Association Report, CEA: State of the Industry
As a longtime baseball coach, I would like to draw some parallels between baseball, the broader economy, and the consumer electronics (CE) industry. We are now more than halfway through the year and the 2013 baseball season. Let’s take a look at the state of the CE industry and dive into the sabermetrics from the Consumer Electronics Association’s bi-annual U.S Consumer Electronics Sales and Forecast report.
I’ll lead off with an update on the economy to give an idea of where we stand today but also to understand some of the implications for the consumer tech industry.
U.S economy: Receding Risks and Building Momentum
Certain notable risks will follow us into the second half of 2013, but strong momentum is building for the U.S. economy. Demand is picking up in major categories such as housing, automobiles and consumer technology, and financial conditions are generally improving.
“Hitting is timing. Pitching is upsetting timing.”
- Warren Spahn
The notable curveball for the first half of the year has been sequestration—hindering GDP growth. The drag on the economy will wane as we progress into the second half of the year and into 2014. I anticipate economic growth of around 2.2 percent in 2013, better than 2012, but still below trend growth for the U.S. economy. However, growth should pick up to three percent as we head into 2014.
Unemployment will continue to decline, but slowly. As we move into 2014 and 2015 and the economy grows above trend, we should see the employment rate accelerate. Pieces are falling into place, the full line-up is beginning to hit as it were—slowly, but heading in the right direction.
Conditions, however, remain volatile. Geopolitical concerns remain acute. CEA’s Consumer Sentiment Indexes, which measure how consumers perceive the overall health of the economy and the outlook for technology spending, have fluctuated from month to month in 2013. Both indexes consistently hover below 2012 levels.
On a positive note, consumer balance sheets continue to improve. Credit is expanding as consumers find themselves on firmer footing.
Smartphones and Tablets
As the broader economy improves, consumers will seek to fulfill pent-up demand for other categories of durable goods. This is encouraging for sectors such as appliances, furnishings and automobiles, but poses a potential risk for the consumer tech segment. As a percentage of all durable goods, technology has been on a slight down trend since it hit a peak of 17.6 percent in 2010, dropping slightly to 16.5 percent in 2012 and hanging around 16.1 percent today. As consumers spend more money on other categories outside of technology, this trend has the potential to catch the consumer tech industry off the proverbial bag.
Yet, several segments within the consumer tech industry are experiencing extremely positive growth. Consistent with recent years, smartphones and tablets remain the two heavy hitters, leading the industry’s growth. Continued demand in the first six months of the year has helped offset declines in other areas with revenue expected to maintain industry growth this year.
A number of new tech devices have launched over the last year, from smart watches to health and fitness devices. Connectivity is a key theme of growth areas in the consumer technology market and we are seeing it impact TVs, audio and a growing number of appliances are Internet and/or Bluetooth-enabled.
Bases loaded for TVs
As the former revenue-driving champ for the consumer tech industry, TVs have been batting near the bottom of the line-up for the last few years. But things are turning for this obviously still relevant category. Revenue and units are poised to rise in 2013—the first increase in several years. Growing faster than expected are adoption rates for large, flat-panel screens.
Keeping with the theme of connectivity, 32 percent of all TVs sold year-to-date have Internet capabilities. New technologies like OLED and Ultra HD also are arriving on the scene.
Audio making runs
Audio is another solid category with revenues once again growing this year. Receivers and sound bars are seeing very strong growth as more consumers look to enrich their audio experience.
Again, the big story remains connectivity. Last year, about 39 percent of receivers sold were Internet-enabled, and that number will reach almost 50 percent this year. Sound bars also will experience gains with revenue up significantly in 2013.
To bring it home: the fundamentals are getting healthier for the CE industry. Barring unforeseen events, the economy should continue to see measured improvements, getting back on track in 2014.
The second half of 2013 should bring progress with connectivity remaining a big driver, unexpected bright spots in CE, and overall resilience. As Spahn said, “Hitting is timing. Pitching is upsetting timing.” As we wait out this uncertain economy, here’s to having a pitcher mentality.