Sean Murphy

Sean Murphy
The Next Big Thing in Consumer Electronics

Each summer and winter, CEA takes stock of the consumer electronics industry via its forecasts. We typically offer the same disclaimer: there are no magic powers at our disposal, but our unique methodology provides us with an effective way to make confident predictions about the future. In fairness, no one has needed a crystal ball in recent years to ascertain what has been happening in consumer electronics. The one-two punch of smartphones and tablets has been the industry story.

While overall CE sales continue to grow, with total 2012 revenues in excess of $200 billion (a 4.7 percent increase year-over-year),this momentum is largely being driven by the categories producing mobile and connected products. More than 80 million tablets shipped last year, generating $30.8 billion, a 93 percent increase over 2011. Smartphones also showed no signs of stagnation, moving over 111 million units and generating $33 billion, a 21 percent year-over-year increase.

Even as we celebrate the success of these devices, we must acknowledge that as certain sectors flourish, it’s often at the expense of mature product categories. For example, we see the ongoing effects mobile devices (especially smartphones) have had on the camcorder and digital camera markets. As we grow accustomed to high-functioning products that perform multiple tasks, we reach an inflection point where new adoption in one arearesults in attrition elsewhere.

The New Audio Landscape

A tale of two technologies: analog audio and digital displays. As is typically the case in any industry, what might signify the best of times for a certain category could represent the worst of times for a different one. With innovation causing the scales to constantly shift, it’s not unusual for one sector to thrive at the expense of another.

The home audio segment of the CE industry certainly faced challenges during the last decade. Most major manufacturers and veteran retailers grew up during a time when analog ruled. That was forever altered when digital AV solutions captured consumers. Portable devices and downloadable content quickly established a foothold and drove down sales and production of physical media.

During this digital revolution, consumers were no longer focused on audio equipment; digital displays dominated and all manner of content was stored on portable devices and PCs. Spending on home audio took a backseat as consumers upgraded their analog televisions and amassed personal libraries of digital media.

The Future Already Happened

People must know that I can’t predict the future, but that doesn’t stop them from constantly asking me what I think the next big thing will be. I typically offer two replies: one sardonic, the other serious. First, I’ll joke that if I knew what was coming, I wouldn’t be an analyst, I’d be a billionaire. The real answer is that while none of us can easily predict which device or development might shake up the CE industry next, there are many ways to gain a competitive advantage.

Mobile Commerce Creates More Dealer Opportunities

Not too long ago online shopping was a novel concept, equal parts liberating and intimidating. Financial transactions done electronically? From mail-order catalogs to one-click purchases, we have witnessed the evolution of an entirely new way to shop.

Naturally, innovation ensures that this process continues to develop. CEA’s new study Mobile Commerce: Reinventing the Way Consumers Shop provides an opportunity for better understanding consumer behavior and motivations as they relate to mobile commerce.

We already know the modern consumer prefers devices that are mobile and connected, which means people can access the Internet anytime, anywhere. And when it comes to shopping, CEA market research clearly shows consumers consistently list price and convenience as primary purchase motivators. Mobile commerce provides a sweet spot for the savvy shopper who wants to be fully informed and incentivized by ads, coupons and competitive pricing.

It is impossible to overstate how ubiquitous mobile devices have become, but a quick look at the numbers illustrates the point. Nine out of ten consumers own a tablet, smartphone or cell phone, which translates to 216 million mobile device owners.

Mobile Commerce Creates More Dealer Opportunities

Not too long ago online shopping was a novel concept, equal parts liberating and intimidating. Financial transactions done electronically? From mail-order catalogs to one-click purchases, we have witnessed the evolution of an entirely new way to shop.

Naturally, innovation ensures that this process continues to develop. CEA’s new study Mobile Commerce: Reinventing the Way Consumers Shop provides an opportunity for better understanding consumer behavior and motivations as they relate to mobile commerce.

We already know the modern consumer prefers devices that are mobile and connected, which means people can access the Internet anytime, anywhere. And when it comes to shopping, CEA market research clearly shows consumers consistently list price and convenience as primary purchase motivators. Mobile commerce provides a sweet spot for the savvy shopper who wants to be fully informed and incentivized by ads, coupons and competitive pricing.

It is impossible to overstate how ubiquitous mobile devices have become, but a quick look at the numbers illustrates the point. Nine out of ten consumers own a tablet, smartphone or cell phone, which translates to 216 million mobile device owners.

Tapping Into Global Opportunities

Even as we ride the wave of innovation out of the economic downturn, we should remain cautiously optimistic. At this stage, we can conclude that CE fared better than many other industries, and technology has become important enough to our lives to render it effectively recession-proof. As the dust continues to settle, we can look at the data and confirm that evolving sectors like smartphones and tablets, and established categories like headphones and A/V receivers, will continue to grow. CEA’s recent Industry Forecast anticipates total revenues to reach $140 billion in 2012, a 4 percent increase over 2011.

Equipped with CEA’s monthly and weekly manufacturer shipment data and semi-annual forecasts, you have an ideal opportunity to ascertain the state of the U.S.market. Is this enough? We constantly hear about the ways we function in anincreasingly global marketplace. Since none of our industries exist in a vacuum, it is as important to understand what’s happening abroad. You often hear CEA appraise trends that impact the American market. GfK Digital World, a groundbreaking new analysis of global technology sales produced by GfK in partnership with CEA market research, gives us an ability to truly put the world market in perspective.

