By Walt Boyes, Control’s Editor-in-Chief and Larry O’Brien, ARC Advisory Group
We called it "Mr. Toad's Wild Ride" last year, as we noted that automation sales had remained strong while the rest of the economy had dropped into the pot. It didn't take long, however for the automation vendors to follow like lemmings over the recession cliff. Starting in the first quarter of 2009, sales softened and, in some cases, plummeted. Sales funnels vanished, and some companies began cutting and gutting in a frantic attempt to maintain profitability. Which portion of the manufacturing economy the company faced determined how fast and how deep the cuts had to go. Companies working in the process industries generally had to cut less, at least at first, than those in the discrete manufacturing sector. Those servicing the automotive industries and their suppliers were hurt the worst as the big automakers flailed and both GM and Chrysler filed for bankruptcy protection.
The numbers we present here, however, do not reflect the precipitous decline in the performance of the sector since the end of 2008, because, as always, we've used the last full year of financial performance data we can get to establish the Top 50 rankings. In this case, the data are normalized to 2008 financial performance. So you can take it as given that we'll be able to show you the whole sorry story next December, after all the 2009 performance data have come out.
How Do We Do It?
Here's what we are including in our definition of the fifty largest companies:
- Process automation systems and related hardware software and services
- PLC business, as well as related hardware, software, services, I/O and bundled HMI
- Other control hardware components, such as third-party I/O, signal conditioners, intrinsic safety barriers, networking hardware, unit controllers and single- and multi-loop controllers
- Process safety systems
- SCADA systems for oil and gas, water and wastewater, and power distribution
- AC drives
- General motion control systems
- Computer numerical control (CNC) systems
- Process field instrumentation, such as temperature and pressure transmitters, flowmeters, level transmitters and associated switches
- Analytical equipment, including process electrochemical, all types of infrared technology, gas chromatographs for industrial manufacturing, and related products
- Control valves, actuators and positioners
- Discrete sensors and actuators
- All kinds of automation-related software, from advanced process control, simulation and optimization to third-party HMI, plant asset management, production management (MES), ERP integration packages from the major automation suppliers and similar software
- All other automation-related services provided by the automation suppliers
- Condition-monitoring equipment and systems
- Ancillary systems, such as burner management systems, quality control systems for pulp and paper, etc.
What we're not including are:
- Pumps and motors
- Material-handling systems
- Supply chain management software
- Building automation systems
- Fire and security systems
- Processing equipment such as mixers, vessels, heaters, etc., as well as process design licenses from suppliers that have engineering divisions
- Electrical equipment, such as low-voltage switchgear, etc.
The recovery is already underway in our opinion, at least in the process industries. Will we see a return to the high growth of 2007 and 2008? Not likely. The recovery is going to be slow, and it will be many years before we see the levels of growth that we saw in 2007 and 2008, if ever. The discrete industries continue to be plagued by the situation in the automotive industry and machine business, and their recovery will lag that of process automation by several months.
The question is what will fuel the recovery? In North America and Western Europe, unemployment is forecast to remain high until at least 2012. Jeremy Leonard, economist, Manufacturers Alliance/MAPI, said in a speech at Rockwell Automation's Manufacturing Perspectives event on Nov. 10 that emerging markets, including the so-called BRIC countries (Brazil, Russia, India, China), will lead the recovery, while Western Europe and Japan will lag. "High debt levels and cautious consumers augur a sluggish U. S. recovery," he said. "Consumers are still very worried about the unemployment rate, which is expected to continue to be over 10% throughout 2010, and only reduce about 1% per year until at least 2012." The table on page 27 shows the numbers, and they are not grim, but not good either.
This is bad news for the consumer packaged goods and automotive industries because cautious consumers don't buy things with the reckless abandon we've come to delight in since the early 2000s.
The process industries, however, are already on their way back. The biggest growth industries for process are currently oil and gas, water and wastewater, and power generation. Mining is another promising sector. And, life sciences still offers a lot of opportunities related to regulatory compliance.
Leonard agrees. "The industrial equipment sector was down over 22% in 2009, but will slowly rise to a positive 3.5% in 2010, before increasing at a 22% bounce back in 2012," says Leonard. His numbers though, show declines after 2012, which, when combined with the continued high unemployment rate, are indicative of a shaky economic recovery in the U. S.