Are Smart Appliances Ready for the Big Time?

by Will Ashworth | February 12, 2013 8:20 am

The adoption of smart appliances comes down to a chicken-or-the-egg situation: Consumers won’t buy until they see enough products available, but manufacturers won’t commit big money to producing them if consumers won’t step up and buy.

It’s a vicious cycle that’s been playing out since the early 1990s, when manufacturers of coffeemakers thought customers would enjoy being able to start the brewing process from outside the home via cellphones (the idea didn’t fly). Many experts are skeptical[1] that smart appliances will ever be a part of everyday life.

However, the fact you can already control your home alarm from Hawaii just by using your iPhone tells me that consumers are closer to adapting smart appliance technology than critics believe. Navigant Consulting (NYSE:NCI[2]) division Pike Research would seem to agree — it projects smart appliance growth from a mere $613 million currently to an astounding $34.9 billion by 2020.

Should Pike’s prediction come to fruition, there will be some very happy appliance manufacturers — and depending on how they position themselves, some happy investors.

Smart Meters

According to the Association of Home Appliance Manufacturers, a smart appliance is one that will “monitor, control, and protect their electrical usage in response to customer needs.” In other words, the emphasis isn’t necessarily on flashy features, but energy conservation. In conjunction with a smart meter that tells the appliance when electricity usage is cheaper, the consumer is able to live in an energy efficient household with limited effort.

Working backward, the first beneficiaries of any move to smart appliances are the manufacturers of smart meters. According to former Rep. Rick Boucher — once a senior member of the Energy and Commerce Committee and a chief sponsor of the smart meter provisions in the Energy Policy Act of 2005 — more than 50% of American households will have one by 2015. That’s approximately 58 million smart meters, with many more sure to be installed in subsequent years.

That’s just in the U.S. Globally, he expects $25 billion to be spent annually on smart grid initiatives (smart meters are a big part of that) by 2018.

The manufacturers with the biggest market share (latest available figures Q1 2012) in North America are Landis+Gyr (26%), Itron (NASDAQ:ITRI[3], 22%), GE Energy (16%), Sensus (15%) and Elster (PINK:ELTTY[4], 7%).

Extrapolating the figures from above, 1% market share is equivalent to approximately $87 million in revenue over the next three years (based on an average of $150 per meter multiplied by the 58 million or so meters to be installed between now and then). Landis+Gyr, which is based in Switzerland but now owned by Toshiba (PINK:TOSYY[5]), stands to benefit the most at $2.26 billion. However, with $77 billion in worldwide revenue, it’s petty cash. You can say the same about General Electric (NYSE:GE[6]).

The real winner in this game is Itron, which generates 100% of its revenue from smart meters and the data analysis services that go along with being part of the smart grid infrastructure. With GE estimating the global smart meter market at $200 billion, there’s more than enough business for all the big players.

Smart Appliances

Now back to smart appliances. According to Pike, the big items in terms of volume will be washers and dryers, dishwashers and refrigerators. Also expected to participate in a smart appliance coming-out party are water heaters, ovens and ranges.

The big players in the development of smart appliances include GE, LG, Bosch, Electrolux (PINK:ELUXY[7]), Indesit and Whirlpool (NYSE:WHR[8]). Given GE’s participation in the smart meter market — which is much bigger than the market for smart appliances (at least for the foreseeable future) — it’s in an enviable position. Should smart metering go fully global, smart appliances will likely follow. If you’re a GE shareholder, you should be very excited by its digital energy business.

PC Magazine tech columnist John Dvorak has little use for smart appliances[9]. He believes people are already bombarded by emails; messages from our freezer will simply go unheeded. With the cost of a Whirlpool smart appliance washer-dryer combo somewhere around $3,600 compared to prices below $1,000 for an existing lower-end model, industry pundits like Dvorak don’t see a market developing.

I think he’s wrong. My wife and I own a bunch of cats (we’re at the city max of six), and I don’t know how many times I’ve gone out and had a nagging feeling I’d left the stove on. Ninety-nine percent of the time it turns out not to be the case, but all it takes is one time to burn the house down and the cats with it. Knowing an email would be sent if I did leave the stove on would make it easier to enjoy myself while out and about.

There was a time when cars didn’t come with radios, but could you imagine going on a long car trip today without one? I doubt it. Could you imagine not being able to retrieve stock quotes while on vacation in Southeast Asia? I doubt it. So why is it so hard to imagine a world in which our appliances are able to do more than just freeze water and wash clothes? If phones can be smart, so too can appliances. First adopters will pay the price, but eventually — like all electronics — the price will drop with demand.

Bottom Line

The appliance businesses of public companies like Whirlpool and GE are doing well without the additional revenue and profits from smart appliances, so regardless of whether these newfangled machines materialize in great numbers, the immediate future looks very bright indeed.

Still, while it’s too early to trumpet the arrival of smart appliances, it’s safe to say the companies that manufacture them have good times ahead. The upside of their success is definitely worth any perceived risk of them not catching on.

As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.

  1. Many experts are skeptical:,2817,2413867,00.asp
  2. NCI:
  3. ITRI:
  4. ELTTY:
  5. TOSYY:
  6. GE:
  7. ELUXY:
  8. WHR:
  9. has little use for smart appliances:,2817,2413867,00.asp

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