Friday, October 26, 2012

After The Storm

And after the storm,
I run and run as the rains come
And I look up, I look up,
on my knees and out of luck,
I look up

Opening lyrics to "After the Storm", by Mumford & Sons

In the February 2009 edition of “LCD TV Matters” I published an article forecasting a quick turnaround in the US TV set sales while the economy was still in free fall and shortages by 2010. The economy did recover somewhat and there were shortages for a time in 2010, but the recovery stalled and it continued to feel like we were in a recession in spite of a growing GDP. The reason for the forecast was simple. TV set sales, while certainly not recession proof; tend to be very steady over the long term. In a recession, set sales actually accelerate during the initial phases then plummet as the recession takes hold. However, these sales are not really lost, just postponed per the model developed by Jeff Johnson when he was at Philips. Long term set sales depend on things like interest rates and household growth. There can also be exogenous events such as the introduction of the VCR and the transition to HDTV that spur additional sales beyond that.

In the October 2012 edition of “High Resolution” I stick my neck out again. The article was actually written during the summer forecasting a bottom for TV set sales in Q2 of 2012. The reasons for the new forecast were largely as before even though the circumstances of “The Great Recession” were unique in the life of the TV industry. Housing prices had turned around and household growth was resuming. Other consumer durables, particularly auto sales were returning to per-recession levels driven by pent up demand. My reasoning is that many purchases were postponed during the recession. An aging automobile can be repaired rather than replaced but only for so long before it becomes uneconomic. New TV sets are usually purchased to update rather than replace a broken one, so a TV replacement would be further down the consumer’s priority list; but the fact that consumers are back to replacing some durable goods at per-recession levels means that the time is not far off for TV.

Apple was on a roll during the recession and has accumulated over $100 Billion in cash, so not all was bleak for consumer electronics. Today we learn that Samsung has done stunningly well as well and the good news is extending back to the display makers. LGD is profitable again. The US election is days away, the “Fiscal Cliff” with mandatory massive budget cuts has to be faced and there is still the possibility of a default on European sovereign debt. However, things are not nearly as threatening as they were and some are looking forward to 2013 rather than just planning how to survive.

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