Economic Studies
ICT

ICT

ICT
Latin America
Northern America
Central & Eastern Europe
Western Europe
Emerging Asia
Middle-East & Turkey
Change sector

Strengths

  • Wider Internet access
  • Costs reduction of electronic equipment
  • Dynamic deployment of 4G
  • Sharp growth in the African market

Weaknesses

  • Saturation of some hardware markets (tablets, smartphones, PC) in developed countries
  • Increasing competitive pressures for telecoms and manufacturers 

Risk assessment

Highlights
ICT: Net profits

ICT: Net profits
(Profits / Turnover)

The information and communications technologies sector, which represents a market worth $3,400 billion in 2016, contracted slightly in 2016 (-0.3%). Credit risk also increased significantly.

The mobile peripherals market (telephone, tablets, computers) is thought to have reached a peak in revenues ($645 billion in 2015). While the saturation of certain hardware markets has continued in line with the increase in the penetration rate, the increase in the smartphone penetration rate is beginning (shipments increased by 3.1% in 2016 according to IDC). The second-hand market has grown quickly (+50% in 2016) to represent 7% of smartphones sold. The Chinese market’s growth, rapid up to now, stagnated in 2016 with smartphone sales growth of +0.4% (versus +20% in 2014). However, the deployment of 4G is bolstering replacement spending on equipped terminals. The largest growth drivers are the Internet of things and applications for the automotive and industrial sectors.

Growth in Internet traffic has been particularly boosted by wider Internet access (falling prices of terminals, infrastructure development), but also by the increase in its use (replacement of voice communications, HD video, mobile payment). The volume of data exchanged via the Internet is expected to triple by 2019, when one in two individuals will be an Internet user (Cisco).

This context increases credit risk by heightening competitive pressures between telecom operators and manufacturers and encouraging consolidations

Demand

As sales growth is decreasing worldwide, the competitive pressures on the market actors are increasing. In China, the increase in the number of smartphone manufacturers squeezed the sector’s margins in 2016, pointing to a consolidation move in 2017.

On the whole, the manufacturers have been affected by the fall in PC sales and the slowdown in smartphone sales. The South Korean giant Samsung’s turnover fell -7% in third quarter 2016 (over one year). It nevertheless confirmed its leading position in 2016 on the smartphone market, with a 21% market share (IC Insight). Prices will continue to decline in 2017 in an environment of increased competition. US company Apple also saw a 7.7% decline in its turnover over the 2016 financial year. Sales of iPhones are struggling with a 5% decrease in Q4 2015 compared with Q4 2014, or 45 million units sold.

The number of Chinese actors in the smartphone sector has increased significantly. Out of the top 12 global telephone makers, eight are Chinese, with cost compression strategies and innovative distribution channels, which allow prices to decrease but generate bankruptcy risks. Lenovo, the number 4 mobile phone manufacturer in 2015, is thought to stand in number 9 position in 2016 with a 26% decline in sales according to IC Insight. 

The semiconductor sector, which is still dynamic, remains very competitive. One of the US leaders, Qualcomm, which posted a -7% decrease in its turnover over the 2016 financial year, adjusted its cost structure, particularly by eliminating 4,500 jobs (15% of its workforce). It then bought out Dutch group NXP for $47 billion. The new group should generate around $30 billion in turnover and will be diversified particularly through the equipping of mobile devices, automobiles, and the Internet of things. Competition in the sector will be further exacerbated with the entry of Chinese actors in semiconductor memory. According to TrendForce, Chinese manufacturers consumed $18.7 billion worth of semiconductor memory in 2015 (24% of global production). In 2020, 70% of semiconductor memory consumption will come from Chinese companies.

Furthermore, the telecom market has to take on new competition from Internet service companies such as Google and Facebook, which are seeking to increase their Internet coverage rate. This context will probably give rise to increased competitive pressures on telecommunications, which are already being attacked in their traditional core businesses of voice and messaging.

Supply

Given the saturation of developed markets, the most dynamic regions are concentrated in emerging Asia (excluding China), Africa, and the Middle East. The sector looks set to grow by 2.9% in 2017.

The Chinese market has driven global sales in all segments for several years, but is currently showing signs of saturation. In 2017, one-third of the world’s population will own a smartphone. The main growth area is in India, particularly for the development of smartphone sales. While 292 million Indians owned a smartphone in 2016, 445 million (+52%) are expected to in 2020 according to Statista DMO.

While smartphone sales growth will continue to falter in the medium term, other growth drivers will appear. This is notably the case with car equipment due to the rapid expansion of connected devices embedded in mass-produced vehicles. Furthermore, video consumption accounts for a significant part of the increase in Internet traffic. Moreover, the outlook for the development of online storage services remains upbeat. Lastly, we are seeing a fixed/mobile convergence and increasing consumption of data, replacing voice and SMS. This development is driving consumption of cloud services, which continues to have a very positive growth outlook. In the EU, these services were used by one-third of households, but only by 19% of companies in 2014 (Eurostat).   

The Internet access rate will reach 30.4% of the population in 2017 in the Middle East and North Africa (+1.2pp compared with 2016) and 17.9% (+1pp) in sub-Saharan Africa according to Emarketer. This democratisation mainly involves wireless Internet, which underpins demand for mobile services. In Kenya, for example, 33% of financial flows go through mobile phones. On a worldwide scale, half of all mobile payments are already made in Africa. Accordingly, thanks to the infrastructure investments in 3G and 4G networks, smartphone sales could double by 2017. The fall in connection costs continues in developed countries in a context of market concentration. Embedded payment systems are also boosting the use of mobile phones. The number of NFC technologies installed to facilitate mobile payments should triple between 2015 and 2018 according to IDATE.

While demand for PCs will remain sluggish in 2017 after a year down -7% in 2016 worldwide, 18 to 24-year-olds continue to combine acquisition of smartphones and PCs. According to a study by Deloitte, in developed countries, 85% of this age category has a PC compared with 89% for a smartphone. Three countries stand out with a penetration rate for PCs greater than for smartphones: France, United States, and Canada. In addition, the dynamic remains favourable for this population, given that one-fourth of young people surveyed confirm that they wish to buy a computer in 12 months and one-third a smartphone.

 

Last update : December 2016

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