The analysis shows that global retail sales of CE are projected to grow 5 percent this year to hit an all-time high of more than $1 trillion.  The information also tells us what CE devices are selling where and, most importantly, why they are selling. Without this insight, you may be missing actionable data points that elucidate the market and highlight business opportunities.

The CE Sweet Spot

Twice a year CEA assesses the state of the industry - where it is and where it's going - with our industry forecasts. At the mid-point of 2011, we saw further evidence that mobile connected devices were an inextricable part of our contemporary lifestyles. The question was whether the momentum would build and by how much? With the results from our winter forecast tabulated, we can confirm that this story has only gotten bigger … and better.

The two major products that dominate the industry and marketplace right now are smartphones and tablets. More than 87 million units of Smartphones shipped in 2011, up 62 percent from 2010. The category generated $27.5 billion, a 57 percent increase from one year ago. About 29.4 million tablets shipped in 2011, up 185 percent from 2010, generating $15.9 billion, a 138 percent increase year-over-year. This explosive growth can largely be attributed to the natural -and typically gradual- interval between initial adoption and eventual ubiquity.

Simply put, consumers now expect to control and use their content wherever they happen to be, whether it's at home, during the commute or on vacation. Needless to say, the industry will pay continued attention to the successful formula of portable plus dynamic.

CE Growth Still On Track

While the reverberations of the recession still linger, the overall sate of the economy is so tenuous that any discussion of growth is at both welcome and suspect. This is why data and the veracity of meaningful numbers are so useful and essential.

Audio Enters a New Era

It may be impossible to make long-term predictions, but the health of the home audio industry seems likely to remain solid for the foreseeable future. For a variety of reasons, attention is shifting to sound quality, and consumers want to maximize the possibilities of quality audio to complement the enhanced video content.

Audio Makes a Strong Comeback

As we close the books on 2010 we can celebrate a year where the CE industry outpaced expectations. More significantly, we can anticipate continued growth this year, a positive reflection on the state of CE in the overall economy.

Even during the more difficult days of the recession, there was cause for cautious optimism regarding CE, which managed to remain stable-even thrive-while other industries floundered. We rightly marvel at the ways innovation advances our world: brand new products arrive each year that cause us to consider how we ever lived without them. At the same time, the industry is constantly finding ways to improve existing technologies, tempting us to view familiar products with new eyes and ears.

Although the proliferation of tablets became the runaway story of the last year, the most remarkable development might be the resurgence of home audio. With displays achieving market saturation, the shift of attention to audio solutions seems inevitable. Indeed, CEA has been predicting this scenario for several years. As we saw digital displays increase their household penetration rates, it made perfect sense that more consumers would upgrade their audio experience.

What to Expect for Holiday CE Sales

Every year the CE sales cycle reaches a boiling point on Black Friday and simmers through the New Year. That cycle reflects the overall state of the industry, as well as its impact on dealers and consumers. This holiday season will be a decisive statement on the health of 2010’s economy, while also serving as a harbinger for what we might expect in 2011.

There is cause for cautious optimism. According to CEA’s 17th Annual CE Holiday Sales and Forecast study, total holiday spending by U.S. adults is expected to be $1,142, up 3% from 2009’s $1,365; reversing two consecutive years of decline.

Still, consumer concerns about the economy remain and more people say unemployment is a reason to spend less this holiday season. The “new normal” consumers have adopted is felt by manufacturers and retailers, who struggle to work within the new parameters of value.

Home Audio Sales Better Than Expected

The prospects for home audio seemed pretty bad about six months ago, following a trend over the last several years that didn't call for too much optimism. But the category is turning around for the better. According to CEA's Industry Forecast, prices are up 5 percent, while unit shipments are down only 1 percent. That's a dramatic improvement based on the 24 percent decline we anticipated in January.

Let's take a closer look at what has caused the change. It may have been understandable, even inevitable, that too many of us prematurely consigned home audio to the ash heap of irrelevance. The supporting plot line, which is certainly compelling, holds that the battle for shelf space and wallet share was decided as soon as consumers committed to video, rather than audio upgrades. And as stark as that assessment might sound, the storyline was even more unfavorable. Digital audio, along with increasingly affordable flat-panel technology, made up an irresistible combination that enticed consumer eyes and ears during the last 10 years. But now that displays and MP3 players have attained a near saturation point in the marketplace, shoppers are more likely to turn their attention to home audio enrichment.

Spending on Accessories Will Increase

As the economy slowly recovers, dealers should be aware of hidden opportunities. The accessories market, which historically was unheralded and underestimated before showing its power as a margin maker in recent years, is a major revenue contributor to the consumer electronics industry.

While the average wholesale unit prices for accessories ($25) are slight compared to products such as TV sets ($587) and PCs ($481), margins on accessories are higher and their relative affordability helps bolster the bottom line for many retailers.

Accessories are a unique entity in the sense that their viability extends to prosperous and challenging times, economically speaking. Accessory sales expand with the increased sales of the CE products they complement. Conversely, during more difficult times, as we have witnessed recently, consumers postponing product purchases-even big ticket items-tend to focus on more cost-efficient alternatives, a scenario in which accessories present an ideal solution. CEA's new study, Accessories Purchasing in the 21st Century provides an opportunity for better understanding consumer behavior and motivations as they relate to the sales of accessories. Key findings in the study include