Consumer electronics industry growth slows

Paul Boughton

Marked by an overall slowdown in growth and the arrival of new generations of core products2006 is shaping up to be a key transition year for the consumer-electronics industryaccording to industry research experts iSuppli Corp.

After three consecutive years of double-digit per centage growthconsumer-electronics equipment factory revenue and unit shipments will expand by 6.7 per cent and 8.7 per cent respectively in 2006.

Annual growth rates will be on a generally downward trend until at least 2010.

Consumer electronics system factory revenues will reach US$311.6 billion in 2006up from US$292 billion last year. Howeverthat figure will increase to only US$349.6 billion by 2010.

This represents a major slowdown in the electronics industry’s compound annual growth rate (CAGR) to just 2.9 per cent for the period from 2006 to 2010compared with 9 per cent from 2001 to 2005.

Higher interest rateslonger replacement cyclesrising household penetration rates and challenges related to digital rights management (DRM) are among the long-term trends contributing to the slowdown in growth.

Neverthelesssome segments will continue to stand out with well-above-average performance.

These stars include MP3 playersdigital televisions (DTVs) and DVD equipment.

“The segments most resistant to the slowdown are those most associated with ‘multiple ownership’ – ie products that consumers own more than one of” said Chris Crottysenior analystconsumer electronics at iSuppli.

“Consumers are more likely to buy a second television or DVD player for the bedroom or perhaps a second MP3 player for the gym bag” Crotty added.

Meanwhilekey battles are shaping up for the next generation of DVD and video game console equipment.

The DVD market this year is being revitalised by two major changes.

First is the growth of DVD recorderswhich will overtake DVD players in terms of unit shipments by 2009.

The second is the launch of next-generation DVD equipment that utilises high-definition (HD) video.

These new products have been the focus of a protracted and particularly bitter struggle between rival standards: Blu-rayled by Sony Corpand HD-DVDled by Toshiba Corp. Some observers believe this dispute is causing a delay in the growth of next-generation DVD that will not be resolved until a single standard wins.

HoweverCrotty takes a more optimistic view.

“By the end of the yearmanufacturers will launch dual-format players and holdout studios will announce support for both standards” Crotty said.

DVD equipment is not the only product segment to commence a generational change in 2006.

Sony in November will launch its long-awaited PlayStation 3 (PS3) to compete against Microsoft Corp and Nintendo with their Xbox 360 and Revolution platforms for dominance in the market for next-generation video-game consoles.

The result of all these new product introductions will be a jump in video-game console factory revenue and units in 2006.

Video-game console shipments will rise to 34.5 million units in 2006up 30 per cent from 26.5 million units in 2005iSuppli predicts. Revenue will rise to US$7.6 billionup 51 per cent from US$5 billion in 2005.

Competition undoubtedly will not be limited to the DVD and video-game console markets.

As shipment growth decelerates and revenues flatten in various product areascompetition is sure to intensify.

“Unfortunatelythe losses and consolidation already seen in the digital still camera market may be a sign of things to come for other segments” Crotty warned. 

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