Market Snapshot: Telecommunications & consumer electronics

At last! Some good news for telecom. According to the Telecommunications Industry Assn. (TIA) in Arlington, VA, total spending in this market in the U.S. rose 4.7% in 2003 to an estimated $720 billion. However, much of this increase has been in services, not particularly good news for molders.

In its report titled TIA’s 2004 Telecommunications Market Review and Forecast, the TIA noted double-digit increases in wireless services, services in support of equipment, and specialized services (unified communications, video and audio conferencing, and high-speed Internet access) that offset decreases in equipment spending and local- and toll-service revenues. The report also projected a 9.2% annual growth rate from 2004 to 2007, pushing the industry past the $1 trillion mark.

The TIA is also predicting a turnaround for U.S. telecommunications equipment spending, after bottoming out in 2003 at $14 billion. A 2.3% increase to $14.4 billion is projected for 2004. Overall, the TIA projects that spending in the U.S. telecom industry will rise 6.8% to $769.5 billion in 2004.

Strategy Analytics, a research firm in Newton Centre, MA, reported that the mobile phone industry shipped 516 million handsets during 2003, 20% more than during 2002 and a record number.

A Battle for Market Share

So why isn’t that rosy picture tinting some individual companies? Motorola’s woes deepened when it missed the Christmas season for its camera phones, thanks to a parts shortage. The company took some harsh criticism from analysts over what was perceived to be a lame excuse for such an important milestone for sales. Its personal communications segment’s Q4 2003 earnings plunged to $127 million from $294 million a year earlier.

Motorola Inc. reported Q4 (ending Dec. 31, 2003) gains in revenue and earnings, which helped the company offset declines in its mobile phone handset operations. This product represents roughly 40% of the company’s business and is its largest business segment. Sales in that unit fell 3% to $3.3 billion and profit for that division was half that of a year earlier as margins remain flat.

Meanwhile, industry leader Nokia Corp., which didn’t have any components-supply problems according to a spokesperson for that company, increased its mobile phone shipments by 7% in 2003. Nokia’s market share dipped a bit to 34.8% during 2003, down from 35.1% in 2002. Samsung Electronics Co. and LG Electronics Inc. of South Korea were the primary beneficiaries of Motorola’s failure to deliver the Christmas presents. Strategy Analytics figures show that Samsung’s 2003 market share rose to 10.8% from 9.8% in 2002, while LG’s 2003 market share rose to 5.3% from 3.7% in 2002.

Qualcomm Inc. noted it expects companies that license its mobile phone chip technology to ship 35 million to 37 million mobile phone handset units during the first three months of 2004. The company reported that its net income for the fiscal first quarter, ended Dec. 28, 2003, was $352 million, up 46% from $241 million for the same period a year earlier.

Consumer Electronics

Structural changes in the consumer electronics (CE) industry are affecting suppliers to that market. According to a report from iSuppli Corp. (El Segundo, CA), a market intelligence services company, global CE sales were $234 billion in 2003, and are expected to rise to $239 billion in 2004 and to $280 billion by 2008. While this signals growth in the industry as consumers purchase more electronic gadgets, iSuppli analyst Shyam Nagrani says it hides the fact that company revenues are falling as a result of steadily dropping retail prices.The Japanese, typically strong players in the CE market, are getting pressure from South Korean, Chinese, and Taiwanese OEMs, the iSuppli report notes. Lower prices are restraining overall revenue growth.

“The entrance of electronics manufacturing services (EMS) and original design manufacturing (ODM) companies into the CE space is altering the supply chain logistics of the market dramatically,” says Jay Srivatsa in Electronic Design magazine’s online report. “Meanwhile, the advent of the Internet and broadband has shifted the value of CE products from hardware to software.”

So, although the outlook is brightening for this market segment, it doesn’t look as if molders will benefit substantially. Some of the major players are seeing a boost in their numbers. Sanyo Electric Co. reported that its fiscal third quarter net profit grew thanks to increased sales of mobile phone handsets and digital cameras, as well as electronic parts used in other digital devices. The company posted a net profit of $74.6 million for the quarter ended Dec. 31, 2003, which was nearly triple that of a year earlier. Sanyo makes more digital cameras than any other company, supplying them under an OEM contract to other camera companies, including Olympus Corp.

Pioneer Corp. posted profits for its fiscal Q3, which ended Dec. 31, 2003, on strong sales of car electronics products, home-use DVD recorders, and recordable DVD drives for personal computers. Operating profit in its core home electronics division jumped by 39%, but the company still expects an operating loss of ¥2 billion ($18.5 million) for its fiscal year, which ended in March. The company blames weaker-than-expected demand for its set-top boxes and lower prices for its home-theater systems.

Philips Electronics NV saw its numbers move into the black for 2003 after two years of losses totaling $7.36 billion. The best news for the company came from its U.S. consumer electronics unit, which posted its first profit in 15 years.

Sony Corp. and Samsung Electronics Co. signed a deal to create a joint venture to make flat panels for television sets. Under the deal, Sony and Samsung will invest about $1 billion each in a company called S-LCD Corp. Based in South Korea, the company will make liquid-crystal display panels for large TV sets. The two companies will buy panels from the joint venture, but will continue to make TV sets under their own brand names.

A crowded consumer electronics market is still not discouraging some new entrants. Dell announced last September that it plans to dive headlong into that market selling flat-panel TVs and MP3 players on its website. This follows Hewlett-Packard’s entrance into the market with 158 new products aimed at consumers, many revolving around digital photography, representing a new direction for HP. Gateway also expanded its business into the big-screen plasma TV market a year ago, and has recently started selling digital cameras, hoping to offset a flat personal computer market.

In an interview in USA Today, CEO Michael Dell noted, “The whole new ball game is these worlds—computing and consumer electronics—converging, and that’s a world we’re comfortable in.”