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Weak expected sales from flagging demand for major consumer-electronics products is behind the change in outlook.

In a new report, Moody's Japan K.K. has changed its 12- to 18-month outlook for Asia's consumer-electronics industry to negative from stable.

Moody's expects that weaker U.S. and European consumer sentiment, resulting from increased uncertainty in the global economy, will cause demand and resulting sales to soften for major consumer-electronics products from Asian companies through 2012.

"In addition, major digital audio-visual (AV) products that drove sales of consumer electronics products have matured, except for smartphones and tablet PCs," says the lead author of the report, Yoshio Takahashi, a Moody's analyst and assistant vice president in Tokyo.

Takahashi adds that most rated Asian consumer-electronics companies lack a strong presence in these two products. The increasing prevalence of smartphones will also cannibalize sales for single-function, portable digital products, such as compact digital cameras and portable game consoles.

"Weak demand, commoditization, and excessive competition will lead to continued price declines in liquid-crystal-display (LCD) TVs and panels," says Takahashi.

Takahashi notes that low profitability in these products has reduced margins for some Asian consumer-electronics companies, while increasing competition from Chinese manufacturers also raises the risk of oversupply and puts additional downward pricing pressure on LCD TVs and panels.

The analyst expects that an appreciated Japanese currency, weak market position for LCD TVs, large LCD panels, and smartphones, and sluggish domestic demand in Japan will put Panasonic (A1 stable), Sony (A3 negative), and Sharp (A3 stable) at a disadvantage against Korean competitors, Samsung (A1 stable) and LGE (Baa2 negative).

A contributor to the report, Annalisa Di Chiara, a Moody's senior analyst and vice president in Hong Kong, notes differences among Korean manufacturers.

"Samsung's still-significant, but lower exposure to LCDs, its stronger position in smartphones, leadership in semiconductors, and financial flexibility make it better able than LGE to withstand a downturn in the industry," she says.

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