Machine Tools Industry – Development and Outlook

By Stefan Miksch

Industry Trends

The Machine Tools Industry is facing challenging times.  While both the years 2017 and 2018 in general were very favorable for all shareholders of the machine tools market, from supplier to machine builder to end user, the circumstances in the last quarters have drastically changed and pose a significant threat for future development.

Trade wars, Brexit, import tariffs, currency fluctuations, and business investment cycles are clouds on the horizon, and it almost feels like a storm is about to hit.  Looking at different indicators, ARC expects that 2019 will end up a negative year in the machine tools sector with 2020 also suffering from the current developments.

ARC’s machinery index for machine tools collects the revenue numbers of publicly listed machine tools OEMs.  While there are many privately held enterprises, this approach still gives a representative picture of the state of the market.  The figures below show the market movements of the previous years and how the index is turning negative again in the last two quarters.  Since traditionally the downturn always lasts for several quarters, reaching its negative peak after three to four quarters, we can expect a further negative development in the next quarters as the index has only turned negative for two quarters so far.

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While we do not expect a development as drastic as in 2009, we still expect a double-digit downturn over the next quarters.  Looking at the order intake for machine tools in several countries, like Germany (-21% 2019 YTD), Italy (~ -25% 2019 YTD), or Japan (~ -30% 2019YTD), the trend clearly shows a downward movement.  The weakening automotive industry, the struggling US aerospace sector, the taxes imposed on Chinese imports in the US, and the uncertainty around Brexit does not send the positive signals needed for increased business confidence and investments by end users.

However, technical trends are not affected by these developments.  Machine tool builders still need to invest in new solutions to stay competitive and remain ahead once the market turns around and end users increase their capital spending on new equipment with new functionalities again.  Business models and technologies that offer remote and predictive maintenance, real-time condition monitoring, machine learning to improve manufacturing processes, and digitalization and virtualization of the total production, are trends that will benefit growth in the machine tools market.

Many machine tool manufacturers already offer a lot of the aforementioned technologies, but maintaining a status quo is not today’s way to being successful.  The machine tools industry has to abolish the idea of being just engineering experts, but also have to understand the business values that digitalization brings.

ARC continues to monitor this market and will report on the market and technological developments.

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