Argentina Consumer Electronics Report Q1 2013

BMI projects that Argentine consumer electronics spending will grow by about 4% in US dollar terms in2013 to US$5.7bn, with our headline forecast downwardly revised due to an uncertain economic outlook.

We still expect sales of mobile handsets, plasma TV sets, digital cameras and other categories ofconsumer electronics products to grow in 2013, as monetary and fiscal policies remain highlyexpansionary. BMI has warned of the risk of a substantial currency devaluation, which would have animpact on the affordability of IT products and services. Although local PC, TV and mobile phoneproduction in Tierra del Fuego state has expanded rapidly, most of the imports used for assembly are stillimported. Meanwhile the tax on 'luxury goods' such as mobile phones and digital cameras hasdramatically boosted the share of local production in Argentine market sales, while sales of importedconsumer electronics devices have fallen sharply.

Headline Expenditure Projections

Computer hardware sales: US$2.5bn in 2012 to US$2.5bn in 2013, +2% in US dollar terms. Forecast inUS dollar terms downwardly revised due to macroeconomic factors and analyst modification as domesticPC production continues to increase. AV sales: US$2.5bn in 2012 to US$2.6bn in 2013, +5% in USdollar terms. Forecast in US dollar terms unchanged, with HD and smart TV sets expected to provide themost dynamic development.

Handset sales: US$505mn in 2012 to US$546mn in 2013, +8% in US dollar terms. Forecast in US dollarterms downwardly revised, with smartphones the main revenue growth driver.

Risk/Reward Ratings: Argentina's score was 43.9 out of 100.0, putting it in 7th place in our latestAmericas RRR table. BMI expects rising penetration of consumer electronics devices such assmartphones and flat-screen TV sets, but government policies will constrain the opportunity for foreignvendors.

Key Trends & Developments

The consumer electronics competitive landscape has been influenced by changes to the tax code.The introduction in 2010 of a luxury goods tax on imports of electronic items, from which theelectronics production hub of Tierra del Fuego is exempted, has provided a significant boost tolocal production of mobile phones, PCs, TV sets, and other electronic goods. Local productionof mobile phones was projected to comprise up to 90% of domestic handset sales in 2012.

Meanwhile production of PCs reached 3.38mn units in 2011, while sales of imported devicessuch as Apple's iPad have fallen dramatically.

The digital TV market in Argentina should grow in corollary with the government'simplementation of aUS$2bn plan for open digital TV in the country. The government has set adeadline of 2018 for completion of the country's migration to digital TV broadcasting. By H112,two years after launching its digital TV initiative, Argentina's digital TV network reached 75%of the population, according to government figures. Argentina now has 50 digital TV stationsdeployed across the country.

All operators report demand for smartphones is high, and value-added services are drivingrevenue upwards. One innovation is smartphones enabled for digital TV, with mobile phonemanufacturers committed to producing 400,000 such devices by April 2013. In H212, Argentinemobile operator Personal launched a tender process to acquire 140,000 mobile phones featuringdigital TV, while rival operator Claro ordered 100,000 such phones from Samsung.