Consumer Electronics

The Consumer Electronics market continues to wallow in the doldrums. All of the major markets are down year-to-year in dollar terms with many suppliers selling products at a loss.

OPPORTUNITIES

We currently have no Buy recommendations under coverage in this space.

The only bright spot is the smartphone business, where the iPhone and Blackberry are selling well. We expect several new product offerings in this market in mid-year. The strong smartphone market will benefit Apple Inc. (AAPL - Analyst Report), but will not offset the decline in revenue from computers and the impact of lower-priced iPods. We currently rate AAPL as a Hold.

WEAKNESSES

In the LCD TV, business the excess flat panel inventory is being consumed and there are possible shortages when Asian production begins to build in July for the year end 2009 selling season. Several of the major flat panel producers have closed marginal plants and deferred opening the latest generation on plants.

The volume of LCD TV sales are up year to year, but prices erosion has been significant. If panel prices increase and retail prices stabilize we would expect declines in volume sales in the October/November time frame. As one of the leading HDTV producers Sony Corp. (SNE - Snapshot Report), selling high-end TVs against the low-cost Chinese producers, is expected to show declining margins from its TV business. We rate SNE as a Sell.

There have been no announcements of significant new technological improvements in the FPTV market. Some manufacturers will move to 240 cps refresh rates (200 cps in Europe). This is to solve the skipped image problem with large screen where when the screen is refreshed objects moving at speed seem to jump across the screen.