ARC Advisory Group​ Market Update ​- September 2022

By Naresh Kumar Surepelly

Introduction

To provide our Advisory Service clients with holistic coverage of the various industrial and automation markets we cover, ARC Advisory Group publishes every quarter indices on automation, machinery and user CapEx markets as a Special Report in PowerPoint format. This concise report focuses more on the quantitative than the qualitative aspects of the markets. ​

Automation Markets

Automation Index: Raw vs. Seasonally Adjusted Data

  • Q2 2022 results: Challenges including supply chain constraints, soaring raw material prices, logistics and energy costs, labor shortages, and lockdowns in China continued in Q2 as well. ​
  • The registered growth was at a very low level compared with Q1, 2022 and four quarters in 2021. Raw data shows an YoY growth at slightly above 5 percent while seasonally adjusted YoY growth shows at slightly below 5 percent. And the YoY growth cycle shows a marginal decline for the first time after the market started to see recovery at positive levels in Q1 2021.  ​
  • Unlike Q1 results, in which most of the automation companies experienced good growth rates, results in Q2 were mixed with slow growth rates and declines. Only a few registered growth in double-digits but at lower levels. Growth was mainly driven from semiconductor manufacturing and mining equipment, metals, oil & gas, increase in EV infrastructure, digitization, and energy efficient solutions. Acceleration of energy transition towards carbon neutral society and sustainability initiatives further supported the growth. ​
  • Some companies still have higher order backlogs. Some companies registered very low growth rates in revenues, and some even saw declines in revenues. This could be due to shortage of components, which did not allow them to convert their significant backlogs into revenues. ​
  • We expect the growth to continue but at a very slower pace as it appears that the adverse impacts from rise in inflation and energy prices, supply chain challenges, zero-COVID policy and lockdowns in China, and geopolitics continue to remain over the next coming months. ​

Industrial Market Update

 

Americas

  • The index value was almost stable for the four quarters until Q1 2022 and saw a slight uptick in Q2 2022, but the YoY growth shows slow growth compared to the previous quarters. The YoY growth cycle remained at positive levels in the Americas. ​
  • Growth was mainly due to the continued demand from end markets due to infrastructure projects and increase in global defense budgets. Buildings, data centers and discrete automation and OEM sectors performed slightly better when compared with process and hybrid automation markets. Automation solutions related to carbon capture, reducing carbon emissions, and sustainability areas seem to be growing at higher rates.       ​
  • Continuing high inflation and raise in interest rate hinders economic growth while strong domestic demand drives the growth. ​
  • In August 2022, US passed CHIPS and Science Act to bolster the US semiconductor supply chain and promote research and development (R&D) of advanced technologies in the US. Key provisions of this Act include funding over several years to incentivize semiconductor manufacturing in the US, provide tax credit for investments in semiconductor manufacturing facilities, and authorize funding for over five years for R&D initiatives across multiple federal agencies that will provide grants to fund R&D in areas such as artificial intelligence, advanced energy, data storage, and robotics. While this Act helps to rebalance supply chains that had gravitated to Asia, it may take several years for the new ecosystem to show meaningful results.​

Industrial Market Update

 

Europe

Industrial Market Update

  • In Q2 2022, European automation markets performed well compared with America and the Asian markets. With about 12 percent YoY growth markets in Europe continued to expand.  ​
  • Thanks to record-high order backlogs supporting growth of the major automation suppliers. ​
  • Continued demand from machine building, pharmaceutical & biotech, aerospace & defense, electronics & semiconductors, EV segments drove the growth in Q2 2022. Also, increase in prices for automation products played a key role in growth of revenues in Europe. ​
  • Risks of uncertainty in macro economic outlook due to geopolitical issues, high inflation, rising energy costs, high interest rates, and the COVID-19 pandemic is still around. However, accelerating investments in green energy, carbon capture, carbon-neutral production, circular economy and such other sustainability initiative areas boost growth in digitalization, energy efficient solutions and demand more automation. ​

 

Asia

Industrial Market Update

  • Asian automation market saw a very slow growth of slightly above 1 percent in Q2 2022 on YoY basis. The index value shows at slightly above the values that were reported during the first three quarters of 2021.  ​
  • Growth from China was impacted in Q2 due to lockdowns and slowdown in the real estate sector.  Strong growth from India due to strong demand from most of the industry sectors but the market is not that big as in China.   ​
  • Soaring oil and raw material prices and supply chain constraints put downward pressure on Japan’s economy. Demand for construction equipment, compressors, and HVAC continues to expand from emerging nations in Asia.  ​
  • China has seen an improvement in manufacturing activities as lockdowns lifted in late June. Increase in environment related investment for carbon neutral transition, increase in EV usage and expansion of EV charging infrastructure, investment in building national resilience in Japan and China's policy to promote infrastructure construction for economic growth will drive the growth in Asia in the long term.​

 

Automation Market:  Supply Chain

Since the COVID crisis of 2020, ARC developed a monthly market tracker called the “ARC Sentiment Index.” This survey is around 3 simple questions about current business situation, the past, and next month, as well as the hot technology topics. ​

Current Situation​

  • While respondents rated the current situation weaker in July than the months before, August again went up to previous good levels. The previous months’ decline was probably negatively influenced by the energy prices and availability situation. It seems companies now see this development slightly more relaxed.​

Situation in Next Month Compared to this Month ​

  • Since the severe drop in May, the trend has continuously improved in the last three months. ​
  • The quick recovery in the expectation is a sign of less negative expectations about the impacts of different factors like the Russia-Ukraine war, inflation, material availability and a more relaxed attitude towards supply chains.​
  • There is a larger spread in the respondents' answers, which can be interpreted as some kind of uncertainty. Uncertainty results from trends going in different directions.  On the one hand the full order books that provide a solid base for planning, on the other hand negative factors like rising production costs, rising material and energy prices, and the outcome of the Russian war against Ukraine.  ​

 

Industrial Market Update

 

Table of Contents

  • Automation Markets​
  • Machinery Markets​
  • End User Markets​

 

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