To pause and take stock
The headline number in the Consumer Electronics Association’s (CEA) latest market forecast contained a few devils in the detail, although the sector does seem poised to defy more pessimistic views of the economy’s prospects.
The projection of 6.1% growth for 2008 is robust, giving just over $171bn in US factory door sales (Figure 1).Meanwhile, GDP forecasts and those for many other industrial sectors hover around 2%.
“This growth rate is absolutely terrific compared to the forecast of any other industry. Even with a very uncertain economy, consumers continue to demand our products,” said CEA president and CEO Gary Shapiro.
The sector does not see itself as totally immune to US economic difficulties. “We see weakness in the market in the first half of the year,” said CEA economist Shawn DuBravac. “But we think that things will be back to a much better level in the second.”
One important point here is that the CE industry historically rakes in about a third of its annual revenues during the fourth quarter, largely thanks to Christmas. However, DuBravac said that its resilience has other components.
“One thing we’ve noticed is that there has been movement away from spending on white goods [e.g., kitchen appliances, washing machines, etc.] and towards consumer electronics technology,” he said.
At the same time, new product adoption is speeding up. For example, DVD has long been thought of as the fastest CE segment to reach mass market adoption – defined as ownership by 25% or more of households – but Steve Koenig, the CEA’s senior manager of industry analysis, noted that it still had an initially ‘slow’ phase during its first three or four years. Devices such as iPhone-like smartphones could breach 25% more quickly.
“Taking the example of DVR, it went from 9% to 25% penetration just in the period between 2005 and 2008,” said Koenig.
And one other factor that is playing to the CE’s sector advantage could be described, to borrow a term from the automotive business, as the aftermarket for home electronics. This is most apparent in displays. Having invested in HDTVs, consumers are showing increasing interest in a range of peripherals.
Numerous product introductions at January’s CES were obviously trying to catch this wave. They included photo frames with wireless 802.11x and USB connections and stretched right up to devices capable of carrying full HD broadcast signals. A key element here is giving the homeowner more and more opportunities to get rid of the wired spaghetti that emerges from the back of a widescreen TV.
Figure 1. Factory sales of consumer electronics, 2003-08
Figure 2a. Factory sales of TV sets and displays, 2003-08
Figure 2b. Factory shipments of TV sets and displays, 2006-11
Figure 3. Total portable media player shipments, 2006-10
Figure 4. Factory sales of smartphones, 2003-08
One example of how this trend is now influencing the market is the wireless HDMI display launched at CES byWestinghouse Digital. Featuring a UWB silicon solution from Pulse-Link, the only wire emerging from its rear panel is the power cord. Westinghouse and Pulse-Link will initially market the panel to commercial users (shopping malls, airports, etc.) where LCD and plasma displays are used as electronic billboards. However, a medium-term consumer launch is on the agenda.
The ‘unwired’ trend extends to other devices.With consumers increasingly favoring laptops over ‘beige box’ PCs, some of the most attractive CES products were wireless docking stations – largely part of the emerging wireless USB market. The ‘hard’ connectors on such stations have long been a problem, often failing long before the computer itself.Wireless USB specialist Alereon and network display chip developer DisplayLink had a videocapable docking station on view as a reference design.
However, the importance attached to this new aftermarket does reveal one of the other key issues facing the CE market – someone seems to have pushed the pause button on its ability to deliver a ‘killer’ product, year-in, year-out.
So much becomes clearer still, if we look at two of the major markets in more detail.
With the US analog signal switch-off scheduled for February 2009, the category of TV sets and displays is firmly established as CE’s short-term champion. Last year, penetration of digital-ready TV sets passed 50% in the US, and the business made up 16% of overall CE revenues at $29.1bn (Figure 2a).
Looking at projected unit sales for displays for the next five years (Figure 2b), these are also set to remain on a pre-switch-off upwards path, with 17.3% growth to 31.8m shipments expected in 2008, and 12.6% growth to 35.8m shipments in 2009. That 2010 and 2011 growth should then slow to 7.3% and 5.9% respectively is only to be expected.
However, a perhaps greater concern to the semiconductor industry is the rate at which price and margin erosion is taking place in this sector. According to DuBravac, displays underwent a 39% decline in prices over the 2003-07 period.
The CEA itself does not comment on the impact or influence of individual member companies – for obvious reasons – but the broader analyst community is now looking at the extent to which ‘theWal-Mart effect’ could continue to force such a rate of price declines.
Beyond cost-down pressure applied by big-box retailers, there was also much discussion of the model being developed by companies such as Vizio. Founded less than a decade ago, it took the top spot in the US for large screen LCD TVs in mid-2007, based around a highly outsourced business strategy and active collaboration with bothWal-Mart and Costco. Just how quickly Vizio can use its model to ramp up was illustrated by the period in which it secured the supply crown. The 606,000 displays it sold in Q2 last year gave it a 14.5% market share on the back of a staggering 76% quarter-on-quarter increase in shipments.
In his CES keynote, Panasonic president Toshihiro Sakamoto unveiled Japan’s latest movie monster, a 150” plasma display, presaging a future like that seen in movies such as Total Recall. However, at around $100,000 retail, the so-called LifeWall currently seems more suited to commercial applications – and Panasonic does acknowledge as much.
