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The Gulf Widens

Calendar 2011 sales for {complink 379|Apple Inc.} are forecast to jump 57 percent from 2010 (based on a optimistic analysts' consensus estimate for $37.9 billion in the December quarter). By contrast, the entire consumer electronics market where the company generates a huge portion of its revenue is forecast to grow 1.5 percent in 2011, according to market researcher {complink 7427|iSuppli Corp.}, a division of IHS Inc.. Clearly, Apple is the brightest star in a galaxy filled with dull meteorites.

The company isn't about to burn out. As the consumer electronics market struggles again to grow next year — the forecast is for a paltry 4.3 percent in 2012 — Apple's fiscal sales by contrast are soaring to approximately $138.9 billion, up more than 28 percent from the 2011 fiscal year. While Apple and a handful of companies in the electronics market are posting solid growth, this experience is not widely shared in the industry, and that gulf is likely to continue widening over the next years.

Understanding this dichotomy between the faster-growing electronics companies and the rest of the field is important to any discussions about the future of the market and the strategies enterprises in the industry should deploy for 2012 and beyond. At Apple, for instance, the focus is and should be on building on current gains by figuring out how and when to break into new market segments. For rivals like {complink 12925|Motorola Mobility Inc.} and {complink 3847|Nokia Corp.}, however, simply holding onto current market share would be considered success in 2012.

Revenue projections for both Motorola Mobility and Nokia reflect this. Analysts generally expect Motorola Mobility's revenue to rise to $13.5 billion in 2011, up 18 percent from $11.5 billion in 2010. That's admirable, but it pales into insignificance matched against Apple's stronger growth and the fact Motorola Mobility only in 2007 had more than $23 billion in annual revenue. The company is therefore only trying to capture its lost glory, and the current momentum won't take it to that level for several more years.

Nokia is in an even worse position. Analysts see the company's annual sales declining about 6 percent in 2011 and barely growing in 2012. Sales have fallen in the last three consecutive quarters and are projected to decline more than 21 percent in the December quarter on a year-over-year basis. In order to regain its growth trajectory, Nokia would have to win not only in emerging markets where it is still one of the top players — in China, for instance, it is the biggest supplier of smartphones — but also in the developed economies of North America and Western Europe where product sales carry higher margins.

Apple, Motorola Mobility, Nokia, and rivals worldwide, whatever their records and analysts' predictions, won't have it easy in 2012. The wobbly global economy and continuing fears in Europe coupled with the still fragile employment situation in the United States will likely hurt the entire consumer electronics market next year. ISuppli's latest analysis is projecting weak growth in 2012, but even this may not materialize if the current economic problems persist and drag out through the first half of the year.

In fact, the research firm admits that its initial forecast for 2011 appears to have been too optimistic. “A sharp slowdown in spending due to continuing economic chaos will cause revenue growth in the global consumer electronics (CE) market to fall short of growth expectations by more than 75 percent this year,” the firm said in the statement referenced above. “CE revenue in 2011 will amount to $357.3 billion, up a scant 1.5 percent from $351.9 billion in 2010, and equivalent to a 77 percent reduction compared to the previous IHS forecast of 6.4 percent growth for the year.”

Over the next few years, iSuppli sees consumer electronics equipment sales rising slowly, up 4.8 percent in 2013 and 1.6 percent in 2014 before declining 0.2 percent in 2015. Those numbers are not in any way appealing, and even if the research firm was off by a few percentage points in either direction, it still means many players in the sector aren't likely to see much growth. Not with the likes of Apple sucking so much sales into its own coffers, which it must do to maintain its huge market value. If Apple investors think for a moment the company might start registering low single-digit sales in future, many would dump the shares.

That's why Apple and its top rivals have to keep outgrowing the market — by more than a few percentage points. Bad news for small, already less competitive players.

15 comments on “The Gulf Widens

  1. Barbara Jorgensen
    November 28, 2011

    Looks like the smaller companies may want to try occupying Wal-Mart with signs proclaiming “We are the 99 percent!”

  2. Himanshugupta
    November 28, 2011

    Bolaji, it would be impossible for Apple to continue this run for a long time, even if the consumer market grows by 10-15% on yoy basis. The holy grail is to find out the new segments or markets to expand so as to keep a healthy profit. Do you think that Apple should think about expanding in some of the “future” markets such as tech consulting, hardware development (servers) etc?

