issue: January 2009 APPLIANCE Magazine
Forecast: North America
Expanded Web Coverage: Consumer Electronics: The $700 Billion Milestone Slips Away
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by Diane Ritchey, News Editor
The consumer electronics industry's forecast went from sunny to overcast.
In the middle of 2008, the Consumer Electronics Association (CEA) predicted that worldwide revenue for consumer electronics (CE) would grow nearly 10% in 2008, hitting the $700 billion mark by 2009. CEA also predicted that consumers will spend $42 billion more on CE products in 2009 over 2008. “Countries with fast growing economies and large emerging middle classes, such as the BRIC countries (Brazil, Russia, India, and China), will lead the way in new CE revenue growth. By 2009, China will account for nearly 15% of global CE revenue, trailing only North America (22% share) and Western Europe (16% share),” CEA said.
Collectively, CEA said that sales of mobile products would be 1.5 billion units in 2008. Topping the list were portable navigation devices (GPS), with expected worldwide revenue growth of nearly 20% in 2008. Laptop computers (up 15%) and mobile phones/smartphones (up 14%) would also see strong sales.
CEA predicted that global revenue for LCD TVs would grow nearly 28% this year, resulting in more than 100 million units sold worldwide. Flat-screen TV sales (LCD and plasma) will account for nearly 20% of worldwide CE sales in 2008. “DVD players, with expected sales of 127 million units in 2008, and video game consoles with expected sales of 89 million units are further testament to consumers’ use of CE products for entertainment and leisure time with friends and family,” CEA said.
As late as October and November, CEA was still forecasting revenue growth for the year of 3.5%.
However, in late 2008, CEA lowered its 4Q 2008 expectations, predicting “essentially flat” revenues and growth of only 1% compared with the same period last year.
The group pointed to newly available data, including final October shipment and revenue data, and a new survey of Black Friday shoppers, as reasons for its lowered expectations. CEA said the October data showed the economy and consumer sentiment “remain muted” and said its surveys “show overall spending is down this holiday season.”
“The severity and the speed of declines in these unprecedented times caught everyone off guard. Consumer sentiment is improving, but shopper unease this holiday season is creating challenges for all sectors of the economy, including consumer electronics,” said Jason Oxman, CEA’s senior vice president of Industry Affairs. “We are now projecting essentially flat revenue for the fourth quarter, and we continue to project overall growth for 2008.”
CEA noted that it now expects mobile phones to see 5% growth in 4Q 2008 compared with last year, down from the 11% forecast in October. The group attributed the adjusted expectation to consumers holding off on upgrading handsets and “steeper than expected price declines.”
Similarly, “greater than expected discounts on laptops and an increased interest in lower-priced netbooks are impacting the computer category,” said CEA. The organization is now projecting category will decline 2%, down from the 1% decline CEA originally predicted.
As the economic crisis continues to evolve, demand for personal computers is expected to slow quickly, according to research firm IDC, which expects worldwide PC shipments to grow just 3.8% in 2009 with shipment value falling by 5.3%. This is slower than 2Q projections of 13.7% growth in units and 4.5% in shipment value. The outlook for full year 2008 and 2010 have each been lowered a couple percentages to 12.4% and 10.9%, respectively, with growth above 12% for 2011 and 2012.
Market research firm iSuppli also slashed its 2009 forecast for PC unit shipments by nearly two-thirds due to “rapidly deteriorating conditions in the global economy and financial system.” The firm originally said it expected global PC shipments would grow 11.9% in 2009; now it is forecasting only 4.3% growth for the year. iSuppli’s 2010 expectations are also down. It is now predicting a 7.1% growth in unit shipments for the year, down from its previous outlook of 9.4% growth.
iSuppli said it believes desktop PC shipments will decline approximately 5% in 2009, but that the notebook category should grow about 15%. The firm said it foresees continued strength in notebooks because “the segment is currently performing very well and has strong momentum;” it also thinks the new lower prices on entry-level netbooks will help drive demand for that particular portion of the notebook market.
