Changewave Research: Consumer Electronics Trends

ChangeWave Research: Consumer Electronics Trends

ChangeWave Research Report:

Consumer Electronics Trends

Spending Is Down –But Laptops and LCDs Are Doing Well

Overview: During the week of March 8 – 15, 2007 we surveyed Alliance members on their consumer electronics spending and shopping patterns – including a close-up look atspending for the next 90 days. A total of 3,266 members participated.

Bottom Line: Overall spending on consumer electronics isdown slightly compared to a year ago.Only 28% of respondents say they’ll spendmore on consumer electronics over the next 90 days, compared to almost a third (32%) who say they’ll be spending less.

On thebright side, spending onLCDs (14%; up 3 pts)and Laptops (14%; up 4 pts) appear to have momentum going forward (for more on PCs see our PC Market Update).

Top Home Entertainment Stores.Best Buy (54%; down 1-pt) is still the most preferred store to buy home entertainment and electronics equipment, although second place Costco (24%; up 1-pt) continues to make strides. CircuitCity (23%; down 2-pts)has slipped to third.

What Else is Happeningin Consumer Electronics?

• High Def DVD Players.The ongoing race between the two formats has Toshiba’s HD-DVD (7%) leading in terms of current market share by a 7-to-1 margin over Sony’s Blu-Ray (1%). Looking ahead 90 days, HD-DVD is set to gain 2-pts and Blu-Ray 1-pt.

• New Model Video Game Consoles. The Xbox 360 (7%) ranks highest in terms of current ownership, followed by the Wii (5%) and thePlayStation 3 (3%). Note that the Xbox 360 is compatible with the HD-DVD format, while the PlayStation 3 doubles as a Blu-Ray Hi-Def DVD player – and the Wii doesn’t currently play DVDs at all. Nonetheless, the Wii is handily beatingthe PS3. And looking forward, more respondents say they plan to purchase a Wii (5%) than the Xbox 360 (2%) and PlayStation 3 (2%) combined.

• Apple Products. Going forward, iPod planned purchases over the next 90 days (5%) are down 2-pts from our January survey results.Apple iTunes (28%) remains the most popular music downloading site, though it’s down 5-pts since January. We also note that our early numbers on Apple TV look promising for the new product. A total of 7% or respondents say they areVery or SomewhatLikely to purchase one in the next 90 days.

• Digital Cameras. Canon (37%) still leads the digital camera marketplace, with the top runner-ups – Sony (15%) , Kodak (14%), Nikon (11%) and Olympus (11%) – lagging far behind.Looking ahead at planned purchases over the next 90 days, Canon (34%) remains on top by a wide margin but Nikon (12%) appears set to grab the number two spot – well out in front of its competitors.

Summary of Key Findings

The ChangeWave Allianceis a group of 10,000 highly qualified business, technology, and medical professionals in leading companies of select industries—credentialed professionals who spend their everyday lives working on the frontline of technological change. ChangeWave surveys its Alliance members on a range of business and investment research and intelligence topics, collects feedback from them electronically, and converts the information into proprietary quantitative and qualitative reports.

Helping You Profit From A Rapidly Changing World ™

Table of Contents

Summary of Key Findings...... 3

The Findings...... 4

(A)Overall Spending on Consumer Electronics...... 4

(B)Home Entertainment and Computer/Networking Shopping...... 5

(C)High Definition DVD Players...... 7

(D)New Models - Video Game Consoles...... 7

(E)Apple iPod...... 8

(F)Downloading Services...... 9

(G)Digital Cameras...... 10

ChangeWave Research Methodology...... 12

About ChangeWave Research...... 13

I. The Findings

Introduction

During the week of March 8 – 14, 2007 we surveyed Alliance members on their consumer electronics spending and shopping patterns – including a close-up look atspending for the next 90 days. A total of 3,266 members participated.

(A) Overall Spending on Consumer Electronics

Overall spending on consumer electronics is down slightly compared to a year ago. Only 28% of respondents say they’ll spend more on consumer electronics over the next 90 days, compared to almost a third (32%) who say they’ll be spending less.

