EL SEGUNDO, CA — With product delays, competing standards and inventory shortages plaguing consumer electronics, there may not be one killer application this holiday season that emerges to capture the attention of shoppers during this market’s hottest time of the year, iSuppli Corp. believes.

Apple's Internet Television, which will enable consumers to view iTunes and other content on their TVs via a Wi-Fi link to their personal computers, was one of the heavy favorites to tackle the market with both arms. However, now its launch date has been pushed back to January. Normally, such a delay might provide a great opportunity for another company to steal the spotlight with a hit holiday product. However, competing standards and product shortages are making this much less likely.

These issues also are among the factors contributing to a slowdown this year in consumer electronics equipment overall. Factory equipment revenue will only rise 2.4% to $302.3 billion in 2006, compared to 11.6% and 13% growth in 2004 and 2005, respectively.

Many of this year’s wannabe hot products are designed to build on the very strong sales growth for digital TVs  that support HD video. Chief among those products are next-generation HD-video DVD players, which should have been this year’s hit holiday product. Instead, the battle between the HD-DVD and Blu- ray standards for next-generation DVD is resulting in much slower growth. Many consumers are waiting for a winner or, more likely, the emergence of dual-standard players and/or disks in time for next year’s holiday season.

Although both sides will claim otherwise, neither standard has a true technological advantage. The HD-DVD camp, headed by Toshiba Corp., got a head start by entering the market in the late spring. However, those initial products have been criticized for slow performance and a lack of full 1080 progressive-scan HD video output. Toshiba now is readying second-generation products, including a model that delivers full 1080 progressive output. Meanwhile, the Blu-ray group, led by Sony, has encountered its own problems. Samsung Electronics launched its debut BD-P1000 player in June only to admit image quality problems in September.

Other Blu-ray makers have delayed launches, partly due to a shortage of blue laser diodes. Nichia Corp., the primary supplier and technology licensor of blue laser diodes for Blu-ray, has reported manufacturing yield problems. That issue has spilled over into a video game console market already entangled in the DVD standards battle; i.e., Sony’s PS3 includes a Blu-ray player while Microsoft is offering an add-on HD-DVD player for its Xbox 360. Sony has licensed Nichia’s blue laser diode technology to develop high volume production for the PS3. However, Sony also has reported yield problems and said it is about a month behind its production schedule. The result: A cut in 2006 PS3 global shipments to 2 million to 2.4 million units, a level that would seem to preclude “holiday hit” status.

On a more positive note, Sony has added High-Definition Multimedia Interface (HDMI) support to its base PS3 model and reduced Japan pricing in the wake of criticism.

The latter move may also be in response to new details about the Nintendo Wii, which will ship on the heels of the PS3 at a much lower price point of $249. In Japan, Sony likely views Nintendo as a much more serious threat than Microsoft. Nintendo has a strong history in Japan for both consoles and handheld players. Microsoft, however, has failed to gain significant market share with the Xbox and is also struggling with Xbox 360 sales.

Furthermore, the Wii has been receiving high levels of positive media attention since its show-stealing preview at this year’s E3 conference in May. With its innovative, unique controllers and low price point, the Wii may turn out to be the underdog hit of the video game market. Moreover, a relatively simple design without next-generation DVD support increases the chances that Nintendo can meet its 4 million unit shipment target for 2006.

Microsoft may be shifting its focus somewhat from the video game market to the MP3 player market, where it plans to launch its new Zune player in mid-November. The company may consider this timing a good opportunity since its main competitor, Apple, has yet to launch any significant new iPods so far this year. The second-generation nano adds spiffy new cases, but still does not support video. And the latest hard disk-based flagship iPod, which merely adds a brighter display and more storage, is a far cry from the much anticipated “true video” iPod featuring a larger, landscape-oriented display better suited for watching movies.

Still, Apple’s recent iPod launches did increase pressure on Microsoft by continuing to raise the basic value of storage per dollar. And Microsoft itself has created another serious challenge for the Zune by replacing PlaysForSure with a new proprietary Digital Rights Management (DRM) scheme. This change means that any content purchased through the Zune Marketplace will only work on a Zune player and not on PlaysForSure devices made by Microsoft customers like Creative Technology, SanDisk, Sony and many others. As such, Microsoft could further alienate customers already concerned that a key software supplier is now also a competitor for players. SanDisk already has announced a three-way partnership with RealNetworks and Best Buy to develop its own content-hardware ecosystem to rival those from Apple and Microsoft.

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