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What Is Electronics Industry Analysis?

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  • Written By: A. Garrett
  • Edited By: John Allen
  • Last Modified Date: 21 November 2016
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Electronics industry analysis is the use of industry analytics and industry trends to determine the financial health of the electronics industry. Such industry analysis is used by businesses or investors seeking to enter or expand in the electronics market. The goal of electronics industry analysis is to determine the likelihood that such investments or expansions will be profitable. Profitability is dependent on the overall electronics market. Analysis techniques study the effect customers, competition, employees, and suppliers have on the market in order to determine whether or not it is conducive to high returns on capital.

Companies and investors use industry analysis to determine customer demand for their products. They evaluate sales statistics to determine what goods sell. Focus groups comprised of prospective buyers also allow these entities to determine the impact extra product features or price changes have on demand.

The electronics industry produces technologically advanced equipment used by customers for recreational or occupational purposes. Customers have historically been price sensitive in this field, according to industry analysis. For example, the lack of distinction in the functionality of DVD players means that customers will often buy the cheaper of two players being sold. Consumers have a lot of bargaining power as a result of the absence of product differentiation. This means, according to electronics industry analysis, that firms in the electronics market are limited in how much they can charge and consequently profit from the goods they produce.

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One important aspect of industry analysis is the identification of profit sources and revenue limitations. Investors look at the profit margins of companies within the market segment they are looking to enter in order to determine the impact a high concentration of competitors have on profits. Business analysis shows that competition typically inhibits profitability.

A diverse number of competitors in any industry often leads to pricing wars. If there is no notable distinction between products, the low-price provider typically sells more goods, but also has lower profit margins. Electronics industry analysis indicates that this is reflective of the electronics market.

Understanding the factors of production involved in creating electronic goods is important to electronics industry analysis. Companies must know what types of technology, facilities, and personnel are necessary for production and conduct in depth research. They also solicit prices from the suppliers of component parts that are key to the entire product and can potentially impact revenues.

An individual employing electronics industry analysis sees that the electronics field is manufacturing intensive. Most of the line of products sold are mass produced on an assembly line. Technological advancements improve the efficiency of such processes and limit the number of employees needed. Furthermore, electronics industry analysis shows that companies in this field have the ability to outsource such work to regions or countries where the cost of labor is cheaper. These factors allow businesses to spend less on employee salaries.

Suppliers in the electronics industry also influence profitability. Many of the products sold in this field are comprised of component parts produced by other companies or manufacturers. These products are integral to the overall manufacturing process. Without them, a provider of electronic goods is unable to finish the product. Electronics industry analysis shows that as a result, suppliers have a large amount of leverage when negotiating prices, terms, and conditions with electronics manufacturers.

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