Latest CEA Industry Data Shows Shocking Struggles, Are We Headed for a ‘Meltdown’?

CEA Line Show LogoOne of the benefits of attending the 2012 CEA Line Show in NYC is that the sponsoring trade group (Consumer Electronics Association) brings their resident economist who provides the latest market research data of where the industry is now…and where he thinks it will be at the end of the year after the holiday selling season. He’s not always right…but he is always interesting. And this year, as always, there was a mixture of good news and mostly bad news.

See the latest CEA data – much of it surprising. Do you agree with their areas of opportunity?…

“So what I want do today is give everyone a quick review of where we see the market headed as we move into the back half of 2012.” And with those words, CEA’s Chief Economist and Director of Research Shawn DuBravac launched a fast paced, fact-filled presentation on trends – economic, industry, and technology.

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Shawn was particularly high energy – perhaps because he was so late to the event that Master of Ceremony Jeff O’Heir – editor of Dealerscope – had to actually switch the event around and move up a presentation by CEA’s Gary Shapiro and Randy Fry originally scheduled for later in the day. DuBravac moved so quickly through his presentation – that the press struggled to keep up with him.

Slide after scary slide…

Shawn DuBravac, CEA Economist

Shawn DuBravac, CEA Chief Economist

Trying to sound upbeat, DuBravac’s “optimism” was continually challenged as he showed slide after scary slide of economic, industry, and product category downturns. Perhaps his title slide said it all, his presentation was titled Mid-Year Update: A Meltdown in the Second Half?

How’s the economy doing? Consumer spending is off…consumer confidence is off…Europe is scaring everybody.

How’s the industry doing? Sales of video products are off in units and dollars…even flat panel TVs sales are down…audio is down…digital cameras are down…only tablets, smartphones and Internet-connected TVs are doing well.

Slide after slide conveyed the story of an industry that is struggling. And while certain segments seemed to be holding their own…for the forseeable future, DuBravac’s slides made it pretty clear that our industry challenges will continue for a number of years to come.

Some bright spots…

Now in some of these categories, there are some bright spots, but overall the only categories showing positive results are tablets and smartphones. And for many of us this is of no consequence, as we either are not in these categories – or we’re not making much money if we are in them.

In fact, early on in his presentation, DuBravac noted that overall sales last year grew “nominally” at 8% which he called “pretty robust.” However, this was “largely driven by tablets and smartphones – without those two categories revenue growth last year would have been down 3%.” Yikes…he got my attention.

“So we definitely have drivers in the marketplace and it’s primarily those two categories,” DuBravac added somewhat optimistically.

DuBravac went on to say that in order to help us understand just what’s going on,  he would talk a little bit about the cycles – product/technology sales cycles. “And it’s definitely a tough environment relative to some of those cycles,” DuBravac warned.

Consumer spending trends…

DuBravac showed a chart of consumer spending over the years and noted that during the last recession, tech did a little better than other durables. This is because durables tend to be more of a delay-able purchase – you can hang on to the washing machine, furniture, or car a little longer.

Consumer Spending Chart

Chart Showing Consumer Spending – Black Line is Tech Spending
(Click to see a larger version.)

But what he didn’t comment on is that with the drop off in consumer spending 2012 year-to-date, tech has actually done worse than durables or the overall average. On this point we got no comment from the CEA economist.

Consumer sentiment is off…Europe may be a factor…

DuBravac then showed the latest CEA Consumer Sentiment Index, noting that overall consumer sentiment has shown four or five months of decline this past spring. This compared with previous years of spring slow downs, DuBravac said, but felt that this year’s rising gas prices in the spring squeezed consumers and this was why sentiment dropped. These pressures, however, are moderating now.

Chart Showing Unemployment Rate in Select European Countries

Chart Showing the Unemployment Rate in Select European Countries
(Click to see a larger version.)

In discussing Europe, DuBravac showed a graph of European bond yields which have risen dramatically recently as a result of their economic difficulties. He then showed a chart of the unemployment rate in Europe, commenting that Spain currently has nearly 25% unemployment. Both of these charts represent economic uncertainty in Europe which “spills over into the rest of the world.”

Good news, consumers taking on debt again…

There was some positive economic news in a chart showing the level of consumer credit. “Outside of some of those concerns around sentiment, you actually see a consumer that’s starting to improve,” DuBravac said. “So for the first time in several years, we’re seeing year-over-year growth in consumer credit.”

Consumer Debt Level Chart

Chart Showing the Level of Consumer Revolving Debt
(Click image for larger version.)

DuBravac called this a positive development both as a supply-side and a demand-side story. On the supply-side, its good to see banks are willing to extend these types of consumer loans. And on the demand-side, its good to see consumers willing to take on additional debt.

