The Western European technology sector continues to grow, according to the latest GfK Retail and Technology TEMAX report, which showed Q4 year on year growth of 0.2%. This equates to 2.1% growth for 2010, driven by innovation in IT connectivity and Smartphone sales.

Looking back to establish future trends

Rapid innovation in the technology sector has continued to drive consumers and businesses to adopt devices that enable increasingly mobile and connected access to their favourite content and services. In addition, the overwhelming growth in the smartphone market has resulted in year-on-year growth in the Telecommunications (TC) market. The growth trends established at the beginning of the year continue to strengthen, and influence businesses and consumers to invest in the latest technology.

Innovation in IT connectivity and devices

Back in Q3 we saw year-on-year increase of +10% for the IT market, driven by faster replacement cycles in the B2B market and by consumer demand for netbooks, tablets, notebooks and peripherals. Although the growth was slightly slower in Q4 2010, it’s still an impressive +7.3% overall, and especially so in Sweden, Germany and Austria, all of which enjoyed double-digit growth rates. And, if anything, talk of these two driving forces (replacement cycles and new device consumer demand) will only continue to grow over the coming months:

On the one hand, it appears impossible to avoid news releases and articles about the thriving tablet market, whilst on the other, we are seeing an overwhelming increase in consumerisation and business models for secure and efficient network ecosystems (something which GfK TechTalk will be monitoring). On top of the ever-prevalent replacement cycles, are calls for hardware and software products that enable IT teams to improve their firms’ productivity and security. Business IT teams must therefore develop secure network infrastructures to support a more connected, mobile society and employees with a range of personal and work phones, balancing multiple devices, networks and multiple operating systems.

As highlighted in Q2, the concepts of ‘mobility’ and ‘connectivity’ continue to be key in helping the IT market in particular to flourish. The products and services driving technology sector growth, in such areas as online remote access, collaboration tools, storage solutions, network infrastructure and cloud computing, have connectivity and mobility at the heart of them.

Tablets prove interesting; not only have they established themselves as a new segment in the market, they also fit the bill of being good all-rounders. People consider them for work, play and communication, with GfK data showing that the majority of tablet current and prospective owners view accessing news websites, work documents and emails, listening to music and making phone and video calls as important criteria for buying a tablet. The new generation of tablets will only continue to create additional demand and sales volume, particularly as they become more prevalent in the enterprise space.

So, if these two drivers continue to grow, why have we seen some decline from Q3? One explanation could be the enormous hype and publicity about this year’s new product releases. Consumers and businesses appear to be holding out for the best tablets and office hardware and software: Apple iPad 2, the RIM Playbook, multiple cloud services such as RIM’s cloud computing, and advanced mobile management solutions for example, are all, we are told, “on their way”. Pre-releases, rumours and leaked online documents all build expectation amongst consumers and businesses alike, whilst promoting a “don’t spend now, when you can purchase something more efficient soon” mentality.

If this is true, it is therefore likely that we will see most growth for the IT market in Q2 this year, as brands launch new flagship devices in the wake of the mobile and electronic shows and, even more importantly, after Apple have released their newest offering.

Mid-range smartphones leading growth in the Telecom sector

“Highly efficient” and “Multifunctional” were words used to describe growth in the MDA and Office Consumables markets in the TEMAX report, but they might as well have been referring to the vast range of smartphone devices attracting consumers throughout Europe. This goes to show the homogeneous nature of the elements driving growth.

There was some decline in Q4 for the TC market (-1%), but it is important to remember that there was significant growth in the smartphone market over the year1. Over 1/3 of TC sales volume is generated by smartphones, with all European countries showing a trending towards these devices. Any decline will be more as a result of pricing changes within the smartphone market, rather than sales volume: while they started as high-end premium devices, the share of smartphones has continued to increase in the mid-tier price classes (between 100 and 200 Euros).

As with the IT market, we may see a seasonality trend where companies appear to hold back until Q2 to release ‘flapship’ devices. Growth rates may therefore pick up again later this year, after a slower Q4, as people hold out for the more innovative devices to come.

A more stabilised 2010 after recent lack of need for innovative Consumer Electronic products

Within the IT and TC markets, consumers seemingly need device-dependent incentives to purchase products (e.g. screen size was the driving force behind smartphone growth in Q3 and touch-screens in Q4.) The CE market, however, appears to depend more heavily on external pushes, as shown by the decline (-5.3%) in Q4, compared to the small -0.6% decline in comparison for the whole year. The first half of the year, saw a large increase in flat TV sales as a result of the World Cup and, to a certain extent, the transition from analogue to digital TV. Without such external forces, we see minimal growth throughout the rest of the year.

And it’s certainly not from a lack of innovation: just look at the improved flat TVs, larger screens and upgraded technology out there, such as web access and 3D. In all other technology markets, it seems that products that show innovation, higher quality, efficiency and multifunctionality will drive market growth, whereas, in the CE market, brands need to convince consumers of the necessity of purchasing products with upgraded technology. This may come in several forms in the coming year. One way is the expansion of TV equipment in the home (will TVs in the kitchen, sitting room and bedroom become a standard?), another is the need for peripheral products which match the high quality visuals of those recently invested in flat TVs. This section of the CE market is already starting to flourish and products come in the form of sound sources (internet TV, audio streaming), accessories (loudspeakers, headphones and Home cinema equipment) and highly advanced sound solutions for the living room, such as Soundbars, which have developed well in past months.

Still popular among the techies, but yet to be convinced, due to price and unwillingness among the general population to wear the glasses, is 3D TV. However, if the technology improves, it might be possible for external events, such as the Olympics and other major sporting events, to push growth in this market. Broadcasting of this year’s Wimbledon in 3D in cinemas is already rumoured2 …it might just be possible.

Conclusion

For 2011, it is likely that these markets will continue to flourish. GfK Techtalk is already excited by the advancement in products in the IT, TC and CE market. The IT market in particular will continue to perform well, due to the consumer and business tablet and enterprise solutions markets, and smartphones are likely to keep the TC market going for the foreseeable future. We’re also expecting the CE market to see growth again, not least because of the huge growth of gaming software3

Footnotes and Data sources:
For more information of GfK TEMAX data, which also covers other technology goods, such as Major Domestic Appliances (+1%), Office Equipment and consumables (+0.7%), and Photography (-1.8%), click here http://www.gfkrt.com/gfktemax.

1http://www.itpro.co.uk/628369/smartphone-market-boasts-epic-growth
2http://www.digital2disc.com/2011/03/07/sony-to-deliver-wimbledon-3d-ace/
3http://www.bbc.co.uk/news/business-12697975

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1. Business IT replacement cycles and strong consumer demand for smartphones and notebooks drives growth in the Western European technology sector

Tags: Connectivity, Consumer Electronics, Mobile Ecosystems, Mobility, PCs, SmartCloud, Smartphones, Tablet PC, Telecommunications