Live from CES: CEA Analysts discuss market trends; report global market tops $1 trillion
CES 2015 kicked off on Sunday afternoon with an overview of the state of the consumer electronics industry given by Shawn Dubravac, CEA chief economist and Steve Koenig, CEA, director, industry analysis.
Koenig focused on the economic side of things, announcing that the global tech marketplace rose about one percent in 2014 to just above $1 trillion US. As for 2015, expect mature markets to be down 9% and developing markets to be up 11% and simply lead spending as a result of population growth.
“There is a lot of growth and volume from China and India with massive populations,” he said. “Asia is the leading global tech market and we don’t see that reversing as it is a sheer numbers game with populations.”
On a regional basis a constant factor on growth are geopolitical and social factors that the industry has little control over. China, said Koenig, is still showing good growth although it is slowing. India is a very positive story as the country is “open for business” but other areas, like Brasil, Latin America, and Russia are weakening.
“You have to look elsewhere for growth like Indonesia, Africa, and the Philippines,” he said.
Mature markets like Western Europe (down 5% from last year to $187 million US) are being hurt by deflation while Japan is fighting off recession. And the U.S. market is rising but there is uncertainty ahead politically that could impact it adversely.
Koenig focused on the three screens that seem to define the consumer experience: the smartphone, the tablet, and the TV set.
TV Set Sales Rebound
“We see the global TV market returning to growth as big screen innovations continues,” said Koenig. “The average screen size will be 43 inches in 2015 as the 60-plus inch LCD sets take up more of the market. As they say, 60 is the new 50.”
Surprisingly the move to larger screens is a global phenomenon, in part due to leapfrogging as less-developed regions might have started with 32-inch TVs instead of 12- or 19-inch TVs.
Ultra HD he said will, without a doubt, be a huge area of interest at CES and 100% increases are expected in set sales with China leading the way with 57% of set purchases. In the US forecasts call for 4 million sets sold in 2015 and 10 million in 2016.
“Production is shifting over from 1080p and 2016 will be the inflection point with meaningful momentum,” he added. “It may even be difficult to find a 1080p set as the price premium for 1080p is small.”
Smartphones, Tablets Still Dominate
While TV set sales will regain their luster the tablets and smartphones will continue to dominate although sales are slowing.
“This year almost half of global tech spending will be in phones and tablets, surprising but when you think about the utility and applications it makes sense,” he added.
Sales, however, are tapering, because low cost handsets are flooding into the marketplace. And that is important as 75% of sales in 2015 will be in developing markets (and a third from China alone).
“Growth rates are softening but it is a sign that the revenue is slowing as assortment and low-cost devices are penetrating deeper into all markets around the world,” said Koenig. As a result the average cost of smartphones will slip below $300 US.
China manufacturers, as well, is putting pressure on companies like Apple and Samsung as companies like Xiaomi are not only hurting revenue growth within China but they also have global aspirations.
As for tablets, unit sales for 2015 will taper a bit but will still be very strong as 337 million units will ship around the world.
“In the U.S. while penetration is slowing in terms of total households the density within households is starting to increase,” he added.
And developing markets are also having an impact as they will comprise 44% of sales in 2015 (North America comprises more than 35% of the overall market).
Revenues, however, will turn negative by an additional 8% from a peak in 2013. Different takes on the device, like the Microsoft Surface or Lenovo Yoga are blurring the line between laptop and tablet and also muddying the waters of proper sales analysis.
“It all adds up to a steadily declining sales price,” he added, with 59% of shipments expected to be tablets that are nine inches or larger.
Top Trends for 2015
Dubravac discussed some of the top trends for the industry. Topping the list in 2015? Digitisation, connection, and ‘sensorisation,’ three key concepts that will shape not only the products but also the way consumers live their lives.
“In 1450 the introduction of the printing press changed availability of reading material but also the entire cultural aspects of the way people lived and interacted and I would argue that the same thing is playing out today,” explained Dubravac.
“For nearly 50 years CES was an event defined by introduction of devices but that is slowly shifting,” said Dubravac. One of the key reasons for that is the concept of “The Internet of Me” whereby the Internet is becoming less about dissemination of information but tying it into devices like connected toothbrushes, wearables, connected cars, and much, much more.
“We are going into a third wave of Internet [beyond 2 billion phones] to 50 billion objects and that will change the way we use the Internet,” said Dubravac.
For sports broadcasters and production companies two areas of consumer electronics products that are of interest include 4K TV sets and drones, both of which are expected to see great growth in 2015.
“We have seen phenomenal growth for 4K as the industry sold about 1.3 million units in 2014 and we look for 4 million to be sold next year,” he explained. By 2018 it is expected that 40% of TV sets sold will be UHD.
Drones also continue to be a hot trend, with sales approaching 425,000 and $130 million in revenue in 2015 and sales expected to top $1 billion by 2018.
“We could easily see 100+ different types of drones here at CES as that category expands,” he added.
In other product areas expect virtual reality to become more important from the likes of Google, Sony, and Samsung. Smart watches is another area where there is much experimentation going on and 11 million units will be sold in 2015. Growth is up 400% since last CES.
Four Key Trends
“The Internet of Me” is one of four trends Dubravac points to. The others are: Digitisation of Physical Space; Permeation of Logic; and Fragmented Innovation.
Digitisation of Physical Space includes everything from the use of digital sensors in toilets and urinals as well as sensors that can allow athletes and anyone else to measure physical performance and monitor personal temperature, sleeping habits, and more via wearables, digital sensors, and smartphones. Consider the way scales are now tethered to smartphone and Web sites in an attempt to influence behaviors and meet health and fitness goals.
“The key to all of this is something happens in physical space, we digitise it, and then feed it back to the physical space,” he added. “For a long time come to CES to see what can be done with technology. But we’re now shifting and the focus is on what is technologically meaningful. Should we digitise it? How should we use it?”
The challenge is to make sure that the information influences behavior because once that ends, added Dubravac, the consumer can disengage from the device and stop using it. A connected toothbrush, for example, may sound useless. But the potential to have it tied into a database at the dentist’s office whereby he or she can monitor the habits of patients is just one example of the way technology could change the way people live.
And that is where micro-customization fits in, with things like smart air vents, bracelets designed to wake one parent only to deal with a crying baby, and 3D printing. That movement ties into “Permeation of Logic” as everyday objects continue to get digitised as computers and other devices become more capable of taking in data more readily.
“Voice search is becoming so common you don’t take note of it unless you step back and look at it,” he added. “And voice for cars and driverless cars are other feature sets…and the next step is for devices to become more intuitive and capable of taking information as it is produced and then make decisions on the user’s behalf.
“As we digitise the CES [show] becomes a proving ground for experiences,” said Dubravac who pointed out that the top 10 auto manufacturers are now at CES.
“That was a category that was non-existent here eight or nine years ago,” he added.
The final concept, “Fragmented Innovation,” really points to the future of the consumer electronics industry. Increasingly innovation will be driven not by the major product categories, like TV sets, smartphones, or game consoles but, instead, smaller categories that might not get much beyond 20% market penetration.
The big trends outlined by Dubravac point to a few key questions facing the industry: What to digitise next? How to provide connectivity? Where to embed and deploy sensors? What is the use-case scenario?
Some of the answers will be on display this week at CES. Stay tuned to SVG for live reports from the show floor and press events.