Why The Consumer Electronics Industry Is Broken

For those of us who have spent years on the floor of the Consumer Electronics floor, one thing stands out. Ninety percent of the thousands of items on display never make it to the commercial marketplace. Another nine percent are never successful.

Those products that do make it to market often have very low margins. A number of large consumer electronics giants have operating margins under 6%. That would include Sony (SNE), Panasonic, Sharp, LG, and Philips according to Reuters.

Another truism about consumer electronics is that convergence has never really worked. The PC and TV really are different worlds. But, every single year, the big firms try again. Intel had it home entertainment project, which quietly vanished. Microsoft (MSFT) is launching a system that will allow the TV networks to run their internet based programming on TV. As an extension of this, the world’s largest software company will launch its Quattro product that will network the Xbox, PCs and the television. Microsoft says there are 14 million US household with broadband and more than one PC. That an $2 will get you a subway ride in New York.

Apples (AAPL) can’t resist throwing its hat into the ring. Its iTV product will apparently network PCs, TV, and perhaps its iPod.

There is scant evidence that the consumer wants any of this. On demand TV is available on cable. Why move it over from a PC? Much of the content on PCs does not have good enough picture quality to work on television sets. And, setting systems up can be complicated, even for consumers who have Tivos and DVD players.

Tivos, DVD players, VCRs, cable video on demand, YouTube. How much time is there in the consumers day?

For consumer electronics firms launching complex products the answer is that there are not enough hours in any day.

Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.