Falling prices and rising costs are taking the oomph out of the digital appliance boom.

Electronics manufacturers, which have been riding high on the popularity of DVD recorders, flat-panel TVs and other digital appliances, suddenly find themselves prey to falling product prices and rising material costs.

The fate of the so-called digital appliance boom is of key importance for the Japanese economy as a whole because robust production of these high-tech products have benefited parts suppliers and other related companies.

Retail prices of DVD recorders, flat-panel TVs and digital cameras-touted as the three new sacred treasures of digital appliances-have been tumbling due to intensifying competition.

The profitability of DVD recorders, whose prices are estimated to be dropping 20 to 30 percent annually, is particularly bleak.

Prices of digital cameras fell by about 13 percent during the six months through September.

Some manufacturers have already been hard hit by the falling product prices.

Pioneer Corp., which has focused on DVD recorders, saw its consolidated operating profit drop as much as 24.4 percent from a year earlier in the fiscal first half despite a 7.8-percent increase in sales.

``We shipped more products, but prices declined more than we had expected,'' said Senior Managing Director Akira Niijima.

The decline in digital camera prices has dealt a blow to Sanyo Electric Co., the world's top producer.

Sanyo, which supplies its products to many other companies under original equipment manufacturing arrangements, saw its group sales rise 2.8 percent from a year earlier during the six months through September, while its operating profit slid 14.2 percent.

Senior Officer Yoshihiro Nishiguchi said the company plans to reduce digital camera production, citing growing inventories at retailers.

``Our cost-cutting efforts have failed to keep up with a fall in product prices in the market,'' said Takao Yuhara, a Sony Corp. senior vice president.

Sony suffered a 72-percent plunge in operating profit in its mainstay electronics division in the April-September period largely due to a dearth of hit products during the run-up to the Athens Olympics.

As for costs, rising prices of steel products and other materials are eating into profits.

Matsushita Electric Industrial Co. reported 156.3 billion yen in consolidated operating profit for the first fiscal half, almost doubling the year-earlier figure, but the company says its income would have been about 15 billion yen greater had it not been for a rise in material prices.

At Hitachi Ltd., the cost of materials for the six months were 8 billion yen to 10 billion yen more than originally estimated, officials say.

Sanyo, also a leading battery manufacturer, says its bottom line has been under pressure from increasing prices of such materials as cobalt, nickel and resins.

Many industry executives fear soaring crude oil prices will have an adverse impact on the crucial U.S. market.

``The rise in gasoline and kerosene prices will hit the wallets of U.S. consumers,'' said Matsushita President Kunio Nakamura. ``It is extremely unclear how the (largest) shopping season from Thanksgiving to Christmas will play out.''

Chipmakers say their earnings have not suffered as much as those of final product manufacturers. But the outlook appears uncertain.

Fujitsu Ltd. expects the utilization rates of its semiconductor plants to fall about 10 percent in the October-December period, according to Masamichi Ogura, corporate executive vice president and chief financial officer.

Toshiba Corp. Corporate Executive Vice President Sadazumi Ryu anticipates an adjustment phase in the inventories of electronics devices.(IHT/Asahi: November 2,2004)