Consumer electronics

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Market analysis

Revenue for the group of companies in our Consumer Electronics industry grew 6.1% year on year, despite a sharp decline of 26% on a quarterly basis. The uptick in revenues was due to Canon and Apple, which saw growth of 24% and 5%, respectively. Three of the four companies under study reported positive revenue growth. Year-over-year net income grew by 20%, but declined by 37% sequentially. As with revenue, three of the four companies reported positive year-over-year net income growth.

Continuing consumer demand for smartphones helped to drive revenue, with phone companies shipping a total of 347.4 million smartphones worldwide in the first quarter of 2017. This represented a 4.3% increase in worldwide shipments, which was slightly higher than the previous forecast of 3.6% growth. Apple remained essentially flat, with shipments reaching 51.6 million units in Q1 2017, up slightly from the 51.2 million shipped last year. The strong holiday fourth quarter carried into the month of January as the larger iPhone 7 Plus returned to stock across most channels in numerous regions.1

In contrast, it was a negative start for the worldwide tablet market, total shipments declined to 36.2 million in the first quarter, a year-over-year decline of 8.5%. The first quarter contraction marks the tenth straight quarter that tablets have experienced a decline over the same quarter a year earlier, with the previous five quarters recording double-digit drops.2

In company news, Apple reported a decline in iPhone sales, although its profits rose slightly from US$10,516 million to US$11,029 million year over year, as it managed to sell more expensive versions of its smartphone. Apple reported its first-ever decline in iPhone sales last year, but had returned to growth three months ago and analysts had expected a second straight quarter of improving sales. Apple has managed to post increased profits led by improved margins and posted growth in its vast services division, which includes app downloads, music sales and cloud storage.3

Philips’ sales were flat overall but, excluding currency impact and consolidation charges, increased by more than 4% on a nominal basis. Restructuring and acquisition related charges amounted to US$36.23 million. This had a significant impact on net income. Net income from discontinued operations increased by US$42.62 million, mainly due to improved operational performance in the combined Lumileds and Automotive businesses. Net income increased to US$247 million from US$35 million in the year ago period, driven by improved income from operations and lower financial charges.

Sony Corp’s sales increased by 5% to US$17 billion year over year due to increases in sales of Game & Network Services (G&NS) and Semiconductors segments. Sequential revenue decreased by 18%, mainly due to the impact of foreign exchange rates. In terms of Japanese Yen, Sony’s revenue grew by 4% year on year. Significant increases in the G&NS and Semiconductors segment sales was partially offset by a decrease in sales in the Mobile Communications and Pictures segments as smartphone units and television subscription video on-demand (SVOD) revenues both dropped. This decrease in net income 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 in the future profitability projection for the Motion Pictures business within the Pictures segment. 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$378 million. This amount is recorded as an operating expense included in the above-mentioned operating income. There is a turnaround in net income of US$247 million from the US$782 million net loss in Q1 2016, with the help of the Image Sensors and Mobile Batteries businesses.

 

1. IDC, April 2017
2. IDC, May 2017
3. Telegraph.co.uk, May 2017
4. NASDAQ, May 2017
    Seekingalpha.com, May 2017