Consumer electronics industry facing disaster

Digital convergence could in fact lead to the disintegration of the consumer electronics industry as we know it a senior academic has warned.

The impending era of digitally networked homes will cause potentially devastating problems as well as golden opportunities for the consumer electronics industry, a senior academic said at a conference on Monday.

After an initial bonanza from new generations of products and services, commoditization could lead to the disintegration of the electronics industry as we know it, Eli Noam, professor of economics and finance at Columbia Business School, told an audience attending the Global Information Summit 2005 (GIS 2005) that was held in Tokyo on Monday and Tuesday.

The digitalization of nearly every device from TVs to audio devices, mobile phones and cameras holds electronics makers hostage to Moore's Law -- the idea proposed by Intel's Gordon Moore that computer chip power doubles every 18 months or so. As chips become more powerful, many stand-alone products such as Blu-ray Disc players, TVs and PCs may not be needed and "disappear," Noam said.

A glance at today's consumer electronics products shows this is already happening. Consumer PCs now come equipped with TV and recording functions. Vendors have combined DVD, CD and VHS players into single units that have hard-disk drives. This week, not satisfied with adding cameras to their products, mobile phone vendors Nokia and Sony Ericsson Mobile Communications have announced that they will equip handsets with sophisticated music player functions.

The market for networked products for the home, which includes home servers, flat panel displays and next-generation optical recorder and player equipment, could be worth hundreds of billions of dollars for vendors over the next seven years, Noam said.

But after that, profits could "disintegrate" for consumer electronics companies because many of networked products now being developed will be replaced by a single box or hub. Around the home, people will perhaps only interact with a few thin clients that will be wirelessly connected to a central computing system, he said.

"The good news is that this will mean an initial spike in demand for makers. But it also means fewer hardware boxes being sold," Noam said.

At some point even the thin clients and hubs will become commodity items mass produced by any number of companies, not just consumer electronics giants such as Sony or Matsushita Electric Industrial. So, after spending billions of dollars developing ever more powerful chips, technologies and products, electronics companies will find it difficult to make profits, Noam said.

"Twenty years ago IBM offered a home network, and it cost US$20,000. Now it costs a few hundred. Chronic price deflation shows no sign of abating," he said.

Because they will be used in the home, home networks and products will have to be reliable, easy to use, and glitch-free, he said. This will create new opportunities because businesses will develop from the need to service home networks, he said.

A breed of specialized service vendors, called 'CSPs,' or 'Consumer Electronics Service Providers' could emerge, Noam said They will knit together home, community and work-based networks, providing services based around contents provision, security and assurance, he said.

But, eventually, those services will also be commoditized, spelling more difficulties for industry, Noam said.