Technology Tempered by Economy, Restricted Spending

NJBIZ, Dec 29, 2008 by Ruth, João-Pierre S

THE MAKERS OF NEW technology started to feel a pinch from the narrowing market for software, hardware and other services in late 2008.

The spending outlook for consumer electronics tightened just before the holiday season, but federal spending on new technology in 2008 was spared cutbacks - at least, for the moment, according to Sarnoff Corp. in Princeton, which supplies technology to the military.

In spite of winning its format war with HD DVD technology, sluggish sales plagued Blu-ray in 2008, which watched sales of the next-generation video player fall 40 percent from January to February, according to reports from The NPD Group Inc. in Fort Washington, NY. Sales subsequently clawed upwards 2 percent in March, according to NPD, though specific sales numbers were not released.

The hurting in consumer electronics was not expected to end quickly, according to a November survey by ChangeWave Research in Rockville, Md. The survey found 43 percent of respondeat nationwide expected to spend less on consumer electronics during this holiday than last year's. Only 19 percent said they expected to spend more; in the November 2007 survey, 39 percent reported they planned to spend more.

Consumer electronics juggernaut Best Buy, based in Richfield, Minn., said its profits for the three months ended Nov. 29 were down 77 percent, to $52 million, from $228 million in the year-ago period. In a statement, Brad Anderson, chief executive officer, said buyout packages for Best Buy's corporate employees and layoffs were in the works.

Still, there were bright spots. Verizon Wireless, in the Basking Ridge section of Bernardsville, said trimmer consumer budgets did not seem to affect the November release of the latest high-end smartphone available to its subscribers, the BlackBeny Storm, produced by Research Ih Motion. David Samberg, public relations manger forVerizon, said the Storm sold out when it debuted in November, though no sales figures were available.

Samberg said while consumers are more mindful of their spending, the ubiquity of cell phones makes them less likely to cut back. "Will somebody spend $500 on a BlackBeny? No, but the Storm was priced at $199.99," he said, quoting cost for a two-year contract with Verizon.

Locking customers into contracts helps Verizon and its peers pay the cost of subsidizing such pricey phones. The Storm, for example, costs $599.99 without a two-year service contract with Verizon. Rather than skimping on the device, consumers may mind their usage to control costs for voice, text and data consumption, Samberg said.

Government-backed investment in innovations, too, remained steady for Sarnoff. Skip Richardson, vice president of corporate business development with Sarnoff, said the company continued its work on surveillance and video technology through 2008.

Sarnoff develops video surveillance and data gathering software and hardware used by the military and federal agencies to identify threats. The need to catch "bad guys" persisted in 2008, Mchardson said, keeping federal investment in this arena of technology consistent. This year, Sarnoff completed its Acadia II project an advanced chip incorporated into night vision and other visual technology - for defense use, he said. Production is expected in late 2009.

The future, though, seems just as uncertain as it does on the consumer end.

"Many [innovations] are by no means finished," Richardson said. "The technology is not sufficiently matured for production. We could be at risk if, suddenly, the Defense Advanced Research Projects Agency's budget was raided, and they lost millions of dollars they had earmarked for in 2009."

Future technology may be more closely scrutinized, according to Richardson, who expects the Barack Obama administration to closely review costs on pricey defense projects, such as the F-22 Raptor.

"That is very expensive - on the order of $361 million" per plane, he said. With such technology-reliant projects scrutinized, Richardson said rebuilding and maintaining existing technology will become more crucial. "I think you'll see less emphasis on new platforms and more emphasis on improving or refurbishing the platforms we have."

E-mail to jpruth@njbiz.com