Where Does the CE Industry Go From Here?

Here we are, entering the third quarter of 2012 and looking back at the results from the second quarter. As we all know, the worldwide economy is by no means healthy or even on a good track to recovery. Financial worries in Europe, very slow growth in Japan, China and the USA are the key hurdles on the way to a stronger world economy. None of the stronger economic regions is showing any signs of growth that could trigger more widespread economic growth.

As we expect with this overall assessment, the CE industry is not immune to bad results and many wondered how bad things would be this past quarter. As we have shown over time, there are two strong leaders, Apple and Samsung, in the CE world at this time, while the rest of the world is more or less in trouble.

The results for the second quarter are shown in the first graph. Apple is still the CE company with the highest profit, but Samsung managed to pull ahead of Apple in terms of revenue. All other companies are basically not profitable at this point in time. Sales growth is either small or even negative for these companies.

In the worst position this last quarter was Sharp with the highest loss of all CE companies. This result makes clear why the Hon Hai deal is so essential for Sharp, a vertical integration with Hon Hai and Apple gives them the hope to finally break into the only growth area of today’s consumer electronics – Tablets. Catching a substantial market share of tablets displays would give Sharp a boost in revenue growth and a return to more profitable business quarters. If and when that will happen is still up for debate and one of the key ingredient for this strategy to work seems to be the IGZO process. Meanwhile, Sharp is increasing its forecast for the operating loss in 2012 to 100 billion Yen. While blaming the diminished demand for TVs for most of its financial worries, Sharp is considering laying people off and as Reuters reports this number could reach 5,000.

On the other end, Samsung seems to be pulling ahead of Apple in the revenue area.

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As shown in the second graph, Apple reported some mixed results in the second quarter of 2012. While they still managed very healthy revenue growth versus the same quarter last year, the drop off in iPhone sales are seen as the reason for a less than stellar quarter for Apple. This of course is only true if you consider a YoY quarterly revenue growth of 23 percent ‘less than stellar’ in this economic environment. Nevertheless, Samsung pulled ahead of Apple based on revenue numbers. If this triggers an earlier release of the next generation iPhone (iPhone 5?) or even a delay to incorporate even more features has to be seen. However, Apple has already announced iOS 6 for the fall and everyone expects this to go hand in hand with the release of the next iPhone. Certainly not a bad assumption based on Apple’s product release history.

While the overall company results are showing this trend clearly, other research seems to indicate a stronger positioning of iOS and Apple products in the USA.  As Strategy Analytics points out, Apple managed to gain on Android based Smartphones in the USA. In total numbers this equates to a drop for the Android share of the Smartphone market from 61 percent a year ago to 56 percent now. On the other hand, Apple increased its market share from 23 percent a year ago to 33 percent today.

As pointed out by other analysts, these data are somewhat in contradiction to worldwide market data from other market research firms as Android still shows strong growth in the Smartphone market overall. Of course this is also a sign of a slowing Android adoption rate in the USA, as they believe the yearly Smartphone sales in the USA may have peaked. Let us review this aspect after Apple releases the next iPhone.

Overall the CE industry is not in good shape, most companies are still struggling with  no immediate relief in sight. This is typically the economic environment where unexpected take overs can happen any time. Don’t be surprised if HTC was actually thinking about taking over Nokia.