IBM analyst sees continued growth for consumer electronics, but ...

Ronald Wilson -- EDN, May 27, 2010

Retail sales of electronic goods and appliances to homes in the United States will continue modest growth through August this year, according to a new forecast released this morning by IBM Global Business Services (GBS).

The news should provide some measure of comfort to electronics component suppliers who wonder if anyone is actually buying the goods flowing out the ends of global supply chains. But it may sound a cautionary note, as well, because the annual growth in US consumption is more than an order of magnitude less than recent growth in semiconductor sales.

Michael Haydock, practice leader for analytics at IBM GBS, said his organization's model, based on Holt-Winters Triple Exponential smoothing of time-series data, predicts total retail sales of electronics and appliances to be $24.6 billion in June through August of this year, a 4% increase from the same three months in 2009. He noted that this figure would still be about $1.4 billion--or more than 5%--smaller than sales in the first three months of calendar 2007, 18 months before the financial implosion.

Haydock said his figures were used primarily by retailers to fine-tune such decisions as inventories, hiring, and advertising. "The forecast helps retailers assess their own gut feel," he said. "Today they might be thinking, based on these numbers, that they should make sure they have enough inventory, and the skilled staff they need. Today's products are complex and require explanation. And in this scenario of continuing growth, they might look at moving their ad mix toward longer-term contracts to reduce rates."

Haydock emphasized that the forecast was based on time-series analysis, not on econometric models. So it could not predict a change in the underlying statistics such as could result from an external event-a Eurozone banking crisis or a war on the Korean Peninsula, for example-suddenly altering consumer confidence. But he does watch external factors, such as the gradually strengthening US Consumer Confidence Index, for early warning of statistical shifts.

Haydock explained that the analytical technique does not deal with causal relationships, only results. But his personal speculation suggests that there are three major components to the growth. First, there is a somewhat pent-up baseline of demand: people starting new households or replacing the broken dishwasher. Second, there is a returning comfort among employed consumers about making larger discretionary purchases: finally getting the 1080p big-screen. And third, there is the unquenchable impact of the compelling new product: when the Apple faithful queue up for their iPads. Each of these components has its own dynamic.

For retailers, Haydock said, the news is joyful. "They are just thrilled that people are out shopping." For semiconductor vendors, the message is more complex. The Semiconductor Industry Association recently reported that worldwide semiconductor sales in March grew 58% from March 2009. These sales serve all users of electronics, not just consumer goods. And the figure is global growth, not US growth, so it could be distorted by the rapidly waning Chinese binge on consumer durables. But still, with real semiconductor growth almost 15-times greater than US retail sales growth forecasts, you have to wonder who is watching inventories in the consumer-durables supply chains.