CES: Electronics Biz Needs ‘Next Phase of Innovation’

CEA paints a bleak picture for itself with sobering global projections

LG Ultra HD TV

Just about everywhere in the world the consumer electronics industry is, underwhelming expectations await.

The Consumer Electronics Assn. painted a bleak future during a press event in Las Vegas on Sunday, just hours before the Consumer Electronics Show kicks off here.

“We are now waiting for the next phase of innovation,” to turn around a slowdown in sales, according to Steve Koenig, director of industry analysis for the Consumer Electronics Assn.

While overall sales of consumer electronics grew 3% across the globe in 2013 to $1.068 trillion, a record for the industry, it’s expected to remain flat, if not decline slightly by 1% to $1.055 trillion in 2014.

Sales of smartphones and tablets, which have driven a majority of sales for the electronics biz over the last several years, have tapered off in major markets. And while Ultra HD TVs are said to become the next major purchase in the home, sales of the high-resolution screens aren’t expected to reach significant levels until at least 2017.

At issue are maturing markets in North America, Japan and Western Europe, which aren’t showing much growth anymore since consumers there have already upgraded to the newest devices. Instead, the industry has its eye on Central and Eastern Europe, Latin America, China, India, the Middle East and Africa as future bright spots.

Even the usual suspects, the BRIC nations (Brazil, Russia, India and China) are slowing, with spending on electronics in China is expected to decline to 7.4% from 7.6% this year, while Brazil is expected to fall to 1.9%, despite hype around the World Cup.

In 2014, the biggest growth markets will be the Middle East and Africa (expected to grow 6%); followed by Latin America (2%) and emerging markets in Asia (1%). More developed countries in Asia, including Japan, will decline by 8%, with North America also expected to decline by 1%.

Instead, the MINT nations of Mexico, Indonesia, Nigeria and Turkey are now expected to do much of the heavy lifting starting this year.

Not surprisingly, the CEA is still bullish on China, not only because of its massive population (there are 160 cities with over 1 million people, versus nine in the U.S.), but studies have found that Chinese citizens are only eager to open their wallets in the coming year.

This year, 61% of consumers in China plan to spend more over the next year on smartphones, tablets, headphones, TVs, and mobile computing, with 90% saying technology provides them with the tools they need to succeed in life. In the U.S., that sentiment is beloved by 75%.

Koenig gave examples of areas that are growing for the CE biz — Ultra HD TVs, curved displays, PLED TVs, 3D printing, smart watches and other wearable tech — that may become new sales drivers.

“These could become the next big technology markets that propel us into the next cycle of growth,” Koenig said.

While 3D TVs sold well for the industry, they aren’t expected to receive a big push from manufacturers, Koenig said. “We’ve stopped talking about them,” he said.

But it’s still too early to tell what new hardware will take off, especially when it comes to Ultra HD TVs.

While 8.7 million Ultra HD TVs are expected to ship in 2014, only a few will be sold in the U.S., the CEA predicts.

Last year, 57,000 Ultra HD TVs were sold in the U.S., the CEA said. That’s expected to increase to 485,000 in 2014, 1.25 million in 2015, 1.95 million in 2016, and 2.9 million in 2017.

TVs, which also were once a major sales driver, have all but flattened due to a lack of demand.

In most cases, consumers have already upgraded to newer TV sets. In Japan, that took place in 2010 and 2011 and was spread out over a longer period in the U.S.

But bigger is always better in the U.S., where Koenig said Americans can’t bet a screen that’s big enough. “We love big screens,” he said. One of the most popular sellers this holiday was a $1,000 70-inch TV from Vizio that Walmart offered for $1,000.

The roll out of more smart TVs and increasing screen sizes “will help us claw our way back,” Koenig said, with 260 million to 275 million TVs excepted to be sold globally on average.

Instead, smartphones and tablets will continue to be in high demand, only cheaper versions of existing hardware that will come with smaller screens of around nine inches or less, as a way to keep costs low.

Yet lower costs will also mean less revenue for hardware makers, with overall sales expected to decline by 3% over the $1.068 billion they earned in 2013.

As a result, cheaper devices will mean more tablets in the home, with Koenig saying it will be common for there to be three to six screens throughout the house on bedside tables as e-readers, as remote controls in the living room and in the kitchen to research recipes.

“The last hurrah in global spending is coming from smartphones and tablets,” Koenig said. “At $199 price points, consumers can afford to buy several of these.”

The popularity of tablets took a toll on the bottom line of TV sales, Koenig added. “There’s less of a need to have more TVs if you have a tablet you can carry around.”

Any changes in the smartphone and tablet biz is significant because the devices made up 43% of the world’s consumer electronics sales in 2013. Overall, 80% of technology spending is generated in seven product categories: smartphones, tablets, mobile PCs, feature phones, LCD TVs, desktop PCs, and digital cameras.

In 2012, North America accounted for 40% of the world’s tablets. Now it’s down to 33%, according to Koenig, with demand from foreign markets knocking North America off the perch as the biggest buyer of electronics.

That almost happened in 2012 but it officially happened in 2013 and is expected to widen even more this year. “North America’s share has peaked,” Koenig said. “North America will have to settle for the No. 2 position for the (years) to come.”