CEA's Steve Koenig: Economy may be ice cold, but CE sales are still warm
By Suzanne Deffree, Managing Editor, News -- 11/11/2008
While the consumer electronics industry may not be red-hot at this time, it's still managing to stay warm despite the chilling economic situation, according to Steve Koenig, director of industry analysis at the CEA (Consumer Electronics Association). In a recent interview with Electronic Business, excerpted below, Koenig talks about the state of the consumer-electronics industry as it moves into a holiday season and a new year: what's selling, what's not, and why CE products continue to show revenue growth.
Electronic Business: How are sales of consumer electronics doing in this economy?
Koenig: They are doing well relative to the overall state of the economy. Our research has shown that in relation to other industries CE is performing pretty good. …We are seeing strength because CE has become intimately woven into the fabric of our society. We count on it in business, we count on it in our personal and everyday lives to inform, communicate, and entertain. For that reason, we are still expecting about 7.3% revenue growth overall for this year. That's the highest industry level for CE. For the holiday season, which we define as Q4, we are looking at about 3.5% revenue growth [year over year].
Electronic Business: How does that Q4 growth compare to 2007's revenue growth?
Koenig: Last year we were looking at about 7% revenue growth in Q4 2007, so it's about half. But any sector that is posting positive revenue growth is a good story in these economic times.
Electronic Business: What's selling?
Koenig: The categories that we are seeing real strength in include wireless or mobile phones, video games—and that includes software, so consoles and games—entertainment products such as MP3 players and camcorders, as well as in-vehicle technologies like GPS navigation solutions.
Koenig: It's a growing category and one that has really segmented rapidly over the last 12 to 18 months, where you really do have a very visible good-better-best proposition and starting price points are as low as $149.
Electronic Business: Do you see any must-have CE products on holiday wish lists this year?
Koenig: We ask consumers to tell us what their holiday wish list is. No. 1on the list was "peace and happiness," but computers come in at No. 2, TV at No. 6, video games at No. 7, and mobile phones at No. 8.
Electronic Business: Do you have any specific Q4 growth estimates you can share?
Koenig: For audio-video products, and this would include MP3 and camcorder products for example, the Q4 growth rate is going to be approximately 3.9% on a revenue basis. Computers are looking at negative 1% growth rate on price deflation. Mobile phones [are expected to see] 11% revenue growth. What's really driving that is this new breed of phones inspired by the iPhone that incorporate multi-touch displays, like the LG Dare and the Samsung Instinct. Accessories and blank media, which would include flash-memory cards and thumb drives [are expected to see] 4.6% revenue growth. The broad video-games market [is expected to see] 5.6% Q4 growth. Digital cameras and photo frames are looking at about 6.9% revenue growth. Photo frames are another one of those areas that I think are going to be a surprise upside this holiday. There are a lot of manufacturers getting back into that space and price points are really coming down.
Electronic Business: What's not selling this holiday season?
Koenig: CE categories under pressure include the auto sound market, in the car GPS—portable navigation is the sweet spot right now—and satellite radios. The home-communication market, including the portable phone market, is really contracting as even more households move toward cell-phone only. I mentioned computers before. The unit volume is expected to increase but the revenue is expected to contract as a function of price deflation.
Electronic Business: Is there any one segment that stands out?
Koenig: Displays, part of the audio-video category, is an area that we are seeing a lot of strength building in middle-size categories, particularly in LCD. …Plasma is generally a large-screen market, but we're seeing a lot of shipment volume growth on a unit basis in [LCD] categories roughly between 24 and 36 inches. That tells us there is likely to be a very big push for that size in retail this holiday. Consumers may have already replaced the flagship display, but now they are looking at replacing the TV in the bedroom or the kids' room.
Electronic Business: Do you believe the DTV transition is having any impact on that?
Koenig: Very much so. That's another factor that figures into that growth, at the same time we are seeing strength in the higher priced categories as well as prices continue to come down. That makes the products more accessible to more US households.
Electronic Business: Thanks for the holiday update. Are you seeing similar patterns for 2008 overall?
Koenig: Speaking to the total industry in terms of annual growth, we still see digital displays leading in terms of the main category driver for the industry. We are expecting about $27.8 billion at the wholesale level revenue for digital displays. That's roughly about 16% of the total industry dollars. … So 11% revenue growth this year for digital displays.
Electronic Business: Is that the highest projected revenue growth?
Koenig: No, there are other segments, but displays are a big driver for revenues. Wireless handsets are in the second position when it comes to revenue growth. Here we are expecting, very broadly, that the handset market on a revenue basis will grow 13% this year. Overall, wireless handsets will account for about 13.6% of 2008 CE dollars. Video games is third at a little over $22 billion and just under 13% of total revenues. Here, looking at overall hardware and software, we expect a total of 19% revenue growth this year.
Electronic Business: How does 2009 look?
Koenig: A lot of these categories continue to be the main drivers, but we are seeing growth contract a little bit in 2009. For example, digital display revenue will pull back to 4%, handsets will climb just slightly to 12%, video games will pull back to 14%. That's still double-digit growth in those categories. Personal computers will see 1% growth in 2009, and that's a return to growth. The ongoing shift to laptops opposed to desktops is going to help.
Electronic Business: What are you projecting 2009 total growth to be for CE?
Koenig: We are expecting growth to pull back overall, as well, to about 5.8% on a volume of $183 billion. Where we are seeing some contraction in the outer years of the decade are in maturing markets, like MP3 and digital cameras. The revenue opportunity there is starting to turn the corner as household penetration really climbs ever higher above the 50% threshold. For example, with digital cameras as of July we are seeing 74% of households own a digital camera, 44% of households own an MP3 player. This is very typical whenever a market crosses that 50% or gets close to it you start to see revenues and unit volumes level out and eventually turn negative because it becomes more of a replacement market than an adoption market.
Electronic Business: Does the bad economy offer any additional opportunity for CE growth? People are staying home more.
Koenig: That is one of the many factors playing to CE's advantage in this down economy. Specific to the holiday, when we are talking about managing the household budget, consumers are telling us that they are going to cut back on items like sporting goods, furniture, home décor, travel, but they are less willing to cut back on packaged media or digital content purchases and various CE related subscriptions, like cell phone plans and paid TV services. You've heard terms like "nesting" or "cocooning." [People are] cutting back on travel and staying at home more often, but they still want to be entertained. On the other side of the equation with productivity and communication, we are increasingly connected. People may not take a trip, but they are not going to say, "I don't want that new cell phone." They want to be entertained, they've got to stay in contact with communication, so they are going to give up other things before CE.
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