CTA paints gloomy picture for US consumer tech industry

The Consumer Technology Association (CTA) has published new forecasts for smartphone, laptop and TV sales in the US, which do not look the most attractive.

While it has been rightly assumed economies will take a material hit throughout the COVID-19 pandemic, some might have assumed the TMT industry would be slightly immune considering how integral technology is in today’s world. But the CTA is offering a reality check, which could have a detrimental impact to the telco industry, especially when it comes to upgrading consumers to 5G data tariffs.

“Unemployment and downward pressure on consumer spending caused by this pandemic will bring significant headwinds to the tech industry outlook this year,” said Gary Shapiro, CEO of the CTA.

“The tech industry has weathered many economic storms over the last few decades but as a whole the tech sector remains resilient and plays an indispensable role in our lives. Technology will be a catalyst for America’s comeback from crisis.”

Category 2020 Shipment Forecast Year-on-year Range
Smartphones 138-153 million -15% to -6%
TVs 34-37 million -14% to -8%
Laptops 46-51 million -12% to -4%

While the fortunes for devices and electronic goods might be dampened over the next twelve months, the CTA is forecasting profits elsewhere. Online streaming video services, for example, are expected to bring in revenues between $24-$25 billion which would represent an increase between 29-35% on 2019.

The upshot for the streaming segment might not be a surprise to many, as Netflix exceeded analyst expectations during its earnings call last week. Revenues for the three months ending March 31 stood at $5.768 billion, a 27% year-on-year increase, while subscriptions surged 22.8% globally to 182 million.

Walt Disney is another which is likely to profit from the outbreak with its Disney+ service. The numbers from the first few months have been very attractive, though we’ll have to wait until May 5, the Q2 2020 results, to see how the service has been received in European markets.

What is worth noting is that while an increase in broadband usage might sound beneficial to the telecoms industry, revenues in this segment rarely follow increases in data usage. With unlimited data packages becoming more common, some might upgrade though many will simply continue with the services currently in place. However, there will be a consequence for lower smartphone and laptop sales.

With connectivity being embedded in more devices and products nowadays, the introduction of SIM-embedded laptops would certainly add incremental growth to telco revenues. It would not be lifechanging by any mean, but every little counts. Dampened demand for smartphones is certainly something which should be a concern for the telcos, however.

2020 was supposed to be the year of 5G. Not only are there extortionately expensive flagships being launched throughout the industry, there are also more affordable devices from the likes of TCL and Lenovo-owned Motorola, to democratise 5G. With the launch of these devices, a refreshment cycle would have been expected. With a smartphone refreshment cycle, the telcos could have expected a material number of customers to upgrade to 5G data tariffs.

By migrating customers to 5G contracts, ROI could be realised on very expensive deployment projects, offsetting expenditure. These revenues are of course still on the horizon, being deferred not deleted, but for financial strained telcos where business models are balanced ROI, it is an uncomfortable truth.

The longer this outbreak persists, the less confident consumers will be in spending cash, especially as more employees face the prospect of unemployment. In the UK, the risk has been slightly offset by the furlough programme (The Coronavirus Job Retention Scheme), where the Government agrees to pay 80% of an employee salary up to £2,500 a month in an attempt to reduce redundancies, however such schemes are not available in the US where 26.453 million people (16.2% of workforce) have filed claims for unemployment benefit during the coronavirus outbreak.

The telecoms industry has been somewhat protected from the outbreak, thanks to work-from-home and remote learning pick-up, though the prospect of growing revenues and realising the potential of 5G is significantly weakened during this period. Revenues might be cut, but a strained telco industry will have to persevere for a bit longer.

CTA suggests Trump’s tariffs doing more harm than good

The Consumer Technology Association (CTA) has labelled the logic behind President Donald’s Trump’s trade strategy with China as a “one-step-forward, two-steps-back” approach.

The current resident of the White House certainly does polarise opinion, though the CTA is claiming the strategies in play during trade talks with China are having a negative impact on the consumer. With an election looming large on the horizon, if the idea of Trump hitting the US wallet consumer gains traction, it could prove to be a very damaging piece of rhetoric.

“The tariff delay on $250 billion worth of Chinese goods is welcome news for American businesses and consumers – but a one-step-forward, two-steps-back approach means US businesses will continue to struggle under the burden of tariffs and uncertainty in supply chains,” said Gary Shapiro, CEO of the CTA.

“American businesses thrive when they can dedicate their time and resources to innovating and competing globally, not checking Twitter for trade policy updates and combing through HTS codes to find which products are facing higher taxes. We’re encouraged by the progress from today’s round of trade talks and hope that President Trump will stop using tariffs as a weapon during this Phase 1 agreement.”

According to estimates from the CTA, US consumer tech companies paid an additional $1.8 billion on tariffs in August alone, with $124 million on products critical to 5G deployment. Considering these figures are only focusing on a single month, and 5G network deployment is not scaled to mass market just yet, the bill is likely to be eye-wateringly higher in the future.

Although Trump’s approach to Chinese trade negotiations has been criticised by industry, the consumer has not necessarily been involved in the argument. And why should it? Trade talks are something which happen in the background without the ‘man on the street’ being too bothered in the past, though there is a different element to consider here; if wallets start to get impacted, the very citizens Trump is supposed to be protecting from the evil communists might start to get a bit irked.

Citizens are consumers after all, and in a consumer-driven society, cheaper is usually better. There will of course be homage paid towards quality, though this can only be drawn out so far. Consumers have gotten used to paying less and getting products right now. Being asked to pay more for the dubious claim of national security might not sit well with some.

According to the same data presented by the CTA, the tariffs have the consumer technology an additional $14 billion since they were first introduced in July 2018. $1.3 billion can be attributed to 5G-related products. These costs derived from a more expensive supply chain will be eventually passed onto the consumer.

What is worth noting is that there is probably worse to come if the President decides this approach to negotiations is proving successful. And we suspect from the tone of statements and tweets, the inner-circle of US politics are very much committed.

This is perhaps one of the worst elements of the current saga for US business, the idea of uncertainty. If these companies knew exactly what was going to happen, changes could be made to the supply chain. It might cost a little more, and while this is not ideal, operational efficiencies could be driven elsewhere. Knowing that there is something terrible on the horizon is much better than it popping-out from behind a tree.

The risk of the unknown, and a political leader who seemingly reads the Beano for strategic inspiration is likely to make many businesses very nervous.