BMI View: W e expect the Malaysian consumer electronics market will contract in US dollar terms in 2015 due to ringgit depreciation exacerbating existing market trends such as the smartphone and tablet slowdown after the initial rapid diffusion of ownership. However, from 2016 we expect relatively strong growth to return as declining device prices combine d with strong economic performance , particularly broad based incomes growth , once again become the dominant trend . Meanwhile, i ncreasing competition in the smartphone, tablet and flat-screen TV markets from Chinese vendors will ensure the market continues to deepen, but as the market becomes saturated intense price competition is expected to result in a squeeze on value growth and vendor margins. There is also downside risk due to uncertainties over the export market, particularly the potential for a hard landing in China.
Headline Expenditure Projections
Computer Hardware Sales: USD2.569bn in 2014 to USD2.317bn in 2015, a decline of 9.8% as the slowdown in the tablet market caused by core market saturation is exacerbated by the impact of ringgit depreciation, resulting in deferred purchases.
AV Sales: USD1.062bn in 2014 to USD1.000bn in 2015, a decrease of 5.8%. Although we again expect AV sales to contract, it should be noted that its performance relative to other market segments is expected to improve as the TV set and digital camera markets begin to stabilise after significant declines in recent years.
Handset Sales: USD3.155bn in 2014 to USD3.295bn in 2015, growth of 4.4%. Saturation in the core smartphone market, combined with price erosion as vendor competition intensifies, will limit value increases from 2015 - but handset sales will continue to be the outperforming segment.
Key Trends And Developments
Like many smartphone markets in South East Asia, Malaysia was a relatively early developer considering income levels in terms of rising penetration. This was a product of its proximity to key production centres in China and elsewhere in the region. Malaysia's position in South East Asia is also central to the latest stage of smartphone market development as Chinese brands pose an increasingly competitive threat to the leading brands such as Samsung. BMI believes Samsung's broad strategy of targeting the premium and mass market with smartphones means it remains vulnerable to competition from low-cost rivals' market share maximisation strategies in 2015, and we expect it will lose further share to Lenovo, Oppo and Xiaomi - while Taiwanese vendor ASUS and additional Chinese brands such as Alcatel and Huawei are also positioned to make gains.
Since 2011, the most prominent trend in the Malaysian computer hardware market has been the explosive growth of tablet volumes - which we estimate surpassed notebook volumes for the first time in 2013. However, after a sharp contraction in sales in 2014 due to saturation in the core market of affluent urban consumers and a lengthening of replacement cycles we believe the tablet market will move to a slower but more sustainable growth trajectory from 2015. There is however downside risk to this view: at the low-end of the market, demand for small screen tablets could be squeezed by the popularity of phablets. As a result, we expect 2015 will market the beginning of a partial shift back towards notebooks as a growth engine in the PC market, with potential for there to be a larger swing back to notebook sales if tablet purchases continue to be substituted for phablets.