BMI View: Hong Kong 's consumer electronics market has diminished growth prospects due to the maturity of the market; however , it will continue to be lucrative for vendors due to h igh incomes and a tech - literate population . S pending growth on consumer electronics devices slowed in 2012 and 2013 due to a combination of a weaker economic environment, price erosion and high penetration of devices in key markets . Growth was lacklustre in 2014 due to a decline in tablet volumes and a far smaller contribution from smartphone sales to overall growth compared to previous years . This is a relatively unique set of market trends, with Hong Kong one of the first global markets to reach tablet and smartphone maturity, and could be represent ative of challenges for vendors in other markets in 2015 and beyond.
Headline Expenditure Projections :
Computer Hardware Sales: USD1.67bn in 2014 to USD1.71bn in 2015, up 2.3%. Stabilisation of the tablet market will ensure it continues to expand, while notebook demand has upside potential depending on the strength of Windows 10 as an upgrade push factor.
AV Sales: USD1.09bn in 2014 to USD1.09bn in 2015, up 0.1%. Forecast lowered slightly in Q3 but we maintain our view for a return to growth in the AV market in 2015 after contraction over 2013-2014 as TV and digital camera volumes stabilised.
Handset Sales: USD2.48bn in 2014 to USD2.41bn in 2015, down 2.9%. A combination of smartphone market saturation and price erosion will mean the handset market contracts in value terms in 2015, although volumes are forecast to continue growing.
Key Trends And Developments : After an extended period of outperformance as the smartphone market boomed, BMI forecasts a contraction in handset market value in 2015, with the market now considered to be fully in a post-boom phase. A combination of saturation and price erosion are expected to act as a drag on value growth. Competition from Chinese vendors shook up the competitive landscape in 2014, resulting in price pressures for established leaders such as Apple and Samsung. Xiaomi proved particularly successful in Hong Kong, and is identified as the primary disruptive threat for 2015 as well, based on our analysis of Statcounter browsing traffic data covering developments to May 2015. The expansion of Chinese brands has resulted in an intensification of price competition at the same time as a volume slowdown, which we expect to be a key factor pushing the market into negative territory in 2015.
A consumer electronics segment at the opposite end of the product cycle to the smartphone is the digital camera market. The market has been gutted by the proliferation of smartphone ownership, resulting in steep volume declines over 2011-2014, as digital camera volumes were cannibalised by smartphones. With smartphone penetration of 79% in Hong Kong in 2015, BMI believes the digital camera market will begin to stabilise around power users not satisfied by smartphone camera functionality and quality. In this regard Hong Kong could be a relevant test case for other markets over the medium term due to its status as a smartphone early adopter. Under a bearish scenario smartphone camera quality will continue to improve, resulting in further cannibalisation over 2015-2019. Our core scenario, however, we envisage a stabilisation of volumes and consequently a concentration of the market around power users. This could mean the market becomes higher value and margin over the medium term, presenting upside to camera vendors successfully able to navigate the recalibration of the digital camera market in the smartphone era.