The implementation and then expiration of a government subsidy program will spur a rollercoaster year for China's consumer electronics industry, with strong growth expected for key products in the first half, followed by a major slowdown during the last six months of 2013, according to the IHS iSuppli China Research service from information and analytics provider IHS.
Unit shipment growth will have a red-hot first quarter as the liquid crystal display television (LCD TV) segment and air conditioner markets increase 11.7 percent and 43.5 percent, respectively. The second quarter will deliver the best growth overall for consumer goods as LCD TVs rise by 14.1 percent, air conditioners by 11.3 percent, refrigerators by 16.2 percent and washing machines by 10.9 percent. However, beginning in the third quarter, growth for all these products will decelerate into the single digits, with only a modest uptick in certain markets taking place in the fourth quarter of 2013, as shown in Figure 5.
Growth in the first half will be driven by the government's year-long power-savings subsidy program that gives incentives to buyers of certain energy-efficient products. However, the program will expire in May, causing consumer demand growth to slow.
New TV strategies emerge
The LCD TV segment is the market receiving the most subsidies from the government, mainly because this program provides allowances for more than 90 percent of light-emitting diode (LED)-backlight TVs. TV makers and sales channels will likely implement a new round of promotional activities to boost the LCD TV market before the subsidy program ends in May, IHS iSuppli believes.
New strategies are also being adopted by the major Chinese LCD TV manufacturers for the domestic market. For instance, set makers are aggressively pricing TV models sized 32-inches or smaller, but the manufacturers use differentiation as a tool for sets 40-inches and larger. While 32-inch models are generally similar in form and functionality, 42-inch models have more functions such as 3-D, Internet connectivity, voice control and more. These two strategies allow companies to maintain market share based on large-volume shipments of small-sized sets while improving their profit margins with 40-inch and larger LCD TVs.
For air conditioners, rapid unit growth will occur in the first half of 2013 given a soft market in the same period last year, but the second half of the year is going to be slower.
In particular, overcapacity of production will continue to be a risk for the air conditioner market in 2013. As a result, suppliers with higher inventory levels will encounter more challenges in their quest to boost sales in 2013, and will be forced to adjust their development strategies.
As always, improving profit performance is an important target for all manufacturers of air conditioners, and companies will invest design resources on higher-end products and strengthen control of key devices instead of expanding production capacity.