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November 22

SPS/IPC/Drives 2011 - Day One: Automation Outlook 2012

by  Florian Gueldner  on 11/22/2011 3:37 PM

​As Oasis once sang:  “Don’t look Back in Anger”.  According to this theme, most companies, as well as the major German associations, seem to have forgotten about 2009.  Across the board, markets have experienced a fabulous growth for two years and are now back on the level of 2008, a level which was not thought to be reached until 2015 in 2009. I want to encourage anybody right now to remember the SPS show in 2008.  Everything was brilliant and pessimistic outlooks by that time, where forecasting a growth of around 0% for 2009. 

The following part is focusing on the outlook by the ZVEI as well as some opinions from companies we have interviewed today.  In some cases, we added some comments from ourselves.
 
The SPS/IPC/Drives show started with a new record in exhibitors and size.  As during the last years, the number of international exhibitors grew faster than the overall participation, making the show more international.  Especially, companies from India and China are increasingly using the SPS/IPC/Drives in Nuremberg to present their products and solutions to the market. 
 
Like each year, the ZVEI, the German Electrical and Electronic Manufacturers' Association, presented the numbers of the past year to the public, giving a market overview as well as an outlook for the future.  During the past year, motor business grew by 13 percent and AC drives by even 35 percent.  The trend that exports to, and imports from, China grew significantly faster than the market overall continued.  For drive technology, including electronics, control, and motors, the ZVEI is expecting a growth of around 5 percent for the coming year.  The main drivers for this development, are the ongoing demand in emerging economies, energy efficiency initiatives, as well as electro mobility.  ARC Advisory Group does not see electro mobility as a main driver for the next 2 to 3 years, as volume remains small, but rather sees this market as a growth driver over the next 30 years and beyond. 
 
The ZVEI monthly data on automation business suggests, that it is rather flat during 2011, at a level of 2008.  Compared to the previous year, the German automation business grew by 18 percent and is now reaching up to €31.1 billion.  Two third of this is exports, and exports grew by around 20 percent, making them a strong motor for growth.  In ARC’s opinion this even underestimates the meaning of exports for the German market, as many companies, especially from emerging economies, have offices set up in Germany as well as other European countries, buy machinery and equipment in Europe, in order to use the secure European legal system and internal possibilities of attributing gains and minimize taxes, and then sell internally to emerging economies.  The main trade partner with a share around 50 percent for imports as well as exports are the EU27 countries. While the industry as such has experienced lower order income in the second half 2011, some companies have not experienced any slowdown yet.  According to the ZVEI, energy topics as well as infrastructure in general are among the most dominant market drivers. 

 

Looking at exports, it is obvious that the exchange rate turbulences have not impacted automation exports significantly.  For example, the US dollar has lost value compared to the Euro, but automation exports are still growing fast into the US.  In ARC’s view this is the natural characteristic of a consolidated market, where products are no perfect substitutes.  Also, automation represents a small cost factor for end users and machine builders, but a large value add. 

Looking in more detail into specific industries and vertical markets, most industries are in fact back to the 2008 level. During 2011, many automation suppliers experienced growth in countries which have been previously been problem children.  For example, investment in the US grew rapidly after many weak years.  Also, business in Japan grew, and some suppliers experienced positive effects after the Tsunami, when many end users stocked up automation equipment, as they feared short supply.  ARC sees that this positive effect is a backlash effect as many postponed investments can’t be held back any longer.  We are also seeing this effect to show in countries which have been affected by the economic/housing crisis early and heavily, namely UK, Ireland, and Spain, as long as the debt crisis is not worsening the situation further. 
 
So, after the warning introduction, the outlook from nearly all participants is optimistic.  In general ARC agrees with most statements, but we do want to warn that a downturn in 2012 is easily possible, if…
  •    The debt crisis spills over to private consumption and hardens availability of credit to industry and raises interest rates significantly
  •    the banks are playing a chicken game, as some uncovered speculations are no longer allowed starting 2013.
  •    the US is not able to get debt in control
  •    the Chinese housing bubble bursts
 
We see even more factors, but the above are the most important “ifs”.   I personally expect a significant slowdown of incoming orders by the third and fourth quarter 2012 in Europe, but not strong negative growth.   Also, I expect many positive factors, such as the ongoing demand for energy efficient production, the need to automate larger parts of production in emerging economies, etc., to sustain and balance out the business cycle dynamics.

 

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