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Electronics Biz Posts Record $1 Trillion in Sales Driven by New Smartphones, Tablets

Cheaper devices courting emerging markets to drag down revenue this year but give Hollywood more of an opportunity to distribute entertainment

The consumer electronics industry generated a little over $1 trillion worldwide in 2014, with much of that revenue coming from the sale of smartphones and tablets.

The figure, which is up 1% over 2013, was released by the Consumer Electronics Assn. at the start of the Consumer Electronics Show taking place this week in Las Vegas. It’s only the second time the industry has topped $1 trillion, a figure reached in 2013.

Smartphones and tablets are expected to continue to drive much of the electronics biz in 2015, according to Steve Koenig, director of industry analysis for the CEA. However, consumer decisions to replace their TVs at home with Ultra HD 4K units should provide a much-needed boost to the TV industry, while new smartwatches and other high-tech wearables will also expand that growing category this year.

“When you look at the global marketplace, it comes down to a small number of devices,” driving growth, said Koenig, citing three screens in particular: smartphones, tablets and TVs.

The smartphone remains the No. 1 consumer electronics device sold around the globe. “Smartphones are the vanguard of global technology spending,” said Koenig, noting 1.5 billion handsets will be sold this year, up 19% over 2014.

Combined, smartphones and tablets are expected to account for 46% of global technology sales this year, according to the CEA.

The CEA was caught off guard during the holidays by the number of HDTVs sold. Price reductions by companies like Sony and Samsung helped move 1.3 million HDTVs in the U.S. in 2014, much better than the 800,000 that the CEA had initially expected.

“Big screen innovation is driving growth” in the TV business overall, with 251 million units expected to ship worldwide in 2015, Koenig said. That’s up 2% over 2014 but less than the peak of 262 million units in 2011.

The average size of TVs sold will be 43 inches this year. It was 42 inches in 2014, and 39 inches in 2013.

More TVs are expected to move out of stores in 2015, as hardware makers look to replace their 1080p units with 4K screens. In fact, around 23.3 million 4K TVs are expected to sell worldwide in 2015, up 150% over last year, with 57% of them to move into homes in China.

While North America will continue to be a major source of revenue, it’s increasingly showing signs of becoming more of a mature market, with more growth expected to come from China, India and Africa — territories where consumers are snatching up mobile devices en mass.

More volume and growth is coming from China and India, given their massive populations, Koenig said.

Asia has already replaced North America as the leader in global tech spending. That handoff took place several years ago. Still, North America accounted for 22% of global technology spending in 2014, with Western Europe in third place at 18%, the CEA said.

“We don’t see it changing,” Koenig said.

One concern for the electronics biz is that the mobile devices hitting those territories — and coming from them — are far less expensive.

The CEA expects the average price of a smartphone to drop to $275 this year, while tablets will hover around the $260 mark.

“A flood of low-cost handsets are coming into the marketplace,” Koenig said, with 75% of them to be sold in developing markets this year. Those territories accounted for 40% of the business in 2010. “It’s a big turn of events,” Koenig added.

Home grown brands in China like Xiaomi, Coolpad and OnePlus are starting to put pressure on Apple and Samsung with units that cost less than $150.

Xiaomi alone sold 61 million units in 2014, with 70% of the sales generated online. Its latest phone, the Mi5 is a 5.7-inch screen with a 20.7 megapixel camera, signaling that Chinese brands aren’t just focused on making cheap phones, but “quite sophisticated” devices, Koenig said.

“These are new companies you haven’t heard of but certainly you will,” Koenig added.

That will decrease the amount of revenue electronics companies can generate from the devices, with sales expected to grow just 9% in 2015 to nearly $407 billion, up from nearly $374 billion, in 2014, which saw gains of 13%.

For tablets, 59% of shipments will be of screens smaller than nine inches, with 47 million to be shipped in the U.S. this year vs. 33 million last year.

Tablet sales increased 25% in 2014 to 281 million, and they’re expected to increase another 20% in 2015 to 337 million. But again, cheaper devices will hurt the bottom line for companies, especially new Android tablets that are expected to go for around $100. Emerging markets are expected to snatch up a majority of those devices. That will cause sales revenue to decline by 8% to nearly $62 billion this year, down from $67 billion.

Competition among hardware makers is good news for consumers, with major price reductions expected by the end of the year as more screens flood the market.

“The move to larger-screen TVs is a global phenomenon,” Koenig said, with consumers in emerging markets leapfrogging older technology and snatching up larger screens. “They’re starting with the latest technology. Sixty is the new 50, as they say.”

But all of this is especially notable for Hollywood, as more screens of various sizes means more of a distribution opportunity for content.

The appeal of mobile devices is obvious, with apps providing streaming, VOD and other methods to deliver and monetize movies, TV shows, games and music.

The number of TVs that are connected to the Internet has increased to 59% in the U.S., according to the CEA, up from 48%, another potential boon to content makers and distributors.

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