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China's car electronics swerves to the slow lane

Posted: 03 Mar 2009 ?? ?Print Version ?Bookmark and Share

Keywords:electronics car? automotive? China slowdown?

China's automotive electronics revenue in 2008 expanded by 11.7 percent, down 23 percentage points from the growth rate in 2007, according to iSuppli Corp.

Production of automotive electronics equipment in China amounted to $13.6 billion in 2008, up 11.7 percent from $12.1 billion in 2007. While the market expanded, the growth represented a major decline in growth from the 34.7 percent rise in 2007. The automotive electronics equipment area consists of portable navigation, infotainment, power train, safety and control, comfort and convenience, body electronics, security systems and other functions.

"This deceleration in 2008 mainly resulted from the poor performance of the automotive infotainment segment," said Isaac Wang, industry analyst for China Research at iSuppli. "In 2007, automotive entertainment represented 48.7 percent of China's overall automotive electronics market. This portion shrunk by 2.8 percentage points in 2008. A rapid decline in international equipment orders put many of China's automotive electronics suppliers in a difficult situation."

Nevertheless, navigation applications maintained high growth.

In 2008, portable navigation device revenue increased by 29.7 percent while in-dash navigation applications rose by 19.3 percent. Electronic navigation has been adopted by many China car owners as an integral part of their new driving lifestyles. This trend will boost telematics players, especially those supporting intelligent transportation system applications.

Cars' rebound
Due to the international economic recession in 2008 and into 2009, the global automotive electronics industry will not rebound until after 2010. iSuppli expects that it will not climb back to its revenue height until 2012.

Fortunately, the situation in China is not as serious. Although the nation's auto electronic equipment annual growth rate is set to drop again in 2009, it will remain positive at 6.5 percent.

This relatively stable performance enhances China's position in the global market. China's share of the global automotive electronics market revenue was 13.5 percent in 2008 and is expected to rise to 18.1 percent in 2012.

China's market will play a critical role, and international firms will expand their presence and activities in the nation.

Competition will be much greater in China with leading multinational firms, such as TRW and Lear, which have done very well in the global market but have not been very successful in China so far. Many new domestic entrants also are expected, mostly in the infotainment segment.

Focus on OEMs, domestic market
There were two major changes in China's automotive infotainment market during 2008. There was a greater focus on OEM customers and on the domestic market.

The export market accounted for more than 62 percent of all China-made automotive infotainment products in 2007.

In 2008, however, the sudden arrival of the financial crisis in the United States triggered mass international order cancellations. China equipment vendors suffered severe losses and the export market fell sharply. Exports contracted by 8.6 percent in 2008. As a share of China's automotive infotainment market, exports have decreased to 41 percent.

Infotainment products targeting the aftermarket used to account for 69 percent of the overall total in 2007. However, the economic woes of 2008 negatively impacted international consumption. The aftermarket shrank to a 60 percent share at the end of 2008.

"Amid these rapid changes, the most outstanding automotive electronics firms are not the largest or strongest ones, but those players who are making the most positive and decisive responses," Wang said. "Companies need to quickly adopt the most suitable business models as market and general economic conditions shift."

China's automotive electronics market is immature, and applications are developing at different rates. In certain segments such as low-end infotainment, superfluous products are common. Meanwhile, in most other segments, supply still lags demand, sometimes by a wide margin. For new market entrants in China's automotive electronics industry, it is important to find market segments or product niches with less competition, Wang noted. Where the gap between demand and supply is larger, market conditions will be more favorable and potential profits will be higher.

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