Frost: Declining System Prices Fueling Growth of EU Telematics, Infotainment Aftermarket

November 16, 2007 // Published as a news service by IHS

Despite the presence of well-entrenched participants in this market, analysts said there is good scope for investments by financial institutions, including private equity (PE), venture capital (VC) firms and asset management companies.

Recent analysis from Frost & Sullivan of the EU telematics and infotainment aftermarket found earned revenues of $5.02 billion in 2006, with estimates to reach $14.98 billion in 2011.

In the future, the market is likely to see very attractive growth rates, and has ample scope for further consolidation.

"The European telematics and infotainment aftermarket is likely to benefit from a variety of factors, such as a continued decline in system prices and mounting consumer demand for telematics and infotainment in the wake of increasing daily average travel times," said Frost & Sullivan research analyst A. Sethuraman.

"In addition, the legal ban imposed by several European countries on the use of hand-held mobile devices while driving is set to boost demand for Bluetooth, in-vehicle, telephony car kits."

The rise in the total distance traveled by light vehicles, year on year, indicates a growing trend toward increased business, including commuting and leisure travel. Analysts said in light of this development, telematics and navigation devices are proving invaluable. Infotainment products, such as rear-seat entertainment systems, can also help overcome the boredom factor associated with long-distance travel.

Analysts said a major challenge faced by companies in the telematics and infotainment aftermarket is to bring out systems with the most advanced and attractive features at prices acceptable to customers. There has been intense pressure on operating margins due to increasing competition, in addition to the threat of low-cost Asian imports, especially from China.

"Although prices for telematics and infotainment devices have been falling over the years, the penetration rate of these systems in light vehicles is still quite low, given the huge number of light vehicles already on the roads in Europe," said Sethuraman. "Mass market consumers continue to perceive many of these products as high-priced luxury goods."

In the face of declining operating margins, analysts said telematics and infotainment companies in the European aftermarket are likely to acquire some of their regional counterparts in order to take benefit from lower manufacturing costs, as well as from economies of scale.

These stakeholders are also expected to carry out forward integration with sales and distribution companies and backward integration with technology and software companies. Analysts said this should help them achieve operational synergies and savings on margins which would otherwise have been shared with middlemen involved in the sales and distribution process.

Source: Frost & Sullivan.