By Peter Suciu
FORTUNE -- For the first time ever, sales of consumer electronics last year in Asia, led by China, exceeded sales in North America. To industry observers and demographers alike, the rapid growth of the Chinese market for consumer electronics comes as no surprise: There are now more than 160 cities in China with a population of more than 1 million people. In the United States, there are just nine.
This year, China's gross domestic product is also expected to rise, to 7.4%, and it is rising faster than that of the United States. Despite this growth, the sale of worldwide consumer electronics in Asia is predicted to drop 1% this year, according to the Consumer Electronics Association.
The dip isn't out of line with the global outlook for the year: Worldwide tech sales are expected to fall to $1.055 trillion this year, down from $1.068 trillion last year. (Why? For one thing, the tremendous undertow that is price pressure: The prices for technology-related products tend to fall faster than demand rises.) Still, for a rapidly growing market, it is not unreasonable to expect China to buck the global trend.
Amid uncertain global economic trends, the Chinese economy slowed down. That led to a series of falling dominoes: first, a decline in consumer confidence, then, a drop in sales of products that are not considered to be daily necessities. Add the May 2013 cessation of government subsidies for consumer electronic products in China -- for several years, the country's consumer electronics market relied on them to help stimulate demand in rural and lower-class areas -- and the country's demand for consumer electronics began to flag.
"We had seen stories where people in China were buying electronics because the subsidies were in place," said Shawn DuBravac, chief economist for the CEA. "People buy products when they have the means, and the subsidies were a big part of this. The products that the Chinese were buying included large-screen TVs -- it was like in the United States after World War II, when having a radio and later a TV was a sign of a rising middle class. This is true of all countries around the world, whether it is in Africa, southeast Asia, or China."
Though the subsidies from Beijing have ended, it won't mean an end to China's growing middle class, DuBravac said. "Subsidies have played a role," he told Fortune, "but they are not the defining role."
Officials ended the subsidies because they believe they are no longer needed to drive growth. Disposable income levels in China have increased, they argue, and the replacement cycle for some products will shorten as consumers increasingly opt to upgrade their aging electronics.
Until now, China's urban markets have driven the country's growth in consumer electronics sales. But researchers say that the relatively small consumer base in the countryside is poised for growth as the income gap between urban and rural Chinese narrows.
"China's consumer market is young and educated, and Chinese consumers are keen on staying on top of the latest trends," said Josh Crandall, an analyst at NetPop Research. "To do this, they are constantly checking Weibo feeds, Renren updates, as well as tuning into news and information on television. They need their devices to stay in the game. Lowering governmental subsidies is a reflection of the market's current strength. While there may be short-term revenue shortfalls, the long view is strong for consumer electronics companies that serve the world's largest market."
Another reason for the consumer electronics slowdown: increased demand for smartphones, which Chinese consumers are now using to take photos, record video clips, and listen to music, threatening sales of dedicated imaging devices and portable media players. IHS Technology forecasts that shipments of digital still cameras in China by 2017 will have lost 75% of their volume compared to 2009, while personal media players during the same period will be down a debilitating 92%, mirroring trends seen in other areas of the world.
"Globally the smartphone market is about 1.1 billion people," DuBravac said. "Of that, 400 million is just China. The growth now is coming from domestic manufacturers, which is notable in a market that is worldwide dominated by Apple and Samsung. This is also true with most CE products, where more than 50% of sales are from Chinese makers. It is not a super-majority, but domestic sales are still very, very strong."
Consumer electronics sales in China could rebound as early as 2015, even if unit shipments continue to decline slightly. In the meantime, Chinese consumer electronics manufacturers may look to new markets outside of their home country for growth.
"China's makers will continue to develop new markets due to lower or negative growth ratio in domestic, North American and European markets," said Horse Liu, an analyst at IHS Technology.
Further, manufacturers are expected to turn their focus away from shipments now that the growth-stoking subsidies have disappeared. Already, they are putting more energy into high-end products with larger margins to push sales revenue.
"China's leading CE makers will pay more attention to profit margin," Horse said.
The Street is looking for 0.4% earnings growth with revenues off -0.1% from last year.
FORTUNE -- A ho-hum three months.
That was the consensus of Apple (AAPL) analysts Saturday, the last day of the company's second fiscal quarter of 2014. (See Yahoo snapshot, attached.)
Ho-hum also describes the performance of Apple's share price for the quarter -- down about $20 (-3.5%) while the broader market was scoring modest gains (S&P 500 up 0.8%).
That's a bit out of character, given Apple's past and its future prospects.
The spreadsheet below shows the MOREPhilip Elmer-DeWitt - Mar 29, 2014 1:16 PM ET
Is there return on investment for showing at consumer technology's biggest annual event? It's a bit fuzzy.
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FORTUNE -- Sean Simone is looking for attention at the Consumer Electronics Show.
The scruffy, 24-year-old tech executive is standing in a distant corner of a humming hall packed with technologists, marketers, and journalists. Behind him is a sign for his company, the Baton MOREJan 13, 2014 11:15 AM ET
Turnarounds at Dell, HP, and Yahoo generate more headlines than fast results. And then there's Best Buy -- lower-profile but showing progress against all odds.
By Kevin Kelleher, contributor
FORTUNE -- When was the last time you went to a Best Buy? And more importantly, would you consider going back? I ask question knowing that some of you -- you know who you are -- are laughing, or smirking, or at least have written MOREJun 12, 2013 9:35 AM ET
"Family Together" came in No. 7 in a recent survey. "Good Health" was No. 8.
One of Apple's (AAPL) public relations operatives e-mailed overnight to let me know that a Consumer Electronics Association survey -- one that put the iPad No. 3 on this year's holiday wish list -- was likely to be highlighted in a CEA webcast scheduled for 2 p.m. ET Wednesday.
I can see why Apple would be pleased MOREPhilip Elmer-DeWitt - Nov 10, 2010 10:02 AM ET
Steve Jobs unveiled the first iPod on Oct. 23, 2001, nine years ago today
Here are the stats:
Age: 9 years
Units sold: 278,545,000
Net sales: $47,833,000,000
Note the seasonal patterns of quarterly sales in the chart, with Sonic-the-Hedgehog-style Christmas spikes. Note also the major inflection points, when sales accelerated:Philip Elmer-DeWitt - Oct 23, 2010 11:26 AM ET
The Jumbotron comes home --and the computer goes in the pocket.
Even before the recession began two years ago, people were talking about the need for Americans to downsize. What this means for the world of consumer electronics is unclear.
Our television screens just keep getting bigger and better. In 2009, the average screen size was 36 inches, up from 22 inches a decade ago.
For LCD and plasma screens greater than 60 MOREJessica Shambora, Writer-Reporter - Jan 15, 2010 6:00 AM ET
Apple's gadgets win adulation, but research shows the sector needs a jolt if it wants to grow
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Large consumer technology companies are underperforming in the global innovation battle.
The culprit: Widespread flaws in how they manage and invest in innovation.
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