Consumer Electronics Market Update
 By John MacWilliams, Bishop & Associates Inc.

Will the consumer electronics (CE) boom continue? Or will the financial meltdown impact consumer spending 4Q08 and beyond? Will high-ticket CE demand continue in a down market? Is market saturation developing in cell phones, digital cameras, etc.? Or, will CE innovation continue to drive increasing worldwide demand?

Consumer electronics has been a rising star. But the current U.S. financial crisis, which is now a global crisis, inevitably will impact this market.

And, while many connector suppliers are not focused heavily on CE products, there has been a profound shift in the broad electronics marketplace: Consumer electronics is now, to a great extent, driving the electronics industry. Many products categorized in other markets are really consumer items—and there are many new products in other markets that also fit this description, e.g. automotive, medical devices.

Thus, CE has become the largest category in semiconductor sales, and is increasing its share of connector demand, if you consider digitally converged consumer, computer, and communications markets; applications; and CE-driven standards: 

  • CE products and demand for them has exploded over the past decade.

  • New crossover CE products abound, bridging CE, computer, and communications.

  • Increasing affluence has spurred CE spending, including the developing world.

  • More people are working from home offices and in small businesses (SOHO).

  • Industry standards, such as USB, have become universal.

  • Wireless connectivity has been a major demand driver. as has increasing CE developments in Si ICs.

  • Several new product categories have arrived: HDTV, LCD displays, new audio, etc.

  • China has become the CE manufacturing location, bringing with it very low costs.

  • Contract manufacturing has also freed-up OEMs to be more aggressive on the marketing front.

The broadened consumer market includes OEM, subcontract, and white-box-manufactured consumer electronic products—those products purchased by the consumer include audio, video, game consoles, cameras, camcorders, home appliances, automotive aftermarket, recreational equipment, etc. Some high visibility CE products are reported in other markets, such as cell phones/telecom and PCs/computer-home/SOHO.

Digital convergence is at work here (digital technologies reaching across widely diverse, and previously separate applications). This is causing computer, communications, consumer products, and their applications to converge, heightening cross-platform competition, leading to many exciting new products—and to heightened competition among CE, telecom, and computer/peripheral manufacturers.

The Consumer Electronics Association forecasts the U.S. CE market performance. The U.S. CE 2007 sales are estimated at $160 billion, with a five-year 2003 to 2008 compound annual growth rate (CAGR) of 9.7 percent:

U.S. Consumer Electronics Shipments 2003-2008E


Source: CE.org $xB
 

World CE Market Estimate 2003-2008


Source: Bishop estimate $xB
 

 World Consumer Electronics
Connector Shipments 2003-2008E


Source: Current Bishop Forecast   $xB   2006-2011 = 8.6% CAGR
 *This percentage will drop if a recession happens in 2008-2009.
 

Throughout 2007 and into 2008, the consumer market has been strong, although some segments were thought to be showing signs of saturation or growing pains. Examples include digital cameras and flat panel TV (price erosion in displays, slower than anticipated growth, generally higher cost of large screen sets).

In-Stat, recently reported: “The worldwide market for consumer electronics products should continue to be strong [barring a worldwide recession], and will continue to expand through 2011. Shipments of personal computers and peripherals, traditional consumer electronics products, and communications products will grow from 2.7 billion units in 2007 to 3.1 billion units in 2011. [That is only 3.5 percent/year unit growth.] “Traditional consumer electronics devices continue to be led by the conversion from analog to digital television (DTV),” said Brian O’Rourke, In-Stat analyst. “PCs will maintain their strong growth pattern with a compound annual growth rate of 9.7 percent through 2011, with growth being driven by increased sales in Africa, the Middle East, South America, and Asia/Pacific regions.” 

  • A large and increasing segment of the PC business is consumer/SOHO.

  • Notebooks, in particular, have taken a big share of consumer PC spending.

  • Cell phones have exceeded one billion units, with wireless web smart phones rising.

  • Digital camera sales appear to be reaching a plateau, but have shown some resilience.

  • Flat panel TVs exceeded 50 million units this year, and the market is shaking out toward LCD.

  • Projection TV may not hold up against an LCD onslaught.

  • Blu-Ray (Sony) HD has won the HD-DVD battle.

  • GPS units are coming down in price, to the $200-$300 level, with internal HDD or SSD.

  • Apple has introduced several new iPods, plus the 3G iPhone.

  • Electronic Games: Nintendo Wii, Sony PS3, and MSFT XBox 360 are achieving HD images

  • SFF Flash Memory by the millions

  • Digital-enabled home appliances

There are also CE products bought by the consumer for the automotive aftermarket and recreational use, such as radios, DVD players and displays, dashboard-mounted navigation systems and satellite radios. These infotainment devices are purchased by consumers from Amazon.com, Best Buy, Circuit City, DH Direct UK, Metro AG, etc., and are installed in cars.

Overall, CE market segments include those listed below:

Consumer Market Segments


Sources: Bishop & Associates, Appliance Magazine, Consumer Electronics Assoc.

CE Product Example: iPhone 3G and Competitors
In July, Apple introduced the iPhone 3G, a second-generation iPhone operating on ATT’s 3 G network. This product is assembled by Hon Hai Precision and others for Apple, and follows the blockbuster June 2006 product, which grew out of Apple’s iPod family. Apple made it easy for original iPhone users to upgrade, plus added features for corporate users. 

  • The phone’s design is very close to the original—slim, sleek, with a fantastic 3.5-inch color display.

  • Numerous ICs and thin front-end connector (FEC) packaging enable major electronics in a small device.

  • At 4.5-inch x 2.4-inch x .45-inch, and under 5 oz, the iPhone is a brick, “packed solid” with electronics.

