Samsung has pulled out of South Africa's notebook market, playing into consumer preference for mobile devices and limiting its exposure to the impact of slowing private consumption growth on the PC market. The move can be viewed as a logical reaction to the continued decline in PC sales, in contrast with surging demand for tablets among South African consumers. Samsung's announcement did not make it clear, though, whether third party distributors would still be able to sell its notebooks on the South African market.
|Rising Smartphone Demand|
|Smartphone Sales Forecast, 2011-2018|
Demand for PCs among consumers has declined steadily over the last several years, in favour the increased mobility and lower cost of tablets and smartphones. IDC data show that PC shipments to South Africa declined by 18.8% in the final quarter of 2013, compared to the same period of 2012, while tablet shipments increased by 107.1% over the same time frame. BMI believes the decline in PC sales has eroded vendors' profit margins on notebooks, especially for a player like Samsung which does not rank among the top vendors. BMI expects PC sales in South Africa to be mainly driven by the government and enterprise sectors, where leading vendors Lenovo, HP and Dell control the market.
Along with the convenience of mobility, BMI believes mobile operators' heavy investment in mobile data networks has driven take-up of tablets and smartphones in South Africa. Rapidly declining mobile termination rates have weighed on voice revenues, and South Africa's mobile operators have responded by investing heavily in mobile data networks and building value through 3G and 4G services. As a result, mobile broadband has become the most common access technology for South African consumers, who therefore prefer 3G enabled mobile devices over notebooks, which require an additional Wi-Fi device to access mobile broadband networks.
Meanwhile, we expect the lower cost of tablets and smartphones relative to notebooks to remain a key concern for consumers, as real private consumption growth in South Africa is set to slow to 1.8% in 2014, from 2.6% in 2013, according to BMI data. This will filter through to the consumer electronics market, where we forecast total sales to decline from USD6.88bn in 2013 to USD6.81bn in 2014. We expect the weaker economic outlook to intensify competition between vendors as they battle for continued revenue growth amid sluggish consumer spending. Given these dynamics, BMI believes Samsung's decision to retreat from South Africa's notebook market will free up resources to tailor its products to South African consumer preferences and help it to defend its strong position in the tablet and smartphone markets.