(B) Home Entertainment and Computer/Networking Shopping

(1) Question Asked: Focusing specifically on personal gadgets and home entertainment, which of the following items do you plan on buying for yourself or for someone else during the next 90 days?(Check All That Apply)

Current Survey
Mar ‘07 / Previous
Survey
Jan ‘07 / Previous
Survey
Nov ‘06 / Previous
Survey
Aug ‘06 / Previous Survey
Jun ‘06 / Previous
Survey
Jan ‘06 / Previous
Survey
Oct ‘05
Laptop Computers / 14% / 10% / 16% / 13% / 12% / 11% / 13%
Desktop Computers / 8% / 8% / 8% / 7% / 6% / 8% / 9%
LCD Television / 14% / 11% / 15% / 12% / 8% / 10% / 12%
Plasma Television / 4% / 5% / 6% / 4% / 5% / 4% / 4%
Rear Projection (DLP, LCD-Based) Television / 1% / 1% / 3% / 2% / 1% / 2% / 3%
Digital Cameras / 11% / 11% / 27% / 16% / 13% / 14% / 21%
iPods / 6% / 5% / 13% / 5% / 6% / 8% / 13%
Other MP3/Digital Music Players / 3% / 3% / 8% / 4% / 4% / 5% / 7%
Video Game Consoles / 2% / 4% / 6% / 1% / 1% / 3% / 4%
High Definition DVD Players / 5% / 4% / 6% / NA / NA / NA / NA
DVD-R Players/Recorders for Living Room / 6% / 4% / 7% / 6% / 6% / 8% / 8%
Satellite Radio / 3% / 2% / 5% / 2% / 4% / 4% / 5%

On the bright side, spending on LCDs (14%; up 3 pts)and Laptops (14%; up 4 pts) appear to have momentum going forward (for more on PCs see our PC Market Update).

(2) Question Asked: Which of the following stores do you and your family most prefer to shop at for home entertainment and computer/networking products? (Choose No More Than Three)(n=1,829)

Current Survey Mar ‘07 / Previous
Survey
Jan ‘07 / Previous Survey Sep ‘06 / Previous Survey Aug ‘06 / Previous Survey Jun ‘06 / Previous Survey Mar ‘06
Best Buy / 54% / 55% / 51% / 54% / 55% / 53%
Costco / 24% / 23% / 20% / 24% / 22% / 21%
CircuitCity / 23% / 25% / 22% / 24% / 25% / 23%
Amazon / 18% / 20% / 17% / 14% / 16% / 18%
Wal-Mart / 13% / 12% / 11% / 11% / 11% / 11%
Fry's Electronics / 12% / 12% / 13% / 14% / 14% / 13%
Dell Online / 11% / 9% / 17% / 16% / 15% / 17%
Sam's Club / 10% / 7% / 9% / 10% / 9% / 9%
CompUSA / 9% / 9% / 12% / 12% / 13% / 12%
eBay / 9% / 9% / 10% / 10% / 11% / 10%
Office Depot / 9% / 5% / 9% / 9% / 8% / 7%
Staples / 9% / 7% / 9% / 8% / 9% / 7%
Apple / 6% / 8% / 6% / 4% / 5% / 4%
Buy.com / 6% / 7% / 5% / 7% / 6% / 6%
Newegg / 5% / 5% / 6% / 6% / 5% / 5%
Target / 5% / 7% / 5% / 5% / 4% / 4%
TigerDirect / 5% / 5% / 4% / 6% / 6% / 5%
BJ's Wholesale Club / 3% / 2% / 2% / 3% / 3% / 3%
Radio Shack / 2% / 3% / 3% / 2% / 2% / 3%

Top Home Entertainment Stores.Best Buy (54%; down 1-pt) is still the most preferred store to buy home entertainment and electronics equipment, although second place Costco (24%; up 1-pt) continues to make strides. CircuitCity (23%; down 2-pts)has slipped to third.