Moving into more industry specific data, DuBravac reminded reporters that he believes certain product or technology “cycles” are driving some of the market dynamics we are seeing taking us into the back half of the year.

The picture on video is a little fuzzy…

Commenting on a chart showing video unit volume, DuBravac noted that video units were off 14% in 2011 and are down another 13.7% so far this year. He suggests that this drop-off is “largely driven by the legacy” video products, such as standard DVD players, which are down 30% year-to-date. This puts a tremendous amount of “headwind and pressure on the category.”

Industry Video Sales in Units

Industry Sales of Video in Units
(Click image for larger version.)

Why? In a typical technology transition cycle, such as when DVD rolled out to supplant VCR,  you have large volume gains in the new technologies sufficient to offset the drop-off in sales of the legacy products being phased out. Unfortunately, in this case, Blu-ray is growing – but it is not a “significant enough volume” to overcome the declines we are seeing in standard DVD.

Video revenues and flat panel sales not as severe…but still not good…

In video revenue, the situation is a little better…but not much. Video revenues last year, like unit volume, was off 14%. This year, however, revenues are down only another 7.6%. This is mostly due to a decline in pricing pressures for the category.

In flat panel television, unit sales were off 2.3% in 2011 and…according to DuBravac’s slide, are flat so far this year. (Interesting, twice during his presentation, DuBravac said flat panel units were off 3% YTD, but his slide showed “flat” for YTD.) On a revenue basis, flat panel TVs declined last year 11.2% and so far this year are down another 2.9%. LCD TVs are doing a little better than the CEA forecast but plasma is off 30% in YTD unit volume.

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Large screen sizes are getting larger, small screen sizes are disappearing…

Screen Size Trends for TVs

Average TV Screen Sizes are Growing Dramatically
(Click image to enlarge.)

One other interesting note in TV trends…there appears to be a fairly radical change in average screen sizes. In 1997, the average TV screen size was 22-inches. Now, the average screen size has jumped to 36-37-inches and is forecast to continue to increase to 40-inches by 2015. DuBravac also noted that LCD TV screen sizes are driving a lot of that growth with 50-inch and larger screen sizes moving from 11% of the market in 2011 to 15% of the market in 2012.

Sales of TVs with screen sizes below 24-inches are dropping dramatically over the last three years…off another 16% YTD. DuBravac conjectures that small TV screen sizes may be impacted by the use of tablets in the home to watch video content.

Audio is getting harder to hear…

As mentioned above, DuBravac noted that audio unit volume was down 26% (!!) last year and off this year an additional 6.6%. The primary reason? “This is primarily driven by MP3 categories,” DuBravac told reporters. MP3 iteself, he said, is down a little over 20% YTD and that “puts downward pressure on the overall audio category.”

Chart showing industry sales of audio products

Audio Sales in Units
(Click image to enlarge.)

Audio revenues are down slightly more this year at 18% as opposed to last year’s 16% decline. DuBravac attributes this to downward pricing pressures this year affecting the category. Two consecutive years of double-digit revenue declines in audio is a serious problem for those of us on the audio side of the business!

The picture for DSLR cameras is bright…

Overall, DuBravac noted that the digital camera category is experiencing unit declines of over 30% YTD. But two specific technologies are doing well: mirrorless cameras and digital single lens reflex (DSLR) cameras. In fact the mirrorless and DSLR category is up 6% in units and 17% in revenues. Noting that you “rarely see” revenue growth outpace unit growth – consumers are stepping up to more fully featured products with higher average selling prices.

Where the sales will come from…

In addressing areas of opportunities, DuBravac highlighted  two key products: Internet-connected TVs and tablet computers. He also additionally  mentioned smartphones. In pointing to these areas, DuBravac showed a survey of consumers who indicated that they did not currently own these categories…but would in the near future.

Chart showing where sales opportunities are...

Consumer Survey Suggests Opportunities Exist in Internet-Connected TVs & Tablets
(Click image to enlarge.)

But in discussing Internet-connected TVs DuBravac went on to mention that the next big TV upgrade cycle would not start until late 2013, 2014, or 2015. This time period, he says, is about ten years out from the last upgrade cycle.

“I think all the pieces are coming together for a very strong TV upgrade cycle when we move into that 2014/2015 time frame,” DuBravac told reporters. “You’ll have good economies of scale on OLED production so you’ll see OLED prices moving towards mass market pricing and that will be attractive to consumers. You’ll have the opening chapters, if you will, of 4K and so that will be another positive momentum for the consumers.”

And for the remainder of 2012?…

“Smartphones/tablets continue to be the growth story for the back half of the year,” DuBravac said as he began to wind down his presentation. Also of note, retailers and suppliers inventories remain low. With an early bump  in business, dealers will scramble to pull inventory to take advantage of the selling season.

 

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