Electronics sellers find buyers have price limits

Despite record sales, electronics makers are discovering limits to what consumers will pay for the latest tech gadget.

Apple last week slashed the price of its iPhone cellphone to $399 from $599 just two months after it was released. That's a sign sales were sluggish, says equity analyst Ashok Kumar at CRT Capital Holdings. Apple has not released recent sales numbers. It said it cut the price because it wants bigger holiday sales and is on track to ship 1 million iPhones by the end of the month.

Most consumers will only pay about $399 for a typical electronic item, no matter how cool, says tech analyst Tim Bajarin with researcher Creative Strategies. Although there will always be some willing to spend top dollar, "that is pretty much the highest you can get and still have large volumes," he says.

That may be why several recent cutting-edge devices have struggled to find buyers. Among them:

•Cellphone-maker Palm last week canceled a much-touted new product, the Foleo, due in part to "early market feedback," CEO Ed Colligan wrote on the company's website. Many early reviews said the $599 Foleo, similar to a tiny laptop, was too expensive.

•Sony in July lopped $100 from the price of its $599 PlayStation 3 video game system, even though researcher iSuppli estimates it costs more than $800 to make. Sony's move came after being outsold more than 2-to-1 by rival Nintendo's $250 Wii. (Microsoft's Xbox 360, starting at $280, has also outsold PlayStation 3.)

•Blu-ray players were expected to dominate the new market for high-definition DVD, but sales are falling short of expectations, says tech analyst J.P. Gownder with researcher Forrester. The players, made by Philips, Samsung, Sony and others, start at about $450. Players using a rival technology, HD-DVD, start at about $250. Despite Blu-ray's powerful backers, HD-DVD players are outselling it, Gownder says. (Exact numbers aren't in yet.) That's because the average high-definition TV owner only wants to pay about $204 for a DVD player, he says.

U.S. consumer electronics sales are expected to top $155 billion this year, up from $145 billion in 2006, says the Consumer Electronics Association, a trade group. The amount people will spend varies by product, says tech analyst John Byrne with Technology Business Research.

Cellphones are usually cheap or free, because carriers subsidize the cost when customers sign up for service. As a result, few customers are willing to pay more than $400, Byrne says.

But there are exceptions. Consumers are willing to spend more than $1,000 on some large electronics, such as PCs and TVs. And some smaller devices are rare hits. An early 20-gigabyte iPod cost $499, yet sold well, Byrne says.

Since electronics prices usually fall over time, consumers should watch for price cuts, says Gownder. They avoid paying top dollar but can still get a product before it's obsolete, he says.

Contributing: Mike Snider

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