Market Snapshot: Consumer electronics 17041

A walk around any consumer electronics "big box" store is proof that the industry remains strong even in the face of economic weakness. At this year's Consumer Electronics Show (CES) in Las Vegas, NV, companies introduced hundreds of new products and technologies, as well as variations of older products incorporating new technologies.

Products that fall under the heading "consumer electronics" are almost too numerous to mention, much less cover in a brief magazine article. An idea of the size of this industry comes from the Consumer Electronics Assn. (CEA), an Arlington, VA trade group that boasts 1000 corporate members with $80 billion in annual sales. But just how much of the molding is still done domestically?

Hecho en Mexico
Consumer electronics manufacturing, for the most part, left the U.S. in the early 1990s for the lower-cost manufacturing climate of Mexico. Although many have had specific segments of their business in Mexico since the early 1970s, one by one CE companies—including Philips, RCA, and Zenith—took most of the remaining manufacturing south of the border to join their Japanese compadres who were already there. Cities such as Tijuana, Juarez, and Reynosa became hotbeds for CE manufacturing.

Today, companies like LG Electronics (formerly Zenith), Matsushita Electronic Components, Panasonic, Sony, and Hitachi have proliferated along the border. A few molders and moldmakers have responded and set up shop to serve this industry.

One such company, Dynamic Plastics Corp., operated a facility in Tijuana serving Sony, Matsushita, Panasonic, Sharp, Sanyo, Hitachi, and other CE OEMs in Mexico until September 2001, when it became part of Xpectra Corp. USA (Niwot, CO). Xpectra is a contract manufacturer with operations in Santa Cruz, CA and Niwot.

Today, Dynamic operates in a newly constructed 165,000-sq-ft facility with 28 presses ranging from 90 to 1950 tons. In addition to molding, Dynamic has complete value-add operations that include painting, hot stamping, pad printing, silk screen printing, and ultrasonic welding.

John Conley, VP of business development for Xpectra, is bullish on the consumer electronics industry. "Our focus—91 percent of our business—is the television industry in Mexico," he says. "In personal conversations with key customers, which include all the main players in the TV industry, the segment is healthy and doing well."

Conley projects that demand for tube-type TVs from manufacturers in Mexico will continue to rise slightly over the next several years, although the evolution of plasma and LCD flat-panel display technologies might alter the market. One question yet to be answered is whether those TVs will be manufactured in Mexico or the Far East. Another question is when will the price point for these TVs be attractive enough for the mass market?

For example, Samsung Electronics Co. introduced a 24-inch monitor that is high-definition TV ready. The monitor, which began shipping in July, costs $6999. The company also introduced a considerably more expensive 42-inch plasma display monitor.

"Right now, we certainly think the Far East has the upper hand in the near term for two reasons," says Conley. "First, there's not a plasma tube manufacturer in North America. They're all in the Far East. Second, there's the form factor, i.e., the new products are thin and lightweight, essentially removing the transportation advantage of manufacturing in Mexico. The big guys are still making decisions about where to manufacture."

In spite of a projected "gradual decline" in the market for tube-type TVs, Conley is optimistic. "The consumer electronics industry, particularly the TV business, is going up," he notes. "We're producing record numbers and running at high capacity levels at the Tijuana facility. We're seeking to increase our capacity due to demand we see for long-term, future growth."

A less rosy report comes from Precision Mold & Tool Inc., headquartered in San Antonio, TX, which has two satellite facilities in LaFeria, TX and Reynosa, Mexico. The Reynosa facility was sited specifically to service what was at the time Zenith, now LG Electronics. Domingo Auces, marketing and sales manager for Precision, says the consumer electronics industry hasn't been as strong this year as in the past two years, despite the reported surge in sales.

"So far this year, from a tooling perspective, we're down in that market segment," says Auces. "Many companies are building tools—especially those larger molds for TV housings—in Asia, and then bringing them back to Mexico for molding."

However, Xpectra's Conley notes that Dynamic Plastics can compete in Mexico "pretty close" with China. Two customers are currently moving molds from China to the Tijuana facility. "We can satisfy their supply chain needs better from Mexico than they could from China," he adds.

What's Hot? What's Not?
Regardless of where CE manufacturing is taking place, it's obvious that DVD is taking consumers by storm. The format took a while to catch on, wading through some rough industry waters with respect to standards and so forth, but now that these hurdles have been cleared, DVD has taken off. Sales of DVD players in April of this year hit 1,090,767 units, a 72.8 percent increase over April 2001.

So successful are DVD's inroads into the market that even those who predicted it would be a decade before DVD overtook videotape products are having second thoughts. Among those is Circuit City, which announced in June that it will phase out videotape movies as that segment loses ground to DVD. Best Buy announced it is paring back its purchases of videotape movie stock and increasing its DVD inventory. VCR unit sales slid 2.5 percent to 552,041 units sold in April 2002. With a penetration of around 30 percent of U.S. households, DVD has become an entrenched format.

In response to this rapid growth, Sony Electronics used the CES forum to showcase a new line of DVD players with expanded video and audio capabilities at prices starting at about $150. At the top end is the DVP-NS755V DVD player, offering multichannel Super Audio CD, progressive output, and MP3 playback.

Trying to capture the best of both worlds, Hitachi unveiled an expanded DVD player line, a new VCR player, and a DVD-VCR combo player. Hitachi's Home Theater-in-a-Box system comes with an AM/FM receiver, built-in progressive-scan-output DVD player, and a six-speaker package for $429.95.

Digital TV, HDTV, and Audio
Videophiles are also catching on to DTV, which saw April unit sales soar to $216 million, a 134 percent increase over April 2001. The CEA projects that 2.1 million DTV products, including integrated sets and stand-alone monitors, will be sold in 2002. Future predictions say that by 2006, some 10.5 million DTV products will be sold.

Hitachi just announced its 2002 projection TV line, including sets with integrated ATSC terrestrial and cable HDTV tuners, VDI, and IEEE 1394. The company reinvented its Ultra Vision line for 2002 with breakthroughs in all of the core technologies for high-definition projection televisions.

Manufacturer-to-dealer sales of audio products grew to more than $579 million during April, up 7 percent over April a year ago. Factory-to-dealer sales of aftermarket auto sound products, which were up by more than 21 percent to $120 million, were largely responsible for this increase. Dollar sales of sound systems were up 18 percent to $145 million, and conversions from tape to CD players in cars continue to drive this market. Year-to-date aftermarket auto sound products rose nearly 9 percent over the same period in 2001 to $783 million. In-dash CD player manufacturer-to-dealer sales reached $109.6 million during April, the largest single audio category in terms of revenue. Flush-mount speaker sales rose 25 percent to $19 million.