TV sales may be down, but not out, according to an IMS Research report. The report forecasted that, setting aside the U.S. DTV converter box program, that set-top box revenues in the U.S. will decline 5% from 2008 to 2009 and that volumes will actually rise, albeit at a relatively weak 9.3% annual rate over the same period. Globally, IMS Research forecast a 2% decline in revenues from 2008 to 2009 on 5% volume growth.
“While the market crisis has made financing an issue for some operators in developing regions, most are still pursuing their digitization strategies, including HD and DVR rollouts that require new set-top boxes,” said Anna Hunt, IMS’ Consumer Electronics Research Director.
Hunt continued, “While many consumers will very likely cut back on their entertainment budgets, TV remains a relatively cheap form of entertainment. Nonetheless, we are expecting ARPU growth to slow or even decline during the period. As a result, set-top suppliers are expecting considerable pressure on pricing in 2009, and low-cost segments such as cable DTA adapters could see considerable growth during the next two years.”
However, according to Stephen Froehlich, a senior analyst in IMS’ Consumer Electronics group, “The assumed recession hits the TV set market at a particularly critical juncture, destroying a major profit opportunity for TV manufacturers. By the time the economy recovers in 2010 or 2011 and consumers are willing to buy more expensive sets, the high-performance (120 Hz, high contrast ratio), LCD TV market will be much more commoditized than it is now, removing a major profit opportunity for Samsung, Sony, and other competitors in the luxury TV segment.”
Mobile Phone Slowdown
The cellphone industry has generally been unaffected by economic ups and downs, although this recession may well be very different, reports In-Stat. The current economic slowdown is more widespread and deeper than ever experienced during the history of the cellphone, and has spread through Europe, Asia, and North America. The industry is currently strong, In-Stat said, and 2008 is turning out to be a relatively good year, but the cellphone industry will likely have some bumps and turbulence over the next couple of years.
“The economic crisis is still playing out, but all indications are that it will have an effect on the cellphone business worldwide, but mostly on North America and Europe,” said Allen Nogee, In-Stat analyst. “In-Stat believes that it will take until 2010 before cellphone sales return to their normal growth levels.”
Despite negative shipment and sales predictions, CEA still noted that the average U.S. household reports spending $1,405 on consumer electronics products in the past 12 months, $120 more than the year before. The 10th Annual Household CE Ownership and Market Potential Study showed that HDTVs will have the highest growth in household penetration rates in 2008. Cell phones, MP3 players, digital cameras, and laptop computers are also driving growth in the industry.
The demographics of a household also determine CE purchases. Households with three or more people report owning 32 devices compared to just 17 for smaller households. Men also tend to own a larger number of, and spend more on, CE products, on average, than women. The study shows the average man reports owning 25 CE devices and will spend more than $1,000 on CE products in 2008 compared to the average women, who owns 21 devices and will spend $600. However, women are far less likely than men to consider CE products in the house “theirs personally.” Women are also increasingly influencing their households’ CE purchases. For example, about 45% of all retail CE purchases in 2007 were made by women at the checkout counter. Consumers 45 years old and younger, those with children in the home, and those with higher incomes tend to spend more on CE products than the average adult.
One factor that may help the consumer electronics industry is increasing efforts on the green movement and to promote a greener CE industry. In February, CEA is promoting the importance of environmental stewardship in consumer technology innovation through a Greener Gadgets Conference, which will bring together electronics industry leaders, entrepreneurs, journalists and designers to address key green topics including sustainable design and lifestyles, product marketing, energy efficiency, and more. The event also will feature the Greener Gadgets Design Competition, an awards program to recognize forward thinking and eco-conscious designers for their hard work, environmental awareness and creativity.
In addition, in late 2008, the association encouraged holiday shoppers to choose products marked with the Energy Star logo to limit energy consumption and lower electric bills. Specifically, CEA joined forces with The Alliance to Save Energy to encourage consumers to purchase televisions, computer monitors, and audio products with the Energy Star label.
Read our greatly expanded online coverage: North America Appliance Industry Forecasts for 2009: