Despite a slowdown in consumption growth in 2013, squeezing the consumer electronics market, Israel's market remains one of the standout markets in the Middle East. There are some downside risks to our outlook, however we continue to expect Israel to outperform the region, with strong government demand for computers and increasing use of smartphones, tablets and hybrids among consumer maintaining a five-year CAGR of 6.6% for overall market growth. Pressure on prices, in market segments such as TV sets and handsets, will lead vendors to focus on innovative higher margin new products. In Q113 the effects of negative consumer sentiment were demonstrated as Israeli cellular operators reported significant drops in handset sales and prices.
Headline Expenditure Projections
- Computer Hardware Sales: US$2.6bn in 2012 to US$2.7bn in 2013, up 4% US dollar terms. Spending in the consumer segment will be buoyed by new devices, although a squeeze from the rising cost of living will result in a small proportion of consumers delaying upgrades.
- AV Sales: US$610mn in 2012 to US$645mn in 2013, +6% in US dollar terms. Flat-screen TV sets expected to provide the most dynamic development, however the launch of next generation games consoles in Q413 by Sony and Microsoft could prove a fillip to spending.
- Handset Sales: Outperforming segment of the consumer electronics market, rising 11% between 2012-2013 to US$415mn. Smartphone demand will drive market growth with values of devices increasing. Growth will remain in double digits between 2012-2014 and then average 9% in the 2015-2017 period.
Key Trends & Developments
In 2012, the Knesset Economic Affairs Committee passed a plan to relax restrictions on importing mobile phones. Previously, cellular phone operators dominated the application process for import approval, and controlled about 80% of phone sales in Israel. The new law should increase the range of handsets available by making it possible for firms to import any cell phone that is approved in the EU or the US. In Q113, major cellular operators Partner Communications and Cellcom both reported declines in equipment revenues, driven by lower handset sales. Cellcom saw its handset sales dip 29% compared with the same period of the previous year.
The launch of Windows 8 in October 2012 symbolises a shift in the PC market by introducing touch functionality. This has seen a range of tablets produced, as well as innovation on the part of Microsoft partners in the notebook segment. Hybrids are expected to only take a small share of total tablet and notebook sales in 2013, but the wave of innovation in multi-use case mobile computing devices will be a more significant factor as vendors continue to experiment with designs and tailor products for wider consumer appeal.
Meanwhile, the Israeli AV market will continue to be driven by the migration to digital broadcasting, which will fuel consumer upgrades to flat-screen TV sets. Israel is on course to become the first country in the MEA region to reach 100% household digital TV penetration. Israel approved the launch of digital TV services in 2008 and subsidies covering half the cost of the set-top box are available to some groups. In 2012, demand for flat-screen TV sets continued to rise and the emergence of 3D TV has prompted a miniresurgence in sales of plasma TV sets. LED backlit LCD TV sets have become a priority focus for vendors, while in 2013, OLED technology is expected to come to the fore.