More significant and wider trends covered in Sakamoto-san’s speech came in the arenas of screen depth, energy consumption and integration. For depth, the Panasonic chief said that his company now had this down to a mere 1.5”; for energy, he announced that Panasonic has found ways to reduce power consumption on its 42” plasma displays by 50%; and for integration, he unveiled a TwoWay TV collaboration with Comcast that will see set-top box functions integrated within the TV set.
Out of these trio, manufacturers say that energy is likely to be the priority design objective over the coming two years, slightly ahead of integration. After ramping to volume in the US, large displays are now making serious inroads in markets such as Asia and Europe, both of which already apply more stringent energy standards. Meanwhile, manufacturers are also anticipating more emphasis on ‘green’ performance for electronics in the US after this year’s presidential election.
February 2009 is nonetheless seen as the primary short-term sales driver, as large screens switch from being a luxury item to something of a distress purchase. The belief here is that consumers who have so far resisted the move to next generation displays will decide that they may as well buy the best they can afford.
Reflecting the CEA’s observation that product adoption runs at a faster rate than ever before, the peak sales year for portable media players (PMPs) is expected to be 2008 (Figure 3).
According to the association’s latest forecast, PMPs will ship 48.5m units this year and penetration will reach 75%. Penetration will continue to rise in the short term, but shipments are now expected to fall in 2009 and 2010. Even then, however, the sales numbers are expected to be ahead of that seen in 2006. This would appear to be the CEA’s answer to a question that surrounds these devices over the extent to which they will match (and converge with) mobile communications handsets in maintaining a robust and rapid replacement cycle. Some of this will be achieved by the integration of more and more media functions within cellphones. The iPhone is an obvious example with its iPod-like features and ability to display clips from You Tube.
Thus, while the PMP standalone numbers might appear troublesome, the smartphone is poised to enjoy rapid uptake. An estimated 20.7m units were shipped last year, and this is expected to leap to 27.3m units in 2008. One other important contribution from the iPhone here is that it has taken a product model that was concentrated on productivity and the enterprise, and found a consumer mix of functionality and connectivity.
Integration and power
The implications for design that emerge from the latest CEA data are much the same as before: integration and energy. However, there may be the need for some adjustment to business models.
Free trade worries
High technology does not often seek to insert itself that loudly into the mainstream political process. However, at CES, CEA president and CEO Gary Shapiro took that unusual step by giving over his traditional state of the market address largely to a warning about threats to free trade.
“Never before in my career have I been so positive about technology as a positive force for society, our economy and the human spirit. And never before have I been so concerned that some in our country might hurt our leadership of the digital revolution,” he said.
“Storm clouds are gathering, after decades of bipartisan support for free trade, we hear thunderous voices in the media, in Congress and even presidential candidates advocating protectionism as a solution to American economic woes.We see isolationism gaining favor from those who want to build a wall around our nation. This is a dangerous and a disturbing trend. If followed, it will lead to economic disaster.”
Shapiro’s argument went on to address a number of issues that have been a concern for high technology leaders in the US for several years. He touched on immigration policy as it impacts on the workforce, environmental concerns and corporate responsibility in an era of outsourced manufacturing.
However, his main call was for all Americans to engage themselves as never before in the debate sparked by the forthcoming presidential election.
Take energy, as an example. The need to match the mobile device market’s insatiable hunger to integrate more and more functions on each product while remaining within tight power budgets is nothing new. However, a comment from the CEA’s Koenig that, “Consumers are frankly expecting and demanding more”, does carry a serious warning. For example, the few negative comments about the iPhone concerned slow cellular network connections and the rapid decline in power when it was in 802.11 mode – and while they were few, they were vocal.
Meanwhile, the rush by display producers to deliver lower energyconsuming screens provides evidence that power issues are moving into the mainstream electronics market. Large producers expect themselves to become subject to increasingly tough efficiency standards across their entire product range, because, they say, not only are politicians legislating such standards into place but consumers are also expecting them to meet this challenge.
On the integration front, meanwhile, another wave of wireless technologies and new functionality was evident at CES as pushing itself for inclusion within more broad-based devices.Wireless USB has come of age, Intel’s massive investment inWIMAX will be tested in public during 2008 and various flavors of ultra wideband have found applications to which they can attach themselves.
An interesting case study in the year ahead will be offered by Sling Media, the company behind the view-wherever-you-want Sling Box. Its acquisition by the Dish Network/EchoStar last September initially led analysts to believe that the satellite TV company would integrate Sling’s technology into its own set-top box as a differentiating function. Instead, EchoStar is splitting its Sling and Dish Network businesses, and seeking to market the Sling intellectual property to the wide market, including its rivals.
This is in line with the stance being taken by many new product entrants. They want design wins for the kind of aftermarket device mentioned earlier in which they have standalone priority. But the long game – the real money – is, they say, is in the integration of their IP with other technologies in all-encompassing devices.
Thus, with yet more pressure on integration likely over the next year, it may be a good thing that the industry is not ‘distracted’ by a single killer product group.
The time to take stock of the range of options now available – and to digest them – has come.