Consumer electronics

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The consumer electronics industry saw a sharp decline in the first quarter of 2015, with most companies showing negative results compared to the fourth quarter of the previous year. Most of the companies under study reported double-digit declines both sequentially and year over year. One notable exception is Apple, which posted a double-digit sequential decline, as a result of the release of iPhone 6 in November 2014 as well as a strong dollar, but a double-digit gain year over year.

Following a record high in February, consumer sentiment toward the overall economy slipped slightly in March. The Consumer Electronics Association Index of Consumer Expectations (ICE), which measures consumer expectations about the broader economy, decreased 2.8 points from February to 178.4 in March. However, this is the highest ICE value recorded for the month of March since the Consumer Electronics Association Index began tracking in 2007, surpassing 173.6 in March 2012. Moreover, the ICE value of March 2015 is 4.8% higher than the 170.2 recorded in March 2014—the highest year-over-year increase for the month since the index began tracking in 2007.1

The Consumer Electronics Association Index of Consumer Technology Expectations (ICTE), which measures consumer expectations about technology spending, fell 5.4 points from February to reach 89.5 in March. This is likely due to the end of the holiday season last quarter, coupled with the expectation that winter weather will affect businesses.1

Despite poor performance by companies during the quarter and falling consumer sentiment for technology products, the Consumer Electronics industry in 2015 is expected to reach US$286bn in terms of manufacturer sales to the retail channel.2 Growth will likely be spearheaded by new products, such as smart watches. The revenue from smart watches alone is expected to exceed US$3.1bn in 2015, growing 474% over 2014.2

Apple’s Q1 2015 revenue of US$58.0bn rose 27.1% year over year against US$45.6bn in Q1 2014, but slid 22.2% quarter over quarter against US$74.6bn in Q1 2015. The sequential decline can be attributed to seasonal changes (sales in the December quarter are higher due to the holiday season) and exchange rate risk (an appreciating USD hurt earnings realized in foreign currencies). In terms of regions, Greater China performed the best, growing 71% against the same quarter last year and 4% against the previous quarter. Japan performed the poorest, showing both year-over-year and quarter-over-quarter declines (-15% and -37%, respectively). In terms of business segments, Services—which includes iTunes Store, App Store and Apple Pay, among others—performed the best, growing 9% against the same quarter last year and 4% against the previous quarter. The segments showing both year-over-year and quarter-over-quarter declines were iPad and Other Products (which includes iPod, Apple TV and Beats Electronics, among others). iPad revenues fell 29% year over year and 40% quarter over quarter.

Philips’ revenue in Q1 2015 reached US$6.0bn, a year-over-year decline of 12.7% against US$6.9bn in Q1 2014 and a quarter-over-quarter decline of 26.2% against US$8.2bn in Q4 2014. However, in terms of its reporting currency, the EUR, revenue witnessed a year-over-year rise of 13.8% and a quarter-over-quarter decline of 18.3%. The difference can be attributed to the falling EUR against the USD, which greatly reduced earnings expressed in USD. Philips also faced cost escalations, with net margin in US dollar terms standing at just 1.9% in Q1 2015, compared to 2.7% in Q1 2014 and 2.1% in Q4 2014. Net income of US$112.8mn in Q1 2015 dipped 40.1% against US$188.4mn in Q1 2014 and 32.6% against US$167.4mn in Q4 2014.

Sony’s performance during the quarter was dragged down by lower revenue from mobiles, PS4 hardware, cameras, audio and video equipment, and theatrical and home entertainment. However, revenue was boosted by network services, televisions, image sensors for mobile devices and recorded music. First-quarter revenue of US$16.2bn declined 11.1% year over year against US$18.2bn in Q4 2014 and 23.6% quarter over quarter against US$21.2bn in Q4 2014. In terms of Sony’s reporting currency, the JPY, revenue witnessed a year-over-year rise of 3.6% and a quarter-over-quarter decline of 23.6%. The sequential decline can be attributed to seasonal changes (sales in the December quarter are higher due to the holiday season). For the year-over-year comparison, even though revenue increased in terms of JPY, a falling JPY against the USD for the quarter greatly reduced earnings when expressed in USD. Sony also reported US$73mn in PC exit costs, US$72mn of impairment charges and US$536mn of restructuring charges for the quarter. As a result, it reported a net loss of US$890mn against a net profit of US$736mn in the previous quarter.

  1. Consumer Electronics Association, March 2015
  2. Consumer Electronics Association, April 2015

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