Demand for consumer electronics is way down, but automotive electronics are a hot new market

Business & Technology

With a lack of must-have gadgets and a sluggish economy — not to mention COVID — Chinese consumers are not buying new electronics. But car companies are making up for the missing sales.

Illustration for SupChina by Alex Santafé

Smartphone dead end 

On Monday, we reported that smartphone sales in China in the first half of the year had reached the lowest level since 2015. In fact, with this year’s pandemic outbreaks, lockdowns, sluggish consumer confidence, and a slowing economy, China’s consumer electronics industry is in the middle of a “cold summer,” with Chinese media characterizing the industry as “exhausted,” and “mature” rather than “growing.” A domestic exchange-traded fund (ETF) that closely tracks the consumer electronics industry has fallen by 32% this year, ranking in the bottom 10 among nearly 10,000 funds in the entire market. 

It’s a global phenomenon: 

  • According to data by a domestic securities firm, global personal computer shipments in the first quarter decreased by 4.7% year-on-year. 
  • In May, global smartphone shipments dropped by 10% year-on-year to 96 million units, only the second time in a decade that this number has fallen below 100 million (the previous time was in 2020).  

People simply are not as willing or able as before to buy non-essential items, especially ones with high penetration rates like smartphones, nor are there any new categories of must-have devices. No one in the industry is expecting significant growth this year, and some analysts consider that demand for consumer electronics is not merely delayed, but reduced for good.  

Nirvana in a car

Unsurprisingly, companies manufacturing consumer electronics have seen the writing on the wall, and many have indicated that they are switching their focus to a much more lucrative area: automotive electronics.

The rapid growth of electric and other new energy vehicles (NEVs) and autonomous cars has been accompanied by innovation and swift uptake of automation and “smart” driving technology. 

  • NEVs and new models of traditional fossil fuel vehicles and hybrids now feature smart electronics for transistors, storage, computing, optics, connectors, circuit boards, and “smart cockpits,” which integrate all in-vehicle electronics with multiple screens and devices. 

Some of the leading companies

Domestic electronics companies are increasingly freeing up factory production space for automotive electronics. For example:

  • Universal Scientific Industrial (USI) 环旭电子 is one of China’s leading electronics companies, and had a great first half of the year, reporting revenue of 28.94 billion yuan ($4.28 billion), a year-on-year increase of nearly 30%, and a net profit of 1.08 billion yuan ($160.46 million), an increase of 96.84% year-on-year. With strong demand for USI’s system in package (SiP) technology (a means of bundling two or more integrated circuits in a single package) used in smartphones and smart wearables, the company’s consumer electronics business in the first half of the year amounted to 8.1 billion yuan ($1.19 billion), an increase of about 27% year-on-year. But the company’s automotive business, mostly smart cockpits and powertrain components, reached 2.1 billion yuan ($310.57 million), an increase of nearly 80% year-on-year.
  • Shenzhen Sunlord Electronics 顺络电子, a manufacturer of electronic components for microchips, has felt the heat of the falling consumer electronics market: In the first half of the year, the company reported revenue of 2.13 billion yuan ($315.90 million), a year-on-year decrease of 7.58%, and a net profit of 294 million yuan ($43.48 million), a year-on-year decrease of 28.55%. But the company has also operated in automotive electronics for a few years, and the company’s revenue from this business segment was 90.7 million yuan ($13.41 million) in the first quarter, a year-on-year increase of 51%.
  • Deren Electronic 得润电子, an Apple supplier, mainly manufacturers electronic connectors and precision components, but has now expanded its focus to wiring harnesses for automobiles, which the company says are being used in NEVs as well as traditional vehicles. Some new vehicles contain as many as 40 different harnesses, which can be composed of about 700 connectors and more than 3,000 wires.