News : Hard-up consumers seen seeking solace in gadgets

By Nicola Leske and David Milliken

BERLIN (Reuters) - Consumer electronic makers are bracing themselves for slower growth in the second half of this year and in 2009, but count on consumers turning to home entertainment amid tougher economic times and tighter budgets.

"When people don't have much money, they cut on big stuff and buy things that make their lives a little bit better, like consumer electronics," TomTom (TOM2.AS: Quote, Profile, Research, Stock Buzz) co-founder Corinne Vigreux said.

Vigreux said she expected the satellite navigation device company to be largely unaffected by the slowing economy in Europe and the United States, but retailers were being "very careful" on inventory levels in the run-up to Christmas.

Consumer electronics makers from around the world have descended on Berlin to showcase their products at the IFA electronics fair which runs from August 29 to September 3.

Many companies count on the fair for new orders as retailers shop for the upcoming holiday season, but are worried that a gloomy macroeconomic environment is casting a pall over sentiment.

"The overall market in 2008 is not very good and Europe is even worse," Shin Ik Kang, president and CEO of LG (066570.KS: Quote, Profile, Research, Stock Buzz) Digital Display.

A global economic slowdown, oil price increases and the subprime crisis had taken their toll, Kang added.

Euro zone retail sales posted their biggest ever yearly fall in June and British retail sales dropped at their sharpest pace in at least 25 years in August.

Kang expects the TV market in Europe to be flat this year and has seen some reluctance among retailers to place orders since May. Still LG predicts it will outperform the market in Europe.

"We are seeing people are more sensitive to promotional deals but have not seen signs of consumers turning to third-tier brands," said LG Digital Display's Europe head, Chi Eun Lee.

Lee also said she expected leading TV makers to intensify price competition, especially the biggest brands such as Sony (6758.T: Quote, Profile, Research, Stock Buzz) and Samsung (005930.KS: Quote, Profile, Research, Stock Buzz), the two leading LCD TV makers, ahead of the Christmas shopping season.

DON'T SACRIFICE MARGINS

Japanese electronics maker Toshiba (6502.T: Quote, Profile, Research, Stock Buzz), which also sells LCD TVs, said companies should not sacrifice profit margins for volume even if the weaker euro slows the growth of Europe's consumer electronics sector.

"We're not planning to subsidize this exchange rate swing at all. We'll either find ways of reducing the costs still further or we may have to adjust prices upwards," said Alan Thompson, Toshiba's executive vice president of computer systems for Europe, the Middle East and Africa.

Thompson said retailers were facing pressure from the economic slowdown and it was hard to predict where consumers would cut spending, but Toshiba was well positioned with alternatives to expensive rival high-definition video playback systems.

Sony Chief Executive Howard Stringer said it was hard to tell what effect an economic slowdown would have on consumer spending. He expects the consumer electronics market to slow in the second half but still sees double-digit growth in the TV market this year.

"We have not seen an impact on consumer spending yet," Stringer said, adding people often sought solace in entertainment during uncertain economic times -- citing the popularity of cinemas during the depression of the 1930s.

Stringer said home entertainment products such as TVs and Blu-ray DVD players were selling well.

"I see prices for Blu-ray devices to come down more and more before Christmas," he added.

(Editing by David Holmes)