General Economic Trends
In fiscal year 2016/17, the economy continued its solid and steady growth in Germany, which remains MEDION’s most important market. According to the annual results from the German Federal Statistics Office, price-adjusted GDP increased by 1.9% in 2016. The favorable development seen in the job market - with unemployment currently the lowest it has been in 25 years - is providing the foundation for noticeable gains in the purchasing power of private households. Private consumption, and in particular dynamic residential investment and increased state consumption, are responsible for the overall favorable economic trend. The robust economic growth seen in Germany is remarkable given the subdued outlook and continuing heavy indebtedness still existing in parts of the eurozone, as well as the considerable uncertainty caused by geopolitical conflicts and the fragile global economy.
Economy recovery is continuing in the eurozone in the midst of a difficult global economy, and growth expectations for the previous year were more or less met. Expansionary monetary policy and the drop in the euro vis-à-vis the US dollar will continue to support the economy. Consumer price inflation should increase noticeably after the price of crude oil has stabilized. Private consumption will continue to boost demand significantly in the eurozone. The slight improvement to the job market is contributing to this, but the situation remains tense in many countries (details available in the German Federal Government’s Annual Economic Report, pp. 14 ff.).
Market for Consumer Electronics/Digital Media/Mobile communications services
In contrast to the positive macroeconomic development seen, the market segments relevant to MEDION’s business continued to be characterized by heavy price pressure and high saturation rates.
With overall sales of €26.6 billion (prior year: €27.6 billion), the German market for consumer electronics recorded a decrease of 4% in 2016 (January 1, 2016 - December 31, 2016)1. Consequently, it did not develop as strongly as the overall economy. Despite a stable and particularly positive market for TV sets in Q2, sales of CE products were negative for 2016 as a whole, at -4%. At the same time, traditional entertainment electronics fell by 4.4% year-on-year to €9.2 billion. Private telecommunications recorded roughly stable earnings, at €10.4 billion (-0.2%). The greatest decrease in sales came from privately-used IT products, however, decreasing by 8.6% to €6.9 billion (see gfu press release dated February 24, 2017).
The unchanged basis for that market development is the increasing digitization of products, contents and transmission platforms, which also continued with TVs and mobile devices. Positive growth in audio and video for innovative products with improved picture and sound, larger screens, increased energy efficiency, and a number of new user and networking possibilities all contributed to this development. In addition, continued high demand for smartphones offset the lower sales of desktop PCs and notebooks, thus ensuring stable market growth.
TV and audio
As in previous years, devices that were in high demand in 2016 included high-resolution, flat screen televisions, and all devices that allow the use of mobile media. However, strong competition also resulted in heavy price pressure. On the whole, sales remained stable year on year, generating revenues of €4 billion. Sales dropped slightly by 0.9% to 6.9 million units (2015: 6.9 million units).
Positive growth for home audio continued in 2016, generating revenues of €1.1 billion (prior year: €1.0 billion). Sales of connected audio products increased by 25.7% to €388 million. Unit sales also rose substantially by 26.1% to 1.6 million units (prior year: 1.3 million units).
Notebooks and tablets
With a 8.6% decrease in revenue to €6.9 billion (2015: €7.6 billion), information technology represents again the smallest segment of the German consumer electronics market.
PCs in particular fell in all market segments, with all three PC segments recording losses in sales and revenue. Desktop PCs decreased by 13.5% to 1.1 million units. Tablet PCs dropped significantly by 21.8% to 4.8 million units, and notebooks fell by 7.7% to just under 4.8 million units. Revenues for desktop PCs contracted by 15.0% to €0.6 billion, notebooks were down 5.8% to just under €3.0 billion, and tablet PCs decreased by 17.4% to just under €1.4 billion. This continued downturn on the PC market is due to numerous reasons - the stable development of the smartphone sector and also the fact that a significantly larger number of consumers and companies are satisfied with the performance of their PC for a longer period than was the case one decade ago, when faster processors and higher storage capacity were still regarded as being secure sales incentives. In addition, the strong US dollar exchange rate has made PCs more expensive in many countries of the world, thus decelerating the readiness to make purchases.
This trend could be seen not only in Germany and the central European markets that are key for MEDION. According to figures provided by Gartner, the global PC market decreased by 6.2% in 2016, with manufacturers distributing 269.7 million computers overall (prior year: 276.2 million units).
Telecommunications continues to be largest segment in terms of overall consumer electronics sales in Germany. In 2016, sales fell slightly by 0.2% to €10.4 billion. Smartphones recorded a slight decrease, with sales falling by 2.7% to just under €9.6 billion and the number of units sold decreasing by 7.6%, from 25.1 million to 23.2 million units, despite a 5.3% increase in average unit price to €412.
Digital media comprises audiovisual media and applications that are sold to end users in digital formats via the Internet. This includes digital video content (films, series and shows), digital music for downloading or as an Internet stream, digital games for various end devices and electronic publications (ePublishing), i.e., digital versions of books, magazines and newspapers, for eReaders or tablets. According to forecasts published by the D21 Initiative, digitalization will encompass the entire population within the next 10 years (D21: Digital Index 2014, The Development of Digital Society in Germany).
On the telecommunications market, declining termination charges and intense competition on the market had a negative effect on the sale of mobile communications services. On the plus side, however, demand for mobile data use continues to be high. The demand for digital services such as photo services, downloads and streaming content continues to grow, although the margins in this segment are under considerable pressure due to a lack of opportunities for diversification and the competitive environment.
1 The figures for the trend in the German consumer electronics market in 2016 come from the Consumer Electronics Market Index (CEMIX), which is published by the German Association for Consumer and Communications Electronics (gfu) together with the German Association for Consumer Research (GfK).