BMI View: The Hungarian economy has been a regional underperformer in recent years and the outlook is expected to remain weak in 2015 and into 2016 as forint depreciation against the dollar is expected to dampen device demand. This is a shift from the positive trend in 2014 when booming tablet and smartphone sales, as well as the fact upgrade demand was brought forward by the withdrawal of XP support and the FIFA World Cup , drove overall growth . Although several macroeconomic indicators are expected to continue to strengthen in 2015 , the depreciation of the forint against the US dollar will mean trading conditions remain challenging and we expect a contraction in both PC and AV demand in 2015, while our outlook envisages only modest handset value growth .
Headline Expenditure Projections
Computer Hardware Sales: USD934mn in 2014 to USD800mn in 2015, a decrease of 14.4%. A slowdown in tablet sales and the fact desktop and notebook upgrade demand was brought forward to 2014 by XP support withdrawal, will exacerbate the negative impact of depreciation of the forint in 2015.
AV Sales: USD497mn in 2014 to USD420mn in 2015, -15.5% in US dollar terms. Forecast downgraded in Q3 to reflect the negative impact of faster forint depreciation, but more positively, the digital camera market should begin to stabilise in 2015 after the boom in smartphone volumes cannibalised sales rapidly in 2012-2014.
Handset Sales: USD708mn in 2014 to USD709mn in 2015, +0.1% in US dollar terms. Significant value growth slowdown from 2014, but outperformance gap to other consumer electronics segments will remain wide in 2015 despite the impact of depreciation.
Key Trends And Developments
The handset market in Hungary has been the outperforming segment of the consumer electronics market in recent years - and BMI expects this trend to continue into 2015 even though growth is forecast to slow markedly from 2014. There are several other features of BMI's smartphone forecast that warrant highlighting. Smartphone volumes are expected to continue growing throughout the forecast period, but there will be a shift in the complexion of sales. We estimate the peak for first-time smartphone buyers was 1.1mn in 2012, a figure that remained flat at 0.8mn in 2013 and 2014 as the price of handsets declined - deepening the market to lower income consumer groups. However, by 2019 we expect just 0.4mn first-time smartphone buyers and these will be concentrated among low income groups, including young adults and more remote regions. As a result the profitable growth in the Hungarian smartphone market is expected to become more heavily centred on the replacement market, which is forecast to account for almost 90% of smartphone volumes in 2019.
The strong outlook for handset sales has captured the attention of Microsoft after its acquisition of Nokia in 2014, with Microsoft counting Hungary among the more successful European markets for Windows Phones. Microsoft has little chance of recapturing the dominant position Nokia once held in Hungary, BMI believe, but we believe there is potential for it to be an important regional success story, a point that appears to have been appreciated by Microsoft. In April 2015 Microsoft Hungary launched an offer lasting three months that gives customers buying the Lumia 640 or Lumia 640XL a free one-year subscription for all Office 365 services in addition to 1TB of cloud storage and 60 free minutes of Skype landline calling per month in Hungary. Both smartphones were released in April 2015 and will be upgradeable to Windows 10 later in 2015.