(C) High Definition DVD Players

(3) Question Asked: Do you currently own a High Definition DVD Player? (n=1,857)

Current Survey Mar ‘07 / Previous Survey Nov ‘06
Yes - Blu-ray Format / 1% / 1%
Yes - HD-DVD Format / 7% / 5%
No / 89% / 89%
Don't Know /No Answer / 3% / 6%

(3A) Question Asked: Looking ahead, are you planning on buying a High Definition DVD Player in the next 90 days?(n=1,857)

Current Survey Mar ‘07 / Previous Survey Nov ‘06
Yes - Blu-ray Format / 1% / 1%
Yes - HD-DVD Format / 2% / 3%
No / 88% / 81%
Don't Know/No Answer / 8% / 15%

High Def DVD Players.The ongoing race between the two formats has Toshiba’s HD-DVD (7%) leading in terms of current market share by a 7-to-1 margin over Sony’s Blu-Ray (1%). Looking ahead 90 days, HD-DVD is set to gain 2-pts and Blu-Ray 1-pt.

(D) New Models – Video Game Consoles

(4) Question Asked: Which of the following new video game consoles – if any – do you (and your family) currently own?(Check All That Apply)(n=1,857)

Current Survey Mar ‘07 / Previous Survey Jan ‘07 / Previous
Survey
Sep ‘06 / Previous
Survey
Jun ‘06
Xbox 360 (Microsoft) / 7% / 8% / 4% / 3%
Wii (Nintendo) / 5% / 4% / NA / NA
PlayStation 3 (Sony) / 3% / 3% / NA / NA

New Model Video Game Consoles. The Xbox 360 (7%) ranks highest in terms of current ownership, followed by the Wii (5%) and the PlayStation 3 (3%). Note that while the Xbox 360 is compatible with the HD-DVD format, the PlayStation 3 doubles as a Blu-Ray Hi-Def DVD player and the Wii doesn’t currently play DVDs at all. Nonetheless, the Wii is handily beatingthe PS3.

(4A) Question Asked: And which of the following Video Game Consoles – if any – do you (and your family) plan on buying over the next 12 months?(Check All That Apply)(n=1,857)

Current Survey Mar ‘07 / Previous Survey
Jan ‘07 / Previous
Survey
Sep ‘06 / Previous
Survey
Jun ‘06 / Previous
Survey
Jan ‘06 / Previous
Survey
Jun ‘05
Wii (Nintendo) / 5% / 6% / 1% / 1% / 1% / 0%
Xbox 360 (Microsoft) / 2% / 4% / 4% / 5% / 6% / 7%
PlayStation 3 (Sony) / 2% / 5% / 4% / 6% / 5% / 7%
Do Not Plan on Buying a Video Game Console / 66% / 72% / 77% / 66% / 70% / 66%
Don't Know / 5% / 9% / 8% / 9% / 9% / 15%
Other / 0% / 1% / 0% / 1% / 2% / 0%

Looking forward, more respondents say they plan to purchase a Wii (5%) than the Xbox 360 (2%) and PlayStation 3 (2%) combined.

(E) Apple iPod

(5) Question Asked: Do you currently own an Apple iPod?(Check All That Apply)

Current
Survey
Mar ‘07 / Previous Survey
Jan ‘07 / Previous
Survey
Sep ‘06 / Previous Survey
Jun ‘06 / Previous Survey
Mar ‘06 / Previous Survey
Jan ‘06
Yes, Apple iPod (With Video Capability) / 9% / 10% / 6% / 4% / 4% / 4%
Yes, Apple iPod (Without Video) / 10% / 11% / 10% / 9% / 9% / 13%
Yes, Apple iPod Nano / 13% / 14% / 9% / 8% / 7% / 7%
Yes, Apple iPod Mini / 4% / 5% / 4% / 5% / 5% / 6%
Yes, Apple iPod Shuffle / 5% / 7% / 4% / 4% / 3% / 5%
Yes, Other Apple iPod / 0% / 1% / 0% / 1% / NA / NA
No / 66% / 63% / 69% / 71% / 74% / 72%

(5A)Question Asked:Do you plan on purchasing an Apple iPod in the next 90 days?(Check All That Apply)

