, Europe's biggest consumer electronics company, reported an 18 percent gain in like-for-like revenues at its consumer electronics unit.
Apple reported a 61 percent jump in shipments of its popular iPod portable music player and a 34 percent revenue spike, even as the dollar appreciated 11 percent against the euro, which depressed sales from Europe translated into dollars.
"What we're seeing is price elasticity in action. Everybody wants a flat screen television, but not everyone can or wants to buy one for 1,500 euros ($1,851). But if prices drop below 1,000 euros, suddenly the vendors have drilled into a whole new market," said analyst Eric de Graaf at broker Petercam.
Steep price drops are exactly what has happened with flat televisions. A large 32-inch LCD TV cost an average $1,493 in the fourth quarter of 2005, 51 percent less than 12 months earlier, according to market research group DisplaySearch. Sony has said it expects another 20 to 25 percent decline in 2006.
The price falls are partly the result of overcapacity of the main component: the flat panel itself. Samsung Electronics and LG.Philips LCD (LPL) saw selling prices of flat panels drop 10 percent in 2005. LPL reported another 7 percent drop in the first quarter and said it expected a similar decline in the April-June quarter.
MP3 music players have become more attractive as prices slumped for flash memory chips, used in the iPod nano. Flash memory prices fell 40 percent between March and December.
BIG SPENDING:
The products that are now popular with consumers are major spending items, which is the reason they make a strong appearance in the revenue numbers of major companies.
The global handset market, at 815 million units, generated revenues for the manufacturers of $115 billion in 2005, according to iSuppli. The 190-million-unit TV set market is good for close to $90 billion a year in global revenues.
Demand will continue to increase this year, with handset sales growing to 1 billion units, according to forecasts from market research group Strategy Analytics.
"This year you won't see the normal slowdown in the first quarter. There's continued demand in mature markets to replace phones and in emerging markets from first-time users and consumers replacing their handsets," said analyst Carolina Milanesi at market research group Gartner.
Consumer enthusiasm for technology gadgets is not supported by economic fundamentals. US consumer confidence slipped below 50 in March, indicating pessimism.
In Europe the situation is far worse. The long-term average for the 450 million citizens in the European Union is -11, according to European Commission surveys.
Although this is slightly up from lows of -15 in the summer of 2005, it reflects European consumer gloom due to persistently high unemployment. Modest real wage growth and, in countries such as Germany, real wage declines do not help.
Consumers did, however, expect slightly more "major purchases" over the next 12 months. It is this statistic that explains why European TV revenues rose 40 percent in the fourth quarter, the highest increase of all regions of the world.
This is entirely the result of consumers switching to expensive flat TVs, because unit sales were up just 5 percent. Of every euro spent on TVs, Europeans use 77 cents for flat TVs.
The good times will not last forever, iSuppli warned.