Hope took another hit from the reality of fickle, strung-out consumers.
Apple sold 1.5 million watches during the first week, about 200,000 a day, its most successful product launch ever. Before the launch, media hype had become a total-immersion program. No company has ever dominated the media like this. Today, MarketWatch reported that sales, based on data from Slice, might have plunged 90% since that week, to fewer than 20,000 watches a day, and on some days fewer than 10,000.
“The value of a smartwatch for the average user is still not compelling enough,” explained IT research and advisory company Gartner in its report on worldwide electronic device shipments.
But it’s not just smartwatches.
The other beacon of hope in the electronic device sector, the smartphone, got broadsided today by Samsung, which cut its Q2 guidance, expecting revenues to drop 8% from a year ago. Yet, in April, the company had launched its flagship Galaxy S6 which was supposed to boost sales. Samsung didn’t give details, but there are a few culprits, such as lousy S6 performance against its competitors, weak demand in China and Europe, and the old standby, currency headwinds.
Gartner now expects shipment growth in the once sizzling mobile phone market to slow to a barely perceptible 3.3% in 2015. The report points at China:
The global market has been affected by a weaker performance in China. We have witnessed fewer and fewer first time buyers in China, a sign that the mobile phone market there is reaching saturation. Vendors in China will have to win replacement buyers and improve the appeal of their premium offerings to attract upgrades, if they want to maintain or increase their market share.
So it’s going to get tough in the Promised Land of 1.36 billion consumers. Hence, hope has to move beyond China:
Vendors looking to grow their performance in the global smartphone market will be challenged to quickly enhance their expansion into emerging markets outside of China, where we still witness a sizeable share of feature phones and an opportunity for double-digit smartphone growth.
Crummy as 3.3% growth in mobile phone shipments may seem, it’s the only segment among these electronic devices that is growing at all. The others are shrinking.
Gartner expects global PC shipments to drop 4.5% to 300 million units this year. It blamed among others the end of the migration from Windows XP that had boosted sales last year, channel inventory reductions, and of course the corporate bugbear: the strong dollar, or more politically correct, “currency depreciation against the dollar.”
The recovery, if any, of the PC business has been moved unceremoniously to next year, hoping for Windows 10 to perform its magic. And it is hitting chipmakers.
Late Monday, AMD slashed its guidance, with revenues now expected to drop 8% sequentially, much worse than its previous forecast of a 3% drop, due to weaker-than-expected consumer PC demand. On Tuesday, AMD’s stock plunged over 15%.
In late June, chipmaker Micron reported a decline in quarterly sales of 3.2% year-over-year and a plunge in net profit of 39%. It also cut its guidance. Its stock plunged 17%. Other chipmakers were also taking on water, including Cypress Semiconductor, Intel, Qualcomm, SanDisk, and TI.
A new meme has been cropping up: the exposure of chipmakers to Asia, particularly after the stock market crash in China.
And the once white-hot “ultramobile” segment, which includes the iPad, iPad mini, Samsung Galaxy Tab S 10.5, Nexus 7, and Acer Iconia Tab 8, is freezing over. Shipments are expected to decline 5.3% year-over-year. Among them, tablets. Everybody had to have one a few years ago. Now Shipments are expected to drop 5.9%.
“The tablet market is hit by fewer new buyers, extended life cycles, and little innovation to encourage new purchases,” the report said. The tablet went from hot to “nice to have” without “real need” for an upgrade, unlike a smartphone that consumers still upgrade to get the latest features, at least for now. And smartphones with larger screens are eating into tablet market share. Instead of two devices, consumers just get a larger smartphone. Replacing two devices by one is the bane of business. And it’s killing smaller tablets.
So Gartner slashed its combined forecast for PCs, tablets, ultramobiles, and mobile phones. Total shipments are expected to inch up 1.5% to 2.5 billion units. Last quarter, it had still expected growth of 2.8%. In terms of dollars, which is what counts the most for US companies, end-user spending on these devices is expected to drop 5.7%. The first decline since 2010!
The “strong” dollar is easy to blame. The thing is, most of these devices are both made and sold overseas, which minimizes the impact on earnings of the “strong” dollar, though it may negatively impact the translation of revenues from foreign currencies into dollars. But companies hedge against this risk. And for US sales of devices made overseas, the “strong” dollar is a benefit as it lowers their costs. This leaves the broader problem of electronic devices that were once a phenomenal engine of global growth but are now too stalling.
And the exposure to China? Turns out, the government’s desperate stock-market rescue efforts have failed to stop the rout. Read… Chinese Stocks Come Totally Unglued Beneath the Surface
Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.