Friday February 11 12:59 PM ET

## Toy Makers Bet on High Tech to Bolster Sales

By William Borden

NEW YORK (Reuters) - The toy industry is enthralled with high tech the same way that stock investors can't seem to get enough of the Internet.

And while the buzz for this year's American International Toy Fair in New York seems to say there should be a new high-tech toy for every tot, Wall Street isn't buying it.

The shares of many toy companies have been slumping in the past year even as they incorporate the Internet and computer chips into their merchandise.

``Digital play is going to be a real force in traditional toys,'' said Herb Baum, president of Hasbro Inc. (NYSE:HAS - news), the No. 2 U.S. toy maker, at the American International Toy Fair press conference on Thursday.

Toy Fair, a yearly ritual in which toy makers court toy buyers, analysts and the press, opens Sunday and runs through Thursday in New York.

It's not enough any more for a toy to be cuddly or cute. Computer chips, motion detectors and Internet links are becoming almost standard fare in toys that until now have been more high touch than high tech, such as dolls and stuffed animals.

Although high tech has souped up the latest toys, Mattel Inc.'s (NYSE:MAT - news) foray into interactive play cost Chairman and Chief Executive Officer Jill Barad her job after the Barbie and Hot Wheels maker bought The Learning Co. for $3.5 billion. The software company deal led to worse-than-expected losses at Mattel, and last Thursday, Barad's resignation.

Mattel's stock rose 9/16 to 10 13/16 a share on Friday in New York Stock Exchange trading, down from its 52-week high of 30-5/16. The shares of rival Hasbro fell 5/16 to 14 11/16 on the NYSE, also well off a 52-week high of 37.

Fisher-Price, a unit of Mattel known for pre-schoolers' toys, is including technology in 60 percent of its products, Fisher-Price President Neil Friedman said. At this year's Toy Fair, the company will unveil the Robotic Puppy. He's just a little plastic pup, but thanks to advanced robotic technology, he rolls his eyes, walks, pants, scratches for fleas and responds to a child's voice.

Like Mattel, many toy makers are betting on technology to keep kids interested in toys for longer periods.

The idea is to cope with the ever-shrinking attention spans of today's children -- a trend that has caused kids to outgrow toys faster than they did in the past. This trend has dampened growth prospects at many toy makers and prompted them to diversify into computer games. The toy companies also have incorporated electronics into dolls, toy cars, figurines and games to add sizzle to products that have changed little over the years.

Mattel has produced CD-ROMs to go with its traditional toys, such as its Matchbox toy car sets, to enhance the play experience.

Two years ago, Hasbro bought Tiger Electronics for $335 million to add handheld electronic toys and Furby to its product line. Hasbro also bought Microprose and blended it into its Hasbro Interactive line, which makes software.

Companies are installing computer chips to make the toys ''smarter'' as children spend more time playing with them. Tiger Electronics' Furby was the most widely known toy to incorporate this technology two years ago, enabling the plush toy to add words to its vocabulary -- and improve revenues for Hasbro after the Tiger acquisition.

Leap Frog Toys, an educational toy maker, is planning to have its educational toys download updates for toys from the Internet to keep the products relevant to children as they grow older, Knowledge Universe President Tom Kalinske said.

Knowledge Universe, which is backed by former junk bond king Michael Milken and Oracle Corp.'s (NasdaqNM:ORCL - news) Chairman and Chief Executive Larry Ellison, merged with Leap Frog in 1997.

This big tech push is making the toy industry feel plush.

Peter Eio, chairman of the Toy Manufacturers of America and president of Lego's international division, said he is expecting an increase of 2 percent to 3 percent in traditional toy sales this year. That figure rises to 8 percent to 10 percent when including electronic toys.

In 1999, the Toy Manufacturers of America estimated that sales increased 8.8 percent to $16.9 billion.

Gerard Klauer Mattison toy industry analyst Sean McGowan said that figure is too optimistic.

Last year's growth in electronic games came from Nintendo Co. Ltd.'s (7974.OS) Game Boy, which featured Pokemon games, McGowan said. Price cuts of Sony Corp.'s (6758.T) Playstation and Nintendo 64 dimmed revenues. He expects video games to be strong in 2001.

The release of ``Star Wars: Episode I'' in May gave a healthy boost to traditional toy sales in 1999, McGowan said. This kind of boost is unlikely in 2000, he said.

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Article is quoted from Yahoo News and is not edited in any way.
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