  • The display shows images, video, applications, as well as text.

  • A major new feature is third-party software, with a huge variety of Apple-approved applications.

  • Touch screen, switches, audio jack, iPod connector, and an excellent camera

  • AT&T’s 3G-network, 802.11, and Bluetooth connectivity

  • The iPhone scrolls or magnifies screen images with a pinch or flick of the finger.

  • An accelerometer switches from portrait to landscape when device is rotated.

  • GPS mapping, directions, and position are built-in.

  • EMail access includes Apple’s MobileMe, Yahoo, AOL, GMail, and others.

  • Safari, YouTube, Google Maps, photos, calendar, contacts, stocks, iTunes, and more

  • WiFi is faster than 3G, which is two to three times Edge on the original iPhone.

  • Battery discharge is approximately 24 hours.

  • “Airplane mode” switches off communications.

  • Phone has Apple-specific SIM card.

iPhone Connector Content
There are 23 to 28 connectors associated with an iPhone, depending on what accessories you buy. One curious item: The battery is hard-wired and requires an Apple battery replacement ($79.95). I think this is because the device is so sleek, they had to design it this way. 

  • Two I/O docking/charging connectors, Apple mini-jack

  • Two computer docks: docking cradle, plus USB

  • Three charging cables, 12 volt, 120 volt

  • Sixteen internal B2B, SIM, main board, comm. board, camera, display, other. Battery hard-wired

  • Five additional hardware: Bluetooth headset and car kit, both with mini USB connectors.

There is liberal use of flex circuitry with FEC connectors. If the connector value is approximately $5, the iPhone market could be approximately $50 million next year, and $150 million by 2010.

Consumer Electronics Outlook
The consumer outlook for the remainder of 2008 is questionable. Obviously, there are troubling signs in the U.S. and overseas economies. Issues include energy costs and the real estate/credit crisis, which are bound to impact consumer spending, perhaps in a major way.

There will be continuing cross-market competition, with traditional CE players doing best on their own “turf.” Examples include Dell- and HP-dominate PCs, but they haven’t set the world on fire with digital cameras or flat panel TVs. Sony, Samsung, Philips, and LG have done well in their traditional markets. One major exception to the digital convergence competitive landscape is Apple, which has invaded the CE space with a vengeance, creating several new trend-setting products.

Look for lower market growth overall, with emerging markets performing better than the developed world.
 

  • Continuing increases in flat panel DTV, with LCD leading the way. Plasma is moving into very large sizes, greater than or equal to 60”, giving ground in 42” to LCD. Price declines have been a problem for manufacturers, and this will continue at a slower rate.

  • Panasonic and LG lead in plasma; Sony, Sharp, Philips, Samsung, and many others play in LCD. Because LCD panel production is widely available in Asia (Taiwan, South Korea, and China), there are many new players in the LCD TV market. The business model has changed. New players, such as Visio, Maxent, Olevia and others, now have access to LCD panel manufacturers and are producing innovative new video products.

  • Projection TVs’ cost advantage is disappearing and this category is impacted by large panel LCDs.

  • Point-and-shoot digital-still cameras are experiencing a slowdown as the market becomes saturated, with SLR designs on the increase—and upgrades/replacements adding to demand.

  • There seems to be no end to growth in portable storage. Flash drives will begin to impact HDD as SSD capacities soar past 32 and 64 GB to 128, 256GB, and beyond.

  • HDMI has become a defacto standard in video, along with component video and the venerable RCA jack. DVI is still strong in computer monitors (Apple), but HDMI will dominate HDTV.

  • The appliance market continues to consolidate with more offshoring of board assembly. While manufacturers have continued to merge into global players, they face formidable competition from Asia (Haier, LG). The Whirlpool, Maytag merger is resulting in plant closures.

  • Many digital control modules and boards used in appliances are now outsourced. The result has been a reduction in board warranties, from one year to 90 days.

The connector market for consumer electronics has been, to some extent, rejuvenated by digital convergence and a series of new blockbuster products. There are many new applications, more global market challenges, increasing standardization, and a re-thinking of this market’s prospects by many companies.

The general character of the CE connector market is as follows:
 

  • Asia/Pacific and China-Centric in contract manufacturing, with Asian OEM competition emerging

  • Digital electronics = multiple digital PCBs with discrete wire connectors and LCD Displays

  • Most are I/O-connector intensive

  • FEC/FPC interconnects heavily used in SFF mobile/handheld products

  • LCD display interconnect has grown at double-digit rates and will continue to do so

  • I/O connectors remain strong, with design changes and wireless interconnects coming in the near future

Will CE’s run-up continue? No, we are in for a rough ride yet this year.
Impact of financial meltdown? Hopefully it’s temporary, but could be a multi-year event.
High-ticket CE demand in a down market? Yes, but slower.
Market saturation in cell phones, digital cameras, etc? Yes, but ... 
CE innovation will continue to drive worldwide demand, offsetting market saturation with new, better products.

John MacWilliams
Senior Consultant and Analyst, Bishop & Associates Inc.
 John MacWiIliams has been in the electronics industry for over 40 years. His main areas of experience have included: U.S. competitiveness programs, market research studies, authored articles, field sales and management, product marketing management, strategic marketing, new product planning, venture development, advertising and media relations, direct sales, manufacturers representative, distribution sales management, and international marketing. MacWilliams has worked with AMP, Diceon Electronics, TRW, and IRC in marketing management positions. Prior to joining Bishop & Associates, MacWilliams served as the group director of marketing and new product planning for AMP.

MacWilliams is a graduate of Lehigh University, where he studied business management and engineering.

 

 

 


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