Friday October 13 2:16 PM ET
Toymakers Suffering From Technology Toymakers Suffering From Technology

By ANNE D'INNOCENZIO, AP Business Writer

NEW YORK (AP) - There's trouble in toyland.

Electronic chip shortages are forcing manufacturers to delay introduction of certain interactive toys until next year, meaning they will miss the crucial holiday season.

Meanwhile, the lack of a blockbuster film this year is creating headaches for toy executives, given that 45 percent of all toys are tied to licensing. Higher fuel prices have increased production costs for many companies as well.

All of these elements make for a disquieting combination as the holiday approaches.

``This has been a difficult business for everybody,'' said Dean Gianoukos, a toy analyst at J.P. Morgan, pointing out that with the exception of scooters, no hot product has surfaced to drive sales.

Gianoukos and other analysts also pointed out that ``age compression''- which the industry defines as the shrinking of the traditional age for toys - continues to be an increasingly nagging problem for toy makers. Firm are finding they have to compete with trendy fashion, music and electronic retailers for kids' dollars; the trend is only accelerating as children become more techno-savvy.

Companies are already starting to see an effect on their bottom line. Hasbro Inc., the nation's second largest toy maker, warned this week it would eliminate 550 jobs, in part for these reasons as well as slowing demand for ``Star Wars'' products worldwide and Pokemon toys in the United States.

Overall, sales of traditional toys from the January through August period are down 0.3 percent, compared to a year ago, according to The NPD Group, Inc., a Port Washington, N.Y., market research firm.

David Miller, president of the Toy Manufacturers Association, a trade group, said he is taking a cautious stance for the holidays this year, a marked change considering the blockbuster year in 1999 the industry had due to the Pokemon craze.

``The first half of the year was tough, and we are going into the second half behind,'' Miller said.

The worldwide chip shortage isn't helping matters. Sony earlier this month said it can only deliver half of its planned initial shipment of 1 million PlayStation2 game consoles by the Oct. 26 launch date, muting the impact of what is expected to be one of the season's hottest sellers.

Even the promise of a slew of robotic pets has been shortchanged. Hasbro will only be able to deliver a limited number of I-Cybe, a $150 fully motorized dog that was supposed to be the affordable version of Sony's retooled Aibo, which will go for about $1,500.

Part of the problem is that the invasion of technology into the toy category is making the business more complex, noted toy consultant Chris Byrne.

``The fact that toys are becoming more technological is changing the pace of the business. It is becoming faster. Toys are being redefined,'' said Byrne. ``Even Furby looks quaint.''

As a result, toy makers are scrambling to stake out new business opportunities, such as targeting the 8-to-12 age group with kid-friendly gadgets. For example, over the next six months, Los Angeles-based Manley Toy Quest will spend about $7 million to advertise its licensed MTV line of handheld computers and digital cameras.

But the changing landscape is forcing manufacturers to streamline their organizations and focus on their core brands.

Hasbro, which announced Thursday that it would report six to 10 cents per share for the third quarter, far below the Wall Street consensus of 32 cents, said it will be shifting some of its product development to Asia to bring toys to the market faster.

Hasbro, which owns Playskool, Tonka and Parker Brothers, also said it plans to reduce its reliance on the volatile licensing business, having seen disappointing results from its movie-linked ventures this year.

``We are positioning Hasbro so our bottom line is not dependent on a blockbuster movie,'' said Alan Hassenfeld, chief executive officer.

Mattel, the world's largest toy maker, is also on a campaign to bolster its traditional brands, such as Barbie and Hot Wheels. But it's also been grappling with financial issues: Last month it sold its money-losing Learning Co. unit to an affiliate of closely held Gores Technology Group in Los Angeles.

Mattel received no cash in return, beyond ``a contractual right to receive future consideration'' for the division that it acquired 16 months ago for $3.5 billion in stock but has been losing money at a pace of about $1 million a day.

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