Consumer Electronics Industry Overview
According to GFK group, the US consumer electronics industry is forecasted to reach a record $223.2 billion in sales in FY15, a Y-o-Y growth of 3%, from the $216.8 billion in 2014. This accounts for approximately 22% of the global sales. The Consumer Electronics Association reported global sales figures of $1.024 trillion for technology devices in 2014 which was a Y-o-Y growth of 1%.
Broad product categories in CE industry can be
- Entertainment segment: Radios, televisions, speakers and headphones, home theatre systems, audio systems, MP3 players, digital cameras, camcorders, gaming consoles and car audio and video systems.
- Home Appliances: Refrigerators, microwave ovens, air conditioners, washing machines, and dish washers.
- Office segment: Laptops, desktops, computer accessories, personal computers, projectors, printers and digital storage devices.
- Communications segment: Smart phones, wireless accessories, and related devices.
The consumer electronics market is rapidly evolving; with new products and product upgrades being made available on a continuous basis. Continuous evolution is the new normal for this industry. Providing a more and more “immersive” and engaging customer experience and “Personalization” of devices are the most critical features on which companies are competing. And all this with a tight control on costs. The market faces rapid commoditization with “copy-cat” products entering the scene. Therefore the manufacturers are continuously struggling to bring differentiated products and protect their intellectual property.
Example: the new “curved” TV and Ultra HD 4K which provides the viewer with a highly immersive and high quality viewing experience.
From a distribution perspective, online retailing is rapidly gaining momentum and has become a major trend prevalent within the industry. Traditionally, consumer electronics were purchased in electrical retailer showrooms to give the consumer the opportunity to try out the product before purchase. In the recent times some retailers have had a hard time to ‘close the deal’ with sites such as Amazon & Alibaba being able to offer the same product at a significantly lower price. Price comparisons have become a lot easier. Consumer holds the purchasing power.
Consumer Electronics Value Chain / Ecosystem
The above representation from Oracle Industry Solutions is a great representation of the CE value chain. From a broader perspective, there are many more entities involved: software vendors, makers of the production equipments, engineering services providers and providers of generic components and subsystems. Sturgeon and Kawakami, in their 2010 report on global value chains (GVC’s) in the electronics industry for the world bank identify 3 principal actors in the ecosystem:
- Lead Firms: These firm own brands and sell branded products and systems in the end consumer market. These firms exert power over the supply chain by controlling the order base to their suppliers, in anticipation of large volume sales in the end markets. The table below is an indication of the breadth of the consumer electronics market across diverse industries
- Contract Manufacturers: These companies manufacture the product for the ‘lead’ firms and may also provide design services. Pure manufacturing service providers are called EMS (Electronic Manufacturing services). EMS and design service providers are called ODM’s. (Original Design Manufacturers). EMS may include services like component purchasing, assembly of circuit boards, final assembly and testing. Compal. Wistron and Inventec are some of the leading ODM’s of the world; all based out of Taiwan. Foxconn, Flextronics, Jabil Circuit and Sanmina-SCI are some of the leading EMS vendors.
- Platform Leaders. In markets like mobile phones and PC’s, platform leaders play a critical and powerful role. These are companies who have successfully established their technology and associated standards in the industry across successful products (own or others). Example: Intel was a dominant platform leader for the PC industry who had the technological capability and market power to give direction to the market and influence the supply chain. It could dominate standards / technological hand offs . Google is another example which been successful in building a complete product development ecosystem around its android mobile platform. Apple is an interesting example who is a ‘lead’ firm and also a platform leader. Apple again, very successfully established an ecosystem of third-party providers of software applications and hardware add-ons.
Revenues and Market Segments
Data Source: CE.org (State of the Global CE Industry as presented by Steve Koenig, director of industry analysis at CEA) [ Click image to enlarge]
Click Here to Explore the financial performance of top CE companies over last 4 years.
The historical CAGR of device sales has been 2.6% since 2010. Analysts at CE.org believe that sales will continue to be flat (around the 1 Trillion mark) for FY15. The chart plots growth at the historical CAGR (rounded to 3%). The figure on the right provides the breakup of the device sales into product segments. As can be seen from the segmented revenues, the smartphone market has exploded over the last 4 years [ CAGR of 22.4%] and the tablets market has nearly doubled to $68B [CAGR of 16%]. Remarkably all other product segments have shrunk in size pulling the overall trend flat. It is estimated that smartphones will continue the ride and gather as much as 46% share of device sales [approx 460B in sales]. Emerging markets and specifically China is expected to be the driving geography for this trend. It can be expected that the next wave of innvoations like smart watches and smart home technologies will build global momentum in the next few years.
Top Importers and Exporters
Key Trends in Consumer Electronics
|MEGA TREND: Ubiquitous connectivity + Pervasive cloud + Artificial Intelligence||Call it "Internet of Things" if you will. At its core, it's a universe of applications that involves collecting contextual data; connecting devices to internet resources; analysing and reporting insights; all without human intervention. Ultra Smart Phones, Connected Cars , Connected Health, Personalized Devices , Cloud Robotics and Industrial Automation.|
|Multidimensional Screen Expansion||Screens of all sizes are escalating, and every one of them is getting more pixels all the time. Ultra HDs and smart watches have started taking off. 4K and Curved TV are here to stay.|
|Virtual Reality (VR)||The next wave of VR driving "immersive experience" Project Morpheus by Sony is ready to change the entire gaming experience. Samsung's Gear VR , which provides VR experience with Samsung phones. All driven by software from Oculus, a company acquired by Facebook.|
|Shift to Services||Products launched in today's digital environment rely more and more on accompanying services to deliver value to their users. Software takes up a large share of the product/device, OEM's can upgrade and even redefine the primary functionality of the product post purchase; therefore catering to the evolving use-case scenario.|
- Articles listed in “Resources”.
Article is co-authored by Debanjan Banerjee, student of SIBM, Bangalore[2014-2016].