Consumer electronics

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Market analysis

The Consumer Electronics (CE) sector in Q1 2016 witnessed a year-over-year decline of 6.3% and a quarter-over-quarter decline of 17.1%. The first quarter of the year is generally weak for CE companies, owing to the conclusion of holiday sales in the preceding quarter. However, several companies under the scope of our study also suffered from issues such as internal restructuring and a general decline in demand for products, further impacting performance.

Despite the weak performance of the sector, the Consumer Technology Association (CTA) Index of Consumer Expectations (ICE), which measures US consumer sentiment about the broader economy, jumped 6.6 points to 178.7 in March. A rise in consumer spending, as a result of wage growth and employment gains, helped lift consumer confidence in the economy. The US stock market also recovered, reversing the downward movement seen in the first two months of the quarter.1

With a rebound in US consumer sentiment in the overall economy, optimism toward technology spending also saw an increase. The CTA Index of Consumer Technology Expectations (ICTE), which measures consumer expectations about technology spending, also rose, moving up 1.5 points to 86.4 in March.1

Biometric technology is enjoying strong growth in the US Consumer Electronics (CE) sector. With the rising number of CE products featuring biometric sensors, it comes as a huge opportunity. Sixty-two percent of American adults who have used biometric technology are comfortable with it. Moreover, 63% of these adults are open to the use of biometric technologies for altruistic purposes such as medical research and in assistive devices for individuals with disabilities.1

Reflecting the overall sector results, among the companies under study, Apple and Canon posted both year-over-year and sequential revenue declines during Q1 2016. Philips and Sony were flat year over year and declined quarter over quarter. Toshiba declined sequentially, but posted 14% growth year over year in US dollar terms, but when reported as Japanese yen (JPY), experienced a year-over-year decline in Q1 2016.

In specific company news, Apple’s Q1 2016 revenue decreased 13% or US$7.5 billion compared to the same quarter in 2015, primarily due to lower iPhone sales, which declined for the first time in its nine-year history. Average selling prices (ASPs) for iPhones were lower year over year during the quarter due to a change in iPhone mix and the impact of weakness in foreign currencies relative to the US dollar. Despite lagging phone sales, Apple witnessed strong year-over-year growth in Services and Other Products. Geographically, the company’s revenue increased year over year in Japan (+24%), but saw a steep decline in Greater China (-26%), Rest of Asia-Pacific (-25%), Americas (-10%) and to a lesser extent, Europe (-5%).

On 17 March 2016, Toshiba sold its medical equipment business to Canon for US$5.9 billion (JPY665.5 billion). Subsequently, on 31 March 2016, the company also sold an 80.1% stake in its home appliance business to China's Midea Group for US$473.0 million. As a result, Toshiba has reclassified its Healthcare Systems & Services and Home Appliances businesses as discontinued operations. Toshiba’s Q1 2016 revenue declined 15% year over year, but increased 14% quarter over quarter in US dollar terms. However, in terms of its reporting currency, JPY, the company’s revenue declined 36% year over year and 14% quarter over quarter. The decline was led by Lifestyle Products & Services, which posted a revenue decline of JPY34.1 billion in Q1 2016 compared to revenue increases of JPY209.4 billion in Q4 2015 and JPY277.4 billion in Q1 2015.

1. Consumer Technology Association, March 2016