Current
Survey
Mar ‘07 / Previous Survey Jan ‘07 / Previous Survey Sep ‘06 / Previous Survey Jun ‘06 / Previous Survey Mar ‘06 / Previous Survey Jan ‘06
Yes, Apple iPod (With Video Capability) / 2% / 3% / 4% / 2% / 3% / 1%
Yes, Apple iPod Nano / 3% / 3% / 3% / 2% / 2% / 1%
Yes, Apple iPod Shuffle / 0% / 1% / 1% / 1% / 0% / 0%
Yes, Other Apple iPod / 0% / 0% / 0% / 1% / 0% / 0%
No / 88% / 84% / 81% / 81% / 86% / 84%
Don't Know / 5% / 6% / 8% / 7% / 7% / 8%

Apple iPods. Going forward, iPod planned purchases over the next 90 days (5%) are down 2-pts from our previous survey results in January.

(5B) Question Asked:Apple is releasing its Apple TV set-top box, which offers a range of connectivity options designed to get iTunes content onto TV screens. This new device essentially streams audio and video content from a computer to a TV via Ethernet or Wi-Fi, and is controlled by an Apple remote with commands visible on the TV screen. The Apple TV retails for around $300 USD.

How likely is it that you will buy one of the new Apple TV set-top boxes in the next 90 days?*

Very Likely / 2%
Somewhat Likely / 5%
Unlikely / 82%
Don't Know / No Answer / 9%
Already Purchased Apple TV / 0%

*Note that this question was asked prior to the Apple TV ship date.

Apple TV. We also note that our early numbers on Apple TV look promising for the new product. A total of 7% or respondents say they are Very or Somewhat Likely to purchase one in the next 90 days.

(F) Downloading Services

(6) Question Asked: Which of the following types of entertainment – if any – do you or your family currently download? (Check All That Apply)(n=1,829)

Current
Survey
Mar ‘07 / Previous
Survey
Jan ‘07 / Previous
Survey
Sep ‘06 / Previous
Survey
Jun ‘06
Music Songs / 45% / 53% / 45% / 40%
Podcasts / 14% / 13% / 12% / 8%
TV Shows / 13% / 11% / 8% / 6%
Computer Games / 13% / 17% / 14% / NA
Movies / 12% / 14% / 9% / 9%
Books (Text) / 10% / 12% / 11% / 11%
Music Videos / 8% / 9% / 7% / 6%
Books (Audio) / 8% / 10% / 9% / 8%
Do Not Download / 38% / 32% / 40% / 42%
Other / 1% / 2% / 1% / 3%

(6A) Question Asked: Which of the following music download services – if any – do you currently use? (Check All That Apply)(n=1,829)

Current
Survey
Mar ‘07 / Previous
Survey
Jan ‘07 / Previous
Survey
Sep ‘06 / Previous
Survey
Jun ‘06 / Previous
Survey
Jan ‘06 / Previous
Survey
Jun ‘05
iTunes (Apple) / 28% / 33% / 24% / 20% / 21% / 13%
Musicmatch (Yahoo!) / 4% / 5% / 5% / 4% / 5% / 3%
Napster / 4% / 5% / 4% / 3% / 3% / 1%
Rhapsody (Real) / 4% / 3% / 4% / 3% / 3% / 3%
Wal-Mart / 3% / 2% / 4% / 3% / 2% / 2%
Connect (Sony) / 1% / 2% / 1% / 1% / 1% / 0%
Zune Marketplace (Microsoft) / 1% / NA / NA / NA / NA / NA
Do Not Use a Music
Download Service / 54% / 49% / 55% / 61% / 65% / 74%
Other / 5% / 5% / 5% / 4% / 3% / 3%

Apple iTunes (28%) remains the most popular music downloading site, though it’s down 5-pts since January.

