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The Falling Price Of Flat Screens

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How do they do it so cheap?

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Prices for consumer electronics seem to be competing in an international limbo contest: How low can they go?

Economies of scale and production efficiencies, especially in semiconductors and electronic memory, permit manufacturers to offer more to consumers for less. Low-cost labor in Asia is a key factor in devices moving to commodities from cutting edge, must-have gizmos commanding a premium price - think VCRs, compact disc players and digital cameras.

Internet price comparison websites such as Shopzilla.com or PriceGrabber.com -- and similar services offered by major Web portals like Yahoo! (YHOO) and AOL, a division of Time Warner (TWX) -- allow buyers to quickly determine the best deal, adding additional downward pressure on prices.

Production cycles are short and manufacturers offer add-ons and upgrades in an effort to boost, or at least stem, the steep price declines in consumer electronics. Warranties have become huge moneymakers and many deftly cover the expected trouble-free years of the device. There's little sense spending several hundred dollars for service that you almost certainly won't need during the first years of ownership.

Fifteen or 20 years ago, true believers spent $2,500 or more on what's now a painfully slow computer with limited capacity. Today, the once-coveted home computer is little more than just another selection on the consumer electronics menu: Hewlett-Packard (HPQ) and Dell (DELL) offer basic PCs suitable for using email, surfing the Internet and word processing starting at about $300. Only Apple (AAPL) and a few other companies continue to command pricing power based on the brand's strength.

If you factor in inflation, new features and increased productivity, software isn't immune to falling prices either. Microsoft's (MSFT) Windows 95 retailed for $89.95 in most stores. Windows XP Home, three generations beyond Windows 95, sold for about the same. Thanks to the Net, you can find Microsoft Windows XP Home for $89.99.

Services aren't exempt from price cuts. Basic cell phone plans from Verizon (VZ) and other carriers cost about what they did several years ago, but the number of minutes included in the package has increased - or time limits on usage have been eliminated altogether. There's now money to be made in games, online delivery of news and ringtones. The cutthroat competition for Internet connections and phone service between Verizon, AT&T (T) and Time Warner is great news for consumers.

Rule of thumb: Never buy the first generation of anything unless you absolutely, positively h-a-v-e to be the first on your block to own one. You can bet that you'll pay a hefty premium for, say, the first Apple iPhone - and it won't be the best. If you can wait a year, or even two, you'll get a lot more functionality for less.

Nothing is immune. There may be an upheaval coming in high-definition TV. The price of Liquid Crystal Display TVs has tumbled more than 50% as the technology has improved and production costs have dropped. However, LCD could be clobbered by The Next Big Thing: Organic Light-Emitting Diode, known in the trade as OLED.

An OLED TV could be 80 inches wide and about a quarter inch thick. You could even roll it up and take it with you on a camping trip, if you can't bear the thought of getting away from it all.

Organic Light-Emitting Diodes are solid-state devices made up of thin films of organic molecules that create light with the application of electricity. OLEDs can provide brighter, sharper displays and faster response time for full motion video on electronic devices. OLED technology is also lighter, more durable and uses less power than LCDs. This makes OLED technology attractive for handheld devices or laptop computers. OLED technology could also be used on auto dashboard displays. It could make for killer billboards.

General Electric (GE) recently developed the first OLED roll-to-roll manufacturing technology, making the new technology much like printing a newspaper. Lower production costs are a key step in reducing price to the consumer and bringing the new technology to market with multiple applications. Sony (SNE), Samsung, Toshiba (TOSBF) and Seiko Epson are also active in the field.

OLED technology appears to be a few years away from extensive use. But if it has widespread commercial application, you can bet it will follow the familiar pattern of high initial price, steady technological improvement and falling prices. If OLED takes off, the cost of devices using LCD technology will collapse.

Ain't capitalism grand?

Just be wary of specialized electronic retailers. Circuit City Stores (CC) has been pounded, especially as consumers cut back on big-ticket items in the weak credit and housing markets. Rising food and gas prices don't help either. Wal-Mart (WMT) and Costco (COST) are expanding their offerings in consumer electronics, creating additional price pressure. Still, Blockbuster (BBI) has offered to buy Circuit City for $6 to $8 a share, creating an $18 billion retail enterprise to go after what it hopes is the convergence of media content and electronic devices.

Does anyone remember the simple life before the Internet and an integrated world economy sped things up and created relentless downward pressure on prices? It's now innovate and cut prices or die. Here's betting no one misses having a clunky cathode ray tube in the living room.
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