Consumer electronics

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Market analysis

The Consumer Electronics sector revenue remained flat sequentially, but year over year it posted a marginal decline of 2.3%. Sequentially, Canon and Philips reported growth in net income of 102% and 632%, respectively. Apple saw a decline in net income of 26% sequentially and 27% compared to Q2 2015 as iPhone sales in China lagged and tablet sales declined. Sony Corp’s net income also dipped by 70% year over year and 126% sequentially.

Consumer confidence toward electronics spending gained marginally in June. The CTA Index of Consumer Technology Expectations (ICTE), which measures consumer expectations about technology spending, jumped 10 points in June to reach 87.5, in line with historical seasonal trends and only 0.3 points below June 2015. If tech sentiment remains, June’s rebound is a positive and points to renewed strength in the second half of the year. Additionally, as a share of total consumer spending, tech has been inching higher over the last six months, a sign that consumers are allocating an increasing share of funds towards tech. The CTA Index of Consumer Expectations (ICE), which measures consumer sentiment about the US economy as a whole, dropped nine points in June to 171.3. The drop in sentiment toward the overall economy was likely due to global uncertainty amid the Brexit vote in the United Kingdom.1

Broader adoption of the Internet of Things (IoT) and demand for new and emerging technology is also expected to drive the US consumer technology industry to US$286.6 billion in retail revenues (US$224 billion wholesale) in 2016. Sales of burgeoning tech products, such as wearables, smart home devices and drones, will deliver an increase of 1.3% over last year’s industry revenues.2

In company news, Apple posted second quarter revenue of US$42.4 billion and net income of US$7.8 billion, declining from US$49.6 billion and US$10.7 billion in Q2 2015, respectively. Gross margins also dropped to 38% compared to 39.7%. in the year-ago quarter. While iPhone sales were down, the Services business grew 19% year over year and App Store revenue was the highest ever. Apple initiated a share repurchase and dividend program of US$13 billion in the second quarter. Their lower margins were due to increased costs and a negative product mix as the share of sales of iPhone declined to 57% of sales.3

Philips reported marginal growth in revenue but reported strong net income of US$480 million, including a US$222 million award from the Funai arbitration. On May 27th, Philips also successfully spun off its lighting business—37.5 million shares were offered in the IPO at an initial trading price of €20.3

Sony Corp’s sales decreased by 10.8% year on year to US$15.6 billion. The significant decrease was due to the impact of foreign exchange rates, a decrease in smartphone unit sales, and a decrease in revenues in the Financial Services segment due to the deterioration in investment performance in the separate account at Sony Life Insurance Co., Ltd. This decrease was partially offset by an increase in the Game & Network Services (“G&NS”) segment sales, reflecting increases in PlayStation 4 software sales. Q2 2016 net profits fell by 74% to US$205 million due to a stronger yen, earthquake damage, and a fall in mobile phone sales. Sony has also agreed to sell its battery business to the Murata Group. The transfer of Sony’s battery manufacturing operations in Japan, China and Singapore should be completed by March of next year.3

1. Consumer Technology Association, June 2016
2. Consumer Technology Association, July 2016