(G) Digital Cameras

(7) Question Asked: Who is the manufacturer of the digital camera(s) you currently own?(Check All That Apply) (n=1642)

Currently Own / Current Survey Mar ‘07 / Previous Survey Jan ‘07 / Previous Survey Nov ‘06
Canon / 37% / 37% / 33%
Sony / 15% / 17% / 16%
Kodak / 14% / 15% / 15%
Nikon / 11% / 12% / 12%
Olympus / 11% / 14% / 15%
FujiFilm / 7% / 7% / 7%
Hewlett Packard / 5% / 4% / 5%
Casio / 4% / 4% / 4%
Panasonic / 4% / 4% / 4%
Konica-Minolta / 3% / 4% / NA
Pentax / 3% / 3% / 3%

Digital Cameras. Canon (37%) still leads the digital camera marketplace, with the top runner-ups – Sony (15%) , Kodak (14%), Nikon (11%) and Olympus (11%) – lagging far behind.

(7A) Question Asked: Who is the manufacturer of the digital camera you plan on buying? (n=164)

Planning to Buy
Next 90 Days / Current Survey Mar’ 07 / Previous Survey Jan ‘07 / Previous Survey Nov ‘06
Canon / 34% / 35% / 34%
Nikon / 12% / 14% / 11%
Sony / 7% / 8% / 6%
Olympus / 5% / 4% / 4%
Panasonic / 4% / 4% / 1%
Casio / 3% / 2% / 2%
FujiFilm / 3% / 2% / 1%
Kodak / 3% / 3% / 6%
Hewlett Packard / 1% / 1% / 0%
Pentax / 1% / 2% / 1%
Konica-Minolta / 0% / 0% / NA

Looking ahead at planned purchases over the next 90 days, Canon (34%) remains on top by a wide margin but Nikon (12%) appears set to grab the number two spot – well out in front of its competitors.

II. ChangeWave Research Methodology

This report presents the findings of a recent ChangeWave survey on consumerelectronics spending. The survey was conducted March8 – 15, 2007 and a total of 3,686Alliance members participated.

The Alliance’s proprietary research and business intelligence gathering system is based upon the systematic gathering of valuable business and investment information directly over the Internet from accredited members.

ChangeWave surveys its Alliance members on a range of business and investment research and intelligence topics, collects feedback from them electronically, interprets and reconciles the information in a cohesive manner and converts the information into valuable quantitative and qualitative reports.

The Alliance has assembled its membership team from senior technology and business executives in leading companies of select industries. Nearly 3 out of every 5 members (56%) have advanced degrees (e.g., Master’s or Ph.D.) and 93% have at least a four-year bachelor’s degree.

The business and investment intelligence provided by the Alliance provides a real-time view of companies, technologies and business trends in key market sectors, along with an in-depth perspective of the macro economy – well in advance of other available sources.

III. About ChangeWave Research

ChangeWave Research, a subsidiary of Phillips Investment Resources, LLC, identifies and quantifies "change" in industries and companies through surveying a network of thousands of business executives and professionals working in more than 20 industries.

ChangeWave has a very unique asset in its 10,000-member Alliance. We have assembled our membership team from a broad cross section of more than 20 vertical markets such as telecom, semiconductors, data storage, and biotechnology, along with a wide range of professional disciplines including CIOs, IT managers and programmers, executive management, scientists, engineers and sales personnel.

The ChangeWave Alliance is composed of senior technology and business executives in leading companies - credentialed professionals who spend their everyday lives working on the frontline of technological change.

This proprietary research and business intelligence gathering system provides a real-time view of companies, technologies and business trends in key market sectors along with an in-depth perspective of the macro economy - well in advance of other available sources. ChangeWave surveys its 10,000 Alliance members on a wide range of investment research topics and converts the findings into valuable investment and business intelligence reports. ChangeWave delivers its products and services on the Web at

ChangeWave Research does not make any warranties, express or implied, as to results to be obtained from using the information in this report. Investors should obtain individual financial advice based on their own particular circumstances before making any investment decisions based upon information in this report.

For More Information:

ChangeWave ResearchTelephone: 301-279-4200

9420 Key West AvenueFax: 301-610-5206

Rockville, MD20850

Helping You Profit From A Rapidly Changing World ™

This information is from ChangeWave Research, LLC and contains confidential business information.

It may not be copied or distributed without permission. ©2007 ChangeWave Research, LLC. All rights reserved.

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