Indonesia's underlying economic growth story will be supportive of consumer electronics market expansion over the medium term and make it a regional outperformer during our forecast period to 2018. Additional trends will support growth, for instance investment by telecoms operators in wireline and wireless data networks and the declining price of devices in key categories such as tablets and smartphones due to competition between local and Chinese vendors in the Android ecosystem. This trend should see rapidly rising penetration in key product categories. Overall market growth will see the market reach US $16.6bn in 2018, representing a compound annual growth rate of 8.5%. However, there is downside risk to this bullish outlook, with the depreciation of the rupiah and shifting global sentiment to emerging markets in early 2014 potentially disruptive to the existing growth trajectory.
Headline Expenditure Projections
- Computer Hardware Sales: US$4.1bn in 2014 to US$7bn in 2018, CAGR of 10.5% 2014-2018. Due to low penetration we expect growth in notebook volumes, contrasting with the developed market trend, but nonetheless it will be tablets that outperform with unit growth CAGR of 23.4% to reach over 10.4mn units in 2018.
- AV Sales: rising from US$2.4bn in 2014 to US$3.2bn in 2018, CAGR of 8% 2014-2018. The increasing share of sales going to flat-screen TVs will drive increases in market value, offsetting the squeeze on audio devices and digital cameras from the rise of multi-functional smartphones.
- Handset Sales: rising from US$5bn in 2014 to US$6.4bn in 2018, a CAGR of 6.7% 2014-2018. Overall market growth will plateau due to the high penetration of mobile devices, however with an increasing share of sales attributable to smartphones the average selling price of devices will increase.
Key Trends & Developments
The smartphone market in Indonesia is booming, helping to offset the slowdown in the handset market as a whole due to market maturity. BMI estimates smartphone volumes reached 12mn in 2013, and will increase at a CAGR of 24% 2014-2018 to reach 35.2mn in 2018. This trend will be driven by a range of factors including rising incomes, data network investment by mobile operators and price competition driving down prices - particularly in the Android ecosystem. Samsung dominates the Indonesian smartphone market, but an array of regional outperformers are targeting the mid-range of the market looking to undercut the global leader. Chinese vendors challenging Samsung include Lenovo and Oppo, while local vendors such as Smartfren, Cross, Axioo and Polytron present a medium term challenge, particularly in a context of import restrictions.
In the short term an important trend impacting the development of the consumer electronics market is the depreciation of the rupiah, putting upward pressure on the price of imported hardware and components for local manufacture. For instance, in September 2013 global PC market leader Lenovo announced plans to raise prices of its PCs by about 20% in Indonesia. This will lead to some deferred sales in the consumer electronics market, particularly for higher value products such as desktops and flat-screen TVs, where consumers remain highly price sensitive. We believe this could bring additional momentum to lower cost tablets, which are already booming, particularly from local and regional OEMs producing devices running Google's Android OS.