A sign displaying various tech and app symbols hangs inside a retail store in London, U.K. (Photographer: Chris Ratcliffe/Bloomberg)  

Wearable Tech Seen Offsetting Smartphone Slump in Asia Growth

(Bloomberg) -- The technology boom powering Asia’s economies is about to get a reboot.

Explosive growth in new-era gadgets such as wearable devices and internet-linked home appliances is tipped to offset cooling sales of smartphones, which has already dinged Asia’s tech manufacturers.

"Where demand may be softening in some areas it will be strengthening in others," Koshy Mathai, a senior official in the International Monetary Fund’s Asia Pacific Department, said in an interview. He pointed to upcoming demand from "a vast middle class in China, India and other frontier markets."

That’s good news for the world economy. Asia Pacific accounts for 60 percent of global growth, much of it from a technology-supply chain that’s vulnerable to smartphone cycles.

Wearable Tech Seen Offsetting Smartphone Slump in Asia Growth

The IMF isn’t alone in tipping the rise of a new tech cycle. The world is in the early stages of a shift from the late-stage mobile Internet era to a new, data-centered computing era, Morgan Stanley analysts wrote in a report last month.

Crucially, it will be the first such era in which multiple technologies emerge at once, including the internet of things, artificial intelligence and virtual and augmented reality, and it will require IT investment unparalleled since the launch of the web in 1990, Morgan Stanley analysts said.

Take wearable devices. Global sales of body-worn cameras are forecast to reach 5.6 million units in 2021, more than triple the 1.6 million this year, according to forecasts by Gartner Inc. Smartwatch sales are expected to hit 81 million from 48 million over the same period, while those of head-mounted displays will more than double to 67 million.

Wearable Tech Seen Offsetting Smartphone Slump in Asia Growth

Spending on robotics and drones solutions will reach $103.1 billion in 2018, up 22 percent from last year, and more than double to $218.4 billion by 2021, according to International Data Corporation.

China, Japan, South Korea and Taiwan would be among the economies expected to benefit most -- as they did from smartphones -- with the new products stoking fresh demand for components such as semiconductors and displays.

That is expected to benefit manufacturers such as South Korea’s LG Display Co., which makes displays used in products including smartwatches and Bluetooth devices, and Samsung Electronics Co., which makes memory capacity. Japan’s Sony Corp. is developing 3D sensors that can be used in drones, self-driving automobiles, gaming consoles, industrial equipment and more.

"Manufacturers have always been able to shift their production line to cater to the newest trend in the market," said Kenneth Liew, Singapore-based senior research manager at IDC. "We are now seeing products like wearables, smart home devices as some of the key products for future growth."

Wearable Tech Seen Offsetting Smartphone Slump in Asia Growth

The upbeat view comes as a more-than-year-long rebound in Asia’s exports has hit a speed bump, with softening industrial and manufacturing activity. Smartphones contributed around one sixth of the estimated growth in trade in 2017, according to the IMF. Sales totaled close to 1.5 billion units last year -- enough for one of every five people on the planet.

But with more and more people already owning a smartphone, demand has peaked. That’s being felt at chip foundries and assembly plants across Asia.

Taiwan’s Pegatron Corp., which assembles Apple Inc.’s iPhone 8, ramped up capacity in anticipation of a surge in business last year. A subsequent shortfall in demand led to lower utilization rates across its factories and operating margins almost halved. Both Pegatron and Hon Hai Precision Industry Co. -- Apple’s principal assemblers -- reported declines in net income in 2017 even as their biggest customer racked up record profits.

To be sure, the smartphone sector is tapering off, not cratering, as evidenced by Apple’s results. And it will be some time before the emerging tech cycle reaches a point of matching demand generated through phone production, said Frederic Neumann, co-head of Asian economics research at HSBC Holdings Plc in Hong Kong.

"While demand for consumer electronics like wearable devices and virtual reality headsets is growing rapidly, production runs still pale in comparison to smartphones," Neumann said.

Of course, all bets are off if an all-out trade war erupts between China and the U.S. Barring that, the next evolution in tech is poised to support global economic growth, even as smartphones reach saturation.

"It is fair to say that economists often don’t understand technology well enough to understand what it can do in terms of growth," the IMF’s Mathai said.

©2018 Bloomberg L.P.