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Smartphones and Tablets Driving Electronics Sales

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Whatever comes out of CES this week, it looks like smartphones and tablets are going to drive the electronics industry for some time to come.

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So what else is new?

That might be the question we're all asking, consumers and investors, by the end of the Consumer Electronics Show (CES), now under way in Las Vegas.

Whatever they're selling in Vegas, it looks like demand for smartphones and tablet devices, at least for the moment, overshadows every other product, new or improved, in the electronics marketplace.

The NPD Group, a market research firm, said this week that US sales of consumer electronics fell 5.9% this past holiday season. That's only slightly less nasty than the 6.2% decline in 2010.

But here's the thing: The figures exclude sales of cellphones, tablets, e-readers, and video games.

The real message is that sales of smartphones and tablets are dominating the electronics marketplace and outright cannibalizing sales of older gadgets. This is particularly true of gadgets with a single function that a smartphone also has, like cameras, camcorders, and GPS devices.

For example, NPD's figures show a 42.5% decline in camcorder sales, a 20.5% drop for MP3 players, and a 20.8% drop for cameras.

But the report notes that concerns over sales of televisions and personal computers were exaggerated. Television sales fell by about 4%, and desktop PC sales by only 2%.

More numbers on smartphone and tablet sales will soon start trickling in from individual retailers and manufacturers.

But here's a hint: Best Buy (BBY), the biggest US electronics retailer, said Friday that sales in December fell 1.2% overall, although sales were strong for smartphones, tablet computers, and e-readers.

Another fact: Samsung, now the world's largest smartphone maker, just announced a record 35 million smartphone sales estimate in its fourth quarter, up from 28 million in the previous quarter. Overall, its quarterly profit came in at $4.5 billion, about $.2 billion under the consensus estimate.

This year, Samsung may sell 170 million smartphones, according to analyst estimates.

In the US and Europe, the fall in electronics sales might be attributed to a general gadget fatigue, as well as an overall mood of frugality that descended upon us all with economic hard times. In any case, the smartphone now seems to rank up there with the toaster on the list of basic necessities.

But don't despair for the electronics industry. There's still demand out there among those upwardly mobile new consumers in the emerging world.

In a new forecast, GfK Digital World and the Consumer Electronics Association predict that global spending on consumer devices will surpass $1 trillion in 2012 for the first time. That's a 5% increase over 2011's $993 billion total.

That record figure is expected to be reached without much help from the US and Europe, where electronic sales are expected to continue declining. Robust growth in emerging markets, particularly in Eastern Europe and the Asia-Pacific region, is expected.

The report, presented this week at the start of CES, said consumers in developing countries will purchase about 46% of global gadget sales this year.

But even in emerging markets, the report says, the devices most in demand are smartphones and tablets.

There's at least one possible tweak to that scenario: the introduction of the "ultrabook" as an alternative to a tablet, or a desktop computer, or both.

The "ultrabook" is the mini-laptop with mega power that Intel (INTC) is introducing. It's expected to be one of the few big news stories out of CES this week, as 50 or more computer makers including Hewlett-Packard (HPQ), Dell (DELL), Lenovo, Toshiba, and Acer showcase their versions.

It's not exactly disruptive; it's just one more choice for a mobile device. But it could eat into sales of Apple's (AAPL) iPad and Amazon's (AMZN) Kindle devices, while accelerating the decline in sales of desktop PCs.

Web Weekly In Brief:

Venture capitalist John Backus has declared the beginning of Act 2 in the drama called "The Death of Brick-and-Mortar." Backus, founder of New Atlantic Ventures, notes that online sales grew 15%, to $35.3 billion, in the holiday period that just ended, while Best Buy dropped 1%.

Pretty soon, he says, consumer electronics will disappear from real-world shelves, taking with them the retailers who stock them, including Best Buy, Comp USA, and Radio Shack (RSH).

Sounds drastic. Until he reminds us that, over the past decade, new distribution methods for music and books ended the run of some big names including Tower Records, Virgin Megastore, and Borders.

He expects "broad-spectrum retailers" like Target (TGT) and Wal-Mart (WMT) to survive. At least until Act 3.

The Battle of Britain:

Netflix
(NFLX) has announced that it is expanding its service to consumers in the United Kingdom. BusinessWeek thinks the streaming video service could hardly have selected a tougher nut to crack. It's up against the BBC, Rupert Murdoch, and Amazon there, for starters.


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No positions in stocks mentioned.
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