Consumer electronics are fast becoming bolt-on accessories for the big internet ecosystems, reducing once great consumer electronics brands into subcontractors for Apple (AAPL), Google (GOOG), Microsoft (MSFT) and Facebook (FB).
Consumer electronics manufacturers like Sony (SNE), Panasonic and Nokia (NOK) have become slaves to the internet ecosystems of Apple, Google, Baidu (BIDU) and Tencent (OTCPK:TCTZF).
The table below describes some of the trends that are turning the world of consumer electronics upside down.
Trend | What's happening? | What does it mean for the future? |
Slave to the internet ecosystem | Electronic products are being transformed into accessories for the mobile operating systems of Apple, Google and others. | Top consumer brands will be reduced to subcontractors for the big internet ecosystems of Apple, Alibaba, Baidu, Google and Facebook. |
Mobile Internet | Most of the profits of mobile devices were captured by Apple and Samsung, leaving other electronics brands trailing behind. | With new electronics product cycles dominated by internet platforms, the outlook for these brands looks bleak. |
Internet TV | With internet TV technology still prone to incremental upgrades, many consumers are holding off from buying the next generation of TV. | The catalyst will be the next generation of Google TV or Apple TV. It may well be a smaller tech start-up like Roku that kick-starts the IPTV product cycle. |
3D printing | In 2011, 6,500 industrial 3D printers were sold in a market worth $1.7bn growing at 30% p.a., according to the 2012 Wohlers Report. Currently used for prototyping, 3DP could soon be used for mass-market manufacturing. | It will be some time before 3D printing (a.k.a. additive manufacturing) transforms mass market manufacturing processes. 3D printing may encourage some factories to return to the West, but may also lead to higher piracy levels. |
Cameras | With most smartphones and tablets now equipped with their own camera, the future of pure camera makers is in doubt. | Canon and Nikon desperately need a product differentiator in the next few quarters if they want to avoid becoming irrelevant. |
Patent wars | Apple is escalating the quantity and ferocity of patent infringement law suits. | These patent wars may extend into new areas of consumer electronics like TVs and DVRs. |
Source: CM Research | ||
Outlook for the consumer electronics sector
With the notable exceptions of Apple and Samsung, the consumer electronics sector is valued at roughly at the same depressed levels reached at the end of 2008. Samsung, despite not having its own internet ecosystem, has managed to outperform by focusing on making high quality iPhone and iPad clones. It has also benefited from vertical integration, making many of its own chips and components. Yet without an operating system of its own (Samsung recently ditched Bada) it remains one of the most exposed large cap technology companies.
Dell (DELL) and HP (HPQ) are steering their respective businesses away from PC and printer hardware towards the cloud and big data. From the list of electronics companies above, they have the best chance of a turnaround for investors. For the rest, their only savior will be an innovative new product or an innovative piece of software. Sony shows the best promise for a platform-based turnaround; its new chief, Kazuo Hirai, comes from its gaming division - if he can turn his old PlayStation box from a gaming console into an operating system that can handle music, film, social media, email and e-commerce, he will never look back. Of course, this simple task evaded his predecessor Howard Stringer, but it may prove easier for a gamer.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
