Consumer electronics

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Market analysis

The Consumer Electronics sector reported a marginal increase in revenue of 1% in Q4 2016 compared to the last year. Sequentially the sector experienced higher growth due to the holiday buying in the quarter. The increase in revenue sequentially was driven by Apple Inc and Sony Corp which reported strong revenue of US$78.4 billion and 20.7 billion, respectively.

The Consumer Electronics sector finished the year on a high note.  In fact, the Index of Consumer Technology Expectations (ICTE), which measures consumer expectations about technology spending, jumped 11.3 points in December to 89.1. Consumer sentiment toward technology spending bounced back in December following a temporary deviation in November. There was a healthy appetite for tech over the course of the 2016 holiday season thanks to strong performance by perennial strongholds, including strong sales of televisions over the Black Friday weekend and increasing interest in—even selling out of—emerging categories such as digital assistant devices, drones and VR headsets. In the entire holiday season, CTA projected tech spending would increase 3.1% over last year—driven mostly by an increase in online and mobile spending. The CTA ICE, measuring consumer sentiment about the US economy, increased another 4.5 points in December to reach 189.2, up significantly over the same month last year.1

In other positive news, increasing consumer enthusiasm for the Internet of Things (IoT) and adoption of emerging technology will drive the US consumer technology industry to US$292 billion in retail revenues in 2017. The sales of emerging tech products such as smart home devices, wearables and 4K Ultra HD televisions will help produce 1.5% year-over-year growth in industry revenues. Connectivity has become the major driving trend. Consumers recognize that connected innovations are changing our lives for the better—offering us more control and personalization while helping us lead safer, healthier and happier lives.2

Q4 2016 was another positive year of smartphone growth, though the growth rate is slowing. According to the Worldwide Quarterly Mobile Phone Tracker, smartphone vendors shipped a total of 428.5 million units during the fourth quarter of 2016 (Q4’16), resulting in 6.9% growth when compared to the 401 million units shipped in Q4 2015. For the full year, the worldwide smartphone market saw a total of 1.5 billion units shipped, marking the highest year of shipments on record, yet up only 2.3% from the 1.4 billion units shipped in 2015. Large markets like China, the United States and Brazil all ended the year on a strong note, helping to keep worldwide volumes in positive territory. This year (2016) was the first down year for iPhone, yet Apple closed out the holiday quarter by surpassing Samsung for the top spot in the smartphone industry. There were also year-over-year declines in some emerging regions like the Middle East and Latin America where high growth had been expected.3

In company news, Sony Corp’s sales decreased by 7.1% compared to the same quarter last year to US$20.7 billion. This decrease was mainly due to the impact of foreign exchange rates. There were significant increases in Game & Network Services (“G&NS”) and Semiconductor segment sales, which were offset by a decrease in Mobile Communications (“MC”) segment sales. Operating income this quarter decreased 54% year on year to US$796 million from US$1.7 billion last quarter. This significant decrease was mainly due to the US$962 million impairment charge of goodwill recorded in the Pictures segment. As announced on January 30, 2017, Sony made a downward revision to the projection for future profitability of the Motion Pictures business. Due to the revision, it was determined that the entire amount of goodwill, US$962 million, in the Production & Distribution reporting unit of the Pictures segment, which includes the Motion Pictures business, was impaired and an operating loss was recorded in the Pictures segment. During the current quarter, restructuring charges, net, decreased US$44 million. This amount is recorded as an operating expense included in the above-mentioned operating income.

Philips NV said it agreed to sell an 80.1% interest in the LED components and automotive lighting supplier Lumileds for US$1.5 billion and a participating preferred equity that entitles it to a share of future returns. The Dutch health technology company said it would sell the interest to funds managed by affiliates of Apollo Global Management LLC (APO). Philips will keep the remaining 19.9% interest for a minimum of three years after the Apollo deal is completed. The deal is expected to be completed in the first half of 2017, subject to customary closing conditions, including regulatory approvals.

 

1. www.cta.tech, Jan 2017

2. www.cta.tech, Dec 2016

3. IDC, Feb 2017