BMI View: We downgraded the outlook for consumer electronics device spending growth in South Africa in the Q315 due to a weaker economic outlook, including rand depreciation against the US dollar. The erosion of South African household purchasing power in global markets will to some extent be offset by an increasing supply of low- cost smartphones and tablets as mobile operators encourage greater data usage by launching own-brand low -price devices. The popularity of smartphones launched by MTN and Vodacom highlight the potential for low - priced devices , although we believe there will be a steady demand for PCs and notebooks in the longer term as economic growth returns and large enterprise and government spending return to stronger levels.
Headline Expenditure Projections
PC sales: USD2.2bn in 2014 to USD2.0bn in 2015. Forecast downgraded in Q315 to reflect the weaker economic outlook, with the impact of rand depreciation and price pressures in the PC market as competition from low-cost tablets intensifies particularly important factors.
AV sales: USD1.1bn in 2014 to USD1.0bn in 2015. Digital camera demand cannibalisation will continue to be a drag on growth, while TV set market has a mixed outlook due to considerable scope for upgrades, but also intensifying price competition.
Handset sales: USD3.6bn in 2014 to USD3.7bn in 2015. Handset sales growth expected to outperform again in 2015 as the base of smartphone ownership continues to widen, with positive impact on overall handset average selling price.
Key Trends And Developments
The smartphone market has been the outperforming sub-segment of South Africa's consumer electronics market as volumes have boomed. BMI estimates a total of 11.140mn smartphones were sold in 2014 in South Africa, an increase of 22.8% from 2013. We base this calculation on a smartphone penetration rate of 51.4% of adults aged 15+ at end-2014, equating to an installed base of 19.3mn smartphones. This figure is significantly below some other estimates, which put the smartphone installed base at 20mn at YE2013. We believe operator data regarding smartphone users overstates the size of the market via insufficient discounting when factoring in upgrade/replacement sales. Nonetheless our estimate still situates the smartphone market as the leading consumer electronics growth opportunity, while the 2G/featurephone market is forecast to remain under considerable pressure from low-cost Android smartphones over the medium term.
South African mobile operators have been targeting smartphone market growth opportunities, most recently in 2014 with the release of sub-USD100 operator branded smartphones to deepen the market. In April 2015 MTN launched the Alcaltel OneTouch Fire E smartphone plan, targeted at the lower tier of South Africa's 3G market. The phone is sold as part of a ZAR89 (USD7.55) 24-month plan, or can be purchased independently for ZAR1,699 (USD144). ZAR89 is among MTN's least expensive contract plans. Although the contract includes MTN's smallest top-up bundle, worth ZAR25, the device has a larger screen, a higher quality camera and more memory than MTN's other entry level options. Independently, the Alcatel One Touch Firefox device is also reasonably priced, but still a long way from the cheapest smartphone on the market; the MTN Steppa retails for ZAR499 and the Vodacom Smart Kicka for ZAR549, both launched in 2014. BMI believes operator subsidised devices will be a key area of competition in 2015, helping to deepen the market and ensure continued volume growth, but at the same time risking a wider intensification of price competition that could ultimately squeeze the margins of smartphone vendors in South Africa.