Germany, Oman and Colombia Consumer Electronics Report Q1 2016, New Report Launched

After a sharp contraction in consumer electronics spending in US dollar terms as a result of euro depreciation in 2015, we expect the market to stabilise in 2016 and then return to growth through to 2019. We forecast total consumer electronics device spending to increase at a CAGR of 2.8% 2016-2019 to reach USD51.7bn in 2019. The maturity of the market, with high levels of household penetration and multiple device penetration in most key markets, means volume growth will be subdued even as confidence returns. We are, however, considerably more bullish regarding premium device sales in Germany over the medium term, a view supported by our analysis of household income trends and patterns of vendor innovation. Downside risks to this core scenario include the potential for a hard landing in China or a deterioration of the security situation in Europe.

Latest Updates And Industry Developments

• Computer Hardware Sales: USD23.6bn in 2016 to USD27.9bn in 2019, a compound annual growth rate (CAGR) of 3.9%. After weak performance in 2015 we expect a gradual medium-term recovery in hardware spending, particularly in the premium market. However, PC volume growth rates will on the whole remain subdued as a result of the maturity of the market.
• AV And Gaming Sales: USD10.1bn in 2016 to USD11.1bn in 2019, a CAGR of 1.6%. AV demand growth will continue to underperform over the medium term, with the digital camera market on permanently lower trajectory due to proliferation of multifunctional smartphone ownership.

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Medium-term growth opportunities were already relatively limited in Oman due to the maturity of the market, with high penetration of devices in the PC, AV and handset segments. Heightened economic uncertainty in the face of a decline in the oil price has exacerbated this feature of the market through deferred purchases, particularly in the PC and AV segments. In 2016, we expect growth in Omani consumer electronics spending to be subdued but there is scope for stronger performance over the medium term as the economic environment becomes more supportive, though we caution that significant downside risks do exist. There will however be underlying demand drivers including robust population growth, the declining average selling prices of various devices and the introduction of devices with new features such as wearables.

Latest Updates And Industry Developments

• Computer Hardware Sales: USD257mn in 2016 to USD282mn in 2019, at a CAGR of 3.2%. Tablet market should return to growth from 2017 after contraction followed the initial boom - while upgrade demand for hybrid notebooks will also support market expansion.
• AV Sales: USD175mn in 2016 to USD187mn in 2019, at a CAGR of 1.5%. AV segment expected to continue to underperform but performance will be much improved from 2015-2016 when TV set market saturation and digital camera volume cannibalisation resulted in contraction in spending.
• Handset Sales: USD737mn in 2016 to USD759mn in 2019, at a CAGR of 1.7%. The handset market was the most dynamic segment during the smartphone boom, but a combination of saturation and price erosion is expected to see the market move to a much slower growth trajectory over the medium term.

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We forecast the Colombian consumer electronics market to rebound modestly in 2016 following a period of sharp contraction in 2015 due to significant peso depreciation vis-à-vis the US dollar. The medium-term outlook is significantly stronger however, with the exchange rate expected to stabilise from 2016, enabling the Colombian consumer electronics market to return to a robust growth trajectory based on rising incomes and modernisation. This will allow vendors to tap into the relatively low penetration rates in key device categories such as PCs, smartphones and flat panel TVs. One potential risk we highlight is our expectation that oil revenues are set to head lower in the coming years, which will force the government into a decision between cutting spending or relaxing its fiscal consolidation targets.

Headline Expenditure Projections

• Computer Hardware Sales: USD1.3bn in 2015 to USD1.366bn in 2016; +5.2%% in US dollar terms. The market will begin its recovery this year after a sharp decline in 2015.
• AV Sales: USD1.257bn in 2015 to USD1.339bn in 2016; +6.5% in US dollar terms. AV segment will begin a recovery this year but we anticipate TV sales to be slow as the 2014 FIFA World Cup lead to significant TV upgrades.
• Handset Sales: USD1.79bn in 2015 to USD1.99bn in 2016; +11.1% in US dollar terms. Higher margins for retailers and vendors compared to the PC and AV segments will help to insulate the handset segment this year against the worst ravages of depreciation in 2016 but consumer substitution for cheaper models will nonetheless result in value contraction in US dollar terms.

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