The Consumer Market for Cable Assemblies:
Despite Bright Spots, Slow Consumer Market Recovery

By David Pheteplace, Bishop & Associates Inc.

The consumer cable assembly market grew an impressive 30% in 2010, to $5.9 billion, after declining 21.4% in 2009. It’s hard to call this an upswing, however, as the consumer market will face an interesting economic climate in 2012.

The companies that Bishop tracks in this market segment grew an average of 1.6% in the first three quarters of 2011 over the first three quarters of 2010, and the combined net income was a mere 0.3% (down 92% year-over-year). Of the 11 companies tracked in this segment, four had declining sales year-over-year. Six of the 11 companies had a net loss for the first three quarters of 2011. Third quarter 2011 increased slightly at 0.5% over third quarter 2010. Sequentially, third quarter 2011 was up 4.7% over second quarter 2011, as would be expected for the upcoming holiday season. In year-over-year sales performance for the third quarter of 2011 versus the third quarter 2010, Sony was down 1.8%, Harman International was up 25.5%, Kodak declined 16.8%, Panasonic grew 2.1%, Whirlpool was up 2.3%, Tandy was down 1.9%, Philips was up 23.5%, Samsung declined 0.4%, LG declined 7.1%, Nintendo’s sales were down 23.8%, and Apple’s iPod sales were up 2.2%. This market is still struggling for sales and profits.

Of the 13 market sectors that Bishop tracks, eight of the sectors grew in double digits for the first three quarters of 2011. Four sectors had high- to low-single-digit growth, including military/aerospace, computer, peripherals, medical, and consumer. Consumer had the second-slowest growth of the four at 1.6%. Military/aerospace grew at just under 1%.

Although retail sales were up this past holiday season, year-over-year, the struggling world economies are still heavily impacting this market. The consumer market includes entertainment electronics, such as TVs, games, and music players; home electronics, such as exercise equipment; consumer electronics, including major appliances; and personal electronics, such as hair dryers. In tough times, these are items that consumers can do without.

The consumer equipment sector recorded a sales increase of +17% in 2010. Sales for the first three quarters 2011 increased +1.6%, year-over-year, compared to the first three quarters 2010. Net income as a percent of sales was 0.3% for the first three quarters 2011, down -92% year-over-year. The following table shows the performance by company. 

Consumer Equipment Sector - Sales and Net Income
$ Millions
 

Harman International, a supplier of premium audio and infotainment systems, is the only company in this group to achieve double-digit growth for the first three quarters of 2012 at 19.5%. Five companies had shrinking sales in the first three quarters.

As can be seen in the following graph, growth in the beginning of 2010 was relatively high in comparison to 2009, as the comparisons to the recessionary numbers were easy. As we moved into 2011, the year-over-year comparisons have been more difficult, and the results, not as good.

Back in our October 2011 issue of Cable Assembly Supplier, we asked, “Why is the consumer market facing such tough times?” Let’s compare this to where we are today.

The U.S. and euro-zone economies represent a combined 43.6% of the world economy. Per capita, these two areas have the largest impact on the world’s economy. For this reason, we will focus on these two areas for our analysis.

Consumer confidence, a relative measure of consumers’ optimism about the economy and personal finances, slipped to a 10-year low in early 2009 in the U.S. In October, the index sat at 45.4, up slightly from August, but well below the prior 10-year average. However, in the last two months, the index has dramatically increased and currently stands at 64.5 in December. The euro zone experienced a similar tracking in consumer confidence up to October. In November, however, the index dropped 0.5 points, and given the instability in the region’s economies, will probably drop again in December, so there is a bit of divergence.

Unemployment in Europe and North America has remained at relatively high levels. Since October, however, the U.S. unemployment has improved slightly to 8.6% from just over 9%. In the euro zone, the last reported rate was 10.3% in October, up from 10% over the summer.

Another trend feeding the low consumer confidence level is stock market performance. In the U.S. and the euro zone, stock markets have experienced wild swings and lost significant value after some recovery from the initial recession. In October, the Dow Jones Industrial Average was down almost 15%, at times, from its 2011 highs of around 12,800. In December, the Dow closed at 12,200, down 5% from the 2011 high, but with less volatility than it had shown in the fall. The Euro STOXX 50 declined from a high of 3,068 in February to a low of 1,995 in September. In December, the market rallied 47 points to close 2011 at approximately 2,400, down 22% from the 2011 high.

Also contributing to the low consumer confidence is the sovereign debt crisis in Europe and the budget crisis in the U.S. The U.S. debt-to-GDP ratio stands at 93.2%, or nearly $14 trillion. The debt-to-GDP ratio in the euro zone stands at 85%, or $10.6 trillion, and is due in large part to social spending. These numbers have not changed appreciably since October.

There are other significant factors influencing consumer confidence in the U.S. and euro zone.

• The euro zone’s inability to effectively deal with the sovereign debt crisis, both politically and fiscally, has left many Europeans disappointed with their leadership and their institutions.

• Similarly, in the United States, a gridlocked Congress has been unable to pass any bipartisan legislation to reduce deficit spending. Failing to meet their own year-end deadline to reduce the deficit by $1.5 trillion, Congress now anticipates automatic cuts that no one wants. Polls show that Congress has a record approval rating of less than 10% from the American public.

• Not only is unemployment high, but long-term unemployment is hitting new records. Many people, for a variety of reasons, are not able to find new employment.

• Loss/reduction of retirement funds during the financial crisis has left many older workers with the prospect of working well past retirement age (if they can find work). At the same time, governments are looking to cut retirement benefits to reduce their deficits.

Although there are many other factors impacting this market, the preceding points paint the picture for slow growth for the consumer market.

Bishop Comments: 

• We do not see any short-term trends or factors that will shorten this recovery period. We believe the recovery will be slow, taking two or more years. It is possible that certain political or economic factors could throw the world economy into a second recession.

• The slowing GDP growth in Europe and the U.S. forecast for 2012 will negatively impact the world economy.

• The slowing GDP growth in China and India, coupled with high inflation and tighter credit, will negatively impact these economies and their consumer spending.

The world economy is still very fragile. When the dust settles on 2011, Bishop & Associates expects the worldwide market for consumer cable assemblies to grow only 4.1%, to a worldwide value of $6.2 billion. The highest growth rate is expected in China, at 11.6%. Worldwide growth, in 2012, is expected to be in the range of 3%.