  3. bolaji ojo
    November 28, 2011

    Himanshugupta, You are right that Apple cannot continue to grow at this pace but the company may be able to keep it up for a while if it expands correctly and into the more growth-oriented market segments. You'll notice that Apple's growth in recent years has come as a result of its venture into the consumer electronics market where the volume is high and the margins potentially strong based on the company's strategy. It may not be as successful in the low-volume server market. If Apple can find a new consumer market that it can expand into and be as successful then it will maintain the strong growth. Do you think it can do so?

  4. Anna Young
    November 28, 2011

    “Apple, Motorola Mobility, Nokia, and rivals worldwide, whatever their records and analysts' predictions, won't have it easy in 2012. The wobbly global economy and continuing fears in Europe coupled with the still fragile employment situation in the United States will likely hurt the entire consumer electronics market next year”

    Considering the above, I suspect the likes of Apple, Motorola wont sit back and fold their arms. I suspect like any other businesses will in hard times do, consider new areas of growth. we just have to wait and see what each of these company's will come up with.

  5. Damilare
    November 28, 2011

    Apple seems to keen on expanding its sales in consumer electronics market with the development of the new Television with voice recognition software…u simply shout at your TV to operate it…

    However, there are dire economic predictions for developed economies, for example, the OECD predicts that Britain will face a double-dip recession in the first half of next year. How this will affect the dynamics at Apple we are yet to see..

  6. SunitaT
    November 29, 2011

    Nokia is in an even worse position. Analysts see the company's annual sales declining about 6 percent in 2011 and barely growing in 2012.

    @Bolaji, what about Win-Nokia mobile ? Analysts dont seem too much excited about that mobile, any particular reason for that ?

  7. jbond
    November 29, 2011

    While I find it hard to believe that Apple can maintain a staggering double digit growth every year, they still have potential to stay strong. It is certainly looking like we are going to have only a few major companies left and the small competitors are going to get pushed aside. Maybe a couple small companies merging could help keep things competitive.

  8. prabhakar_deosthali
    November 29, 2011

    In my opinion Apple's rise has been accentutaed by the disaatrous failures  of its rivals like Nokia , Motorola  in introduicng new competing products.  Apple and along with it the Korean giants with their Android based product offerings have captured this opportunity and widened this gulf.

    The europian crisis is one more reason why Nokia has failed to get support from its mother nation Finaland.

  9. Anna Young
    November 29, 2011

    Prabhakar, You are right but the rivals are catching up rather fast on Apple. Fortunately, it made good use of the lead time it built while competitors doodled. Now it has to figure out new ways to keep fending them off. It's going to be fun watching this happen.

  10. Himanshugupta
    November 29, 2011

    i think you gave the correct strategy to stick with. I think Apple will not show any sign of slowness anytime soon and after the developed market is saturated as a consumer market then Apple can focus on the developing market. Their products are high end and are expensive for the developing market so customization might be required.

  11. itguyphil
    November 29, 2011

    Apple will still most likely stay on top. The model they've built with the trust of their fanbase (increasing more & more each day) will be tough to rival. I see only a major gaffe as a reason why consumers would switch from Apple to a competitor.

  12. Taimoor Zubar
    November 29, 2011

    Every analyst, be it a company-hired or an independent one, does the analysis based on certain assumptions and expectations. When there's such a huge divide between the predictions by internal analysts and the market analysts, don't you think it's a good idea for each of them to share the assumptions they have used and the underlying expectations behind their numbers? The general public may be able to assess them better in that case. Even in the case of company predictions, it would give more credibility to the numbers.

  13. Ms. Daisy
    November 29, 2011

     @ pocharle, you are right on the prediction that “only a major gaffe as a reason why consumers would switch from Apple to a competitor”. Apple's base is that of the current young adults and mid-life group who started using the Apple products from elementary school on. The products themselves are great and so there is hardly any need for change. Also, most people find change difficult and tend to stay with what is familiar and comfortable. I foresee the gulf between Apple and its competitors will continue to widen.

  14. bolaji ojo
    November 29, 2011

    TaimoorZ, Assumptions sometime shouldn't be taken too seriously. The social sciences rely on the behavior of people who are often influenced by factors few people can comprehend and at times by subjective events that differ from one person to the other. It's extremely difficult in this stuation to make generalization but analysts and investors keep trying to make sense of their environment and improve odds of makng money. They don't always get it right but by refining assumptions it's possible to arrive at an acceptable point.

  15. itguyphil
    November 29, 2011

    Ms. Daisy,

    To add to your comment, I have also seen a large group of older adults patronizing Apple products. They claim the user friendliness and ease of use in general.

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