BMI View: A w eak economic environment continues to weigh heavy on the Croatian consumer electronics market as 2014 marks the sixth consecutive year of GDP contraction. Declining consumption, high unemployment, currency depreciation and fiscal austerity continue to squeeze demand for devices, countering the positive impact of some technology trends such as adoption of smartphones, tablets and smart TVs. BMI believes big-ticket items such as TVs and PCs remain hardest hit by the economic challenges facing Croatia, leaving the handset market as the outperforming sub-segment. The economy will face slow recovery, which should start filtering from 2016 ; declining average selling prices in several key product categories and comparatively low penetra tion rates should drive spending growth in the latter years of our forecast.
Headline Expenditure Projections
Computer Hardware Sales: USD498mn in 2014 to USD489mn in 2015. The outlook remains weak owing to challenging economic conditions that are reducing consumer demand for big-ticket purchases. These factors are also encouraging the shift in sales towards cheaper tablets, creating an additional squeeze on the growth of sales value.
AV Sales: USD279mn in 2014 to USD293mn in 2015. Demand for smart TVs is boosting growth, but cannibalisation of digital cameras and standalone mp3 players by multi-functional smartphones is a drag on performance.
Handset Sales: USD289mn in 2014 to USD297mn in 2015. BMI forecasts a 2.7% increase in 2015. The handset market is expected to fare better in a challenging macro environment due to lower average selling prices.
Key Trends And Developments
The Croatian smartphone market has been outperforming the general consumer electronics market and we expect this trend to continue in the medium term. Data from leading mobile operator T-Mobile show smartphone penetration in its subscription base reached 32% at the end of 2013, with smartphones accounting for 60% of handsets sold in Q413. We expect new services will continue to drive a healthy replacement/upgrade market as operators continue to invest in 3G and 4G wireless data network upgrades and expansion. Meanwhile, with the penetration rate still considerably below that found in Western European markets, there is scope for growth to continue over the medium term. We expect low-cost Android vendors will benefit by focusing on the remaining pool of first-time buyers, with Huawei, ZTE, Lenovo and Alcatel in the prime position to challenge market leader Samsung Electronics.
The PC market has been hit much harder by the economic climate in Croatia, with households deferring big-ticket purchases. An additional factor is the greater longevity of consumer hardware in the PC market, particularly desktops, which allows consumers to defer expensive replacements. As a result, the PC market has become increasingly weighted towards lower-cost tablets, particularly those running Google's Android operating system. The outlook for 2015 is one of continued difficulty for desktop and notebook vendors. However, as the economic environment becomes more supportive, we forecast a return to growth in the notebook / tablet markets. Croatian household PC penetration was 14 percentage points below the EU-27 average at the end of 2013, from which we infer a pool of demand for productive devices.