What Is the Electronics Sector?

The electronics sector produces electronic equipment and consumer electronics and manufactures electrical components for a variety of products. Common items in the electronics sector include mobile devices, televisions, and circuit boards. Industries within the electronics sector include telecommunications, networking, electronic components, industrial electronics, and consumer electronics.

Key Takeaways

  • Industries within the electronics sector include telecommunications, electronic components, industrial electronics, and consumer electronics.
  • The most profitable industry within the electronics sector is the semiconductor industry.
  • Emerging market economies are driving the growth of the electronics sector.
  • The retail portion of the electronics sector is becoming increasingly fragmented and competitive as there are new entrants into the market, such as online retailers, and companies slowly cutting out the middleman, such as Best Buy.
  • Volatility in electronics stock is becoming more common due to this fragmentation and competition.

Growth in the Electronics Sector

The electronics sector is growing rapidly as a result of increasing demand from emerging market economies. As a result, many countries are increasingly producing more electronics, and investment in the foreign production of electronics has increased dramatically.

Electronics sector growth is accelerated by increased consumer spending around the world. As developing economies grow, consumer demand for electronics also grows. Countries that produce electronics now have strong consumer bases that can afford new electronic products. At the same time, increased competition is driving the costs of electronics production down, making products even cheaper for individuals.

Growth in the electronics sector is primarily driven by innovation, with companies spending significant amounts on research and development (R&D) to make better products and to increase the efficiency of the manufacturing process.

China has been a significant electronics producer for a long time and is now also a major market for consumer and industrial electronics. Asia's proportion of the market for electronics is expected to represent approximately half of the global market within the next several decades. This increase means better profitability for the industry at large in the future.

The supportive role of the electronics sector in providing equipment and components for other industries is also a factor of growth as consumers demand more automobiles, energy-efficient homes, and medical technologies.

The most profitable sector within electronics, the semiconductor industry, has grown to become worth more than $412 billion globally as of 2019. Semiconductors are used in most electronic products, including cameras, computers, automobiles, mobile phones, refrigerators, bulbs, washing machines, and televisions.

Challenges in the Electronics Retail Market

Electronics retail, however, is becoming increasingly competitive and fragmented from experiencing a unique set of challenges. Many electronics brands are now offering their products at their own stores as a means of becoming more profitable. These stores compete with flagship retailers, such as Best Buy (BBY), for customer traffic.

Online stores, such as Amazon (AMZN), also compete for customer spending and offer products not available in traditional stores. As the variety of electronics products increases, stores struggle to offer enough of the more popular products to consumers and concede some of the market share to online retailers.

Though purchasing volumes are increasing, many larger companies are in a period of decline as the sector becomes fragmented with a greater number of companies offering electronic products.

Volatility in company valuations is increasingly becoming normal for electronics retailers as the industry matures and experiences a shifting landscape. Changes resulting from store closures, mergers and acquisitions, and declining prices are pressuring the electronics sector to become more efficient and more profitable.

The Bottom Line

Though the electronics sector is growing, primarily the semiconductor industry, due to increased consumer spending in emerging markets, the sector continues to become fragmented and competitive as the landscape changes, new technologies are introduced, and new entrants enter the market. As a result, the stock prices of electronics companies are likely to experience some volatility.