What is the electronics sector?
The Electronics segment produces electronic equipment and consumer electronics, and manufactures electrical components for a variety of products. Common items in the electronics industry include mobile devices, televisions, and circuit boards. Industries in the electronics sector include telecommunications, networking, electronic components, industrial electronics, and consumer electronics.
Key points to remember
- Industries in the electronics sector include telecommunications, electronic components, industrial electronics, and consumer electronics.
- The most profitable industry in the electronics sector is the semiconductor industry.
- Emerging market economies are driving the growth of the electronics industry.
- The retail part of the electronics industry is becoming increasingly fragmented and competitive as there are new market entrants, such as online retailers, and companies slowly cutting out the middleman, like Best Buy.
- Electronic stock volatility is becoming increasingly common due to this fragmentation and competition.
Growth in the electronics sector
The electronics sector is growing rapidly due to the increasing demand from emerging market economies. As a result, many countries are producing more and more electronics, and investment in foreign electronics production has increased dramatically.
The growth of the electronics sector is accelerated by the increase consumer spending around the world. As developing economies grow, consumer demand for electronics also increases. Countries that produce electronics now have strong consumer bases who can afford new electronics. At the same time, increased competition is driving down the costs of producing electronics, making products even cheaper for individuals.
The growth of the electronics sector is mainly driven by innovation, with companies spending large sums on research and development (R&D) to manufacture better products and increase the efficiency of the manufacturing process.
China has long been a major electronics producer and is now also a major market for consumer and industrial electronics. Asia’s share of the electronics market is expected to account for about half of the global market over the next few decades. This increase means better profitability for the industry as a whole in the future.
The supporting role of the electronics industry in supplying equipment and components for other industries is also a growth driver as consumers demand more automobiles, energy-efficient homes and medical technologies.
The most profitable sector of electronics, the semiconductor industry, reached a value of more than $555.9 billion worldwide as of 2021. Semiconductors are used in most products electronics, including cameras, computers, automobiles, cell phones, refrigerators, light bulbs, washing machines, and televisions.
Retail Electronics Market Challenges
Electronics retailhowever, is becoming increasingly competitive and fragmented to experience a unique set of challenges. Many electronics brands now offer their products in their own stores in order to become more profitable. These stores compete with flagship retailers, such as Best Buy (BBY), for customer traffic.
Online stores, such as Amazon (AMZN), also compete for customer spending and offer products not available in traditional stores. As the variety of electronics increases, stores struggle to offer enough of the most popular products to consumers and concede some of the market share to online retailers.
Although purchasing volumes are increasing, many large companies are going through a period of decline as the industry becomes fragmented with more companies offering electronic products.
Volatility in company valuations is becoming more and more normal for electronics retailers as the industry matures and experiences a changing landscape. Changes resulting from store closures, Mergers and Acquisitionsand falling prices are pushing the electronics industry to become more efficient and profitable.
Although the electronics sector is growing, primarily the semiconductor industry, due to increased consumer spending in emerging markets, the sector continues to fragment and become competitive as the landscape changes, new technologies are introduced and new entrants enter the market. As a result, stock prices of electronics companies are expected to experience some volatility.
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