It's less than a year since process automation vendors in general and DCS vendors in particular were still telling us that, while the recession might be going to be severe in other sectors, their particular neck of the woods was going to feel little or no adverse effects. That view was to a great extent reflected in last year's predictions for the DCS market from ARC which, while anticipating somewhat lower rates of growth than in previous years, still expected the overall DCS market to grow at just under 10% compound over the five years up to 2012. Now, however, according to the press release announcing publication of this year's "Distributed Control Systems Worldwide Outlook," 2009 and 2010 look to be "challenging years, particularly for the North American, European and Japanese markets."
Just what that means ARC is strangely reluctant to reveal. However, we understand that when it describes 2009 and 2010 as "challenging," what it actually means is that they will see no growth at all and, while ARC says the DCS market "will continue to find growth in the midst of a global recession" what it means is something of the order of 3% on average over the five years to 2013 as a whole. And what that means, at least by our calculations, is that while last years ARC was expecting the global DCS market to reach something of the order of $24 billion by 2012, that figure is now only likely to be around $18 billion, and will only add about a further $1 billion a year later.
In fact, of course, that they can predict any growth at all under present circumstances is pretty remarkable and due, almost entirely, to the continued growth in services both in absolute terms and as a proportion of the overall market. Indeed services now account for 50% or more of the overall market, with hardware down to roughly a third.
"Services continue to be the fastest-growing segment of the overall DCS market," comments report author Larry O'Brien, returning to a familiar theme. "Growth in the operations or aftermarket services segment is much greater than that of project services, although project services also continue to grow due to the increasing popularity of the Main Automation Contractor or MAC concept, where the automation supplier, typically the DCS supplier, takes full responsibility for all the automation related aspects of a project."
Principal driver for the growth in services, claims ARC, is the continuing shortage of skilled labor, which is, if anything, exacerbated by the layoffs and early retirements precipitated by the current downturn. ARC quotes one major refining company as losing 2,500 man years of experience when 100 operators, each with an average of 25 years of experience, retired at one site last year and cites a major chemical company which expects one of its largest plants to lose 75% of its operating staff to retirement by the end of the decade.
With new engineering graduates in increasingly short supply, it's a situation which can only get worse in the short term, although the industry has a huge opportunity to boost recruitment into undergraduate engineering courses by ensuring full employment of engineering graduates during the current graduate recruitment cycle. Whether it will have the sense to do so is less sure and certainly precedent gives little grounds for confidence.
Recession is also driving demand for outsourced maintenance and performance-related services, such as loop monitoring, which have the potential to reduce energy consumption, raw material usage and work-force requirements and help end users squeeze extra performance out of their existing facilities. Anecdotal evidence suggests that more than half of all loops in a typical plant are actually increasing variability and thus negatively affecting quality, throughput and ROA.
Whether such services will remain the exclusive preserve of mainstream DCS vendors is, however, less certain. The growing prominence of such specialists as Expertune and PAS, to name but two, suggests otherwise. Indeed with services themselves representing more than 50% of what ARC defines as the DCS market, the time may be fast approaching when it will have not only to redefine the market but also what it means by a DCS vendor. And that, paradoxically, may have to include companies which don't sell DCS hardware or even software at all.
Winners and losers
Meanwhile, no change in ARC's policy of jealously guarding its market share data, leaving outsiders to rely as ever on what can be gleaned from un-attributable gossip. Globally, that gossip is saying that the big news is Siemens' elevation to the ‘podium,' behind traditional top guns ABB and Honeywell, due almost certainly to the continued boom in power station construction, most notably, but by no means exclusively, in the Far East.
If someone's winning then almost certainly someone else is losing, and the word is that it's Invensys which has seen its ranking slip, although the most disappointed contender must surely be Yokogawa which, despite its market leadership aspirations, still languishes below its European and North American rivals.
In the all important North American market, the rumor that Honeywell has regained its market leadership is, if true, perhaps less significant than that Rockwell has taken market share from pretty much everyone and is fast approaching the point where it can legitimately demand an invitation to the top table.
Time for the traditional DCS vendors to stop looking down their noses at what used to be and still are called PLC vendors and accept the reality of the threat they pose. If that's what the last year before the crunch did to the rankings, just imagine what two years of zero growth are going to do!
Off a Cliff?
Meanwhile what of the PLC market itself? In its latest "Programmable Logic Controller Worldwide Outlook," ARC concludes that while the PLC market experienced healthy growth in 2008, it's since fallen off a cliff. With no DCS-like services riding to the rescue, ARC puts the best light it can on the forthcoming bloodbath by saying that "In spite of the current gloom and doom in the global economy, the market growth will resume in 2010 and beyond," and that "the worldwide market for PLCs is expected to grow over the next five years."
True, but only up to a point. Last year it said that the market, which was worth $9 billion in 2007, would grow at 6.5% over the five years to 2012, when it would be worth $12 billion. Now, a very rough reading of the un-annotated bar graph suggests that, having grown to $10 billion in 2008, despite the rapid slowdown in the second half, it's going to contract by a staggering 20% to about $8 billion this year and won't even claw its way back to $10 billion until 2012. Even then, it will still be $1billion short of last year's 2012 prediction in 2013.
Justification for even that degree of optimism, if that's the word, comes from the belief that manufacturing industries will use more automation to reduce operational costs and improve sustainability while continuing to invest in new capacity in developing economies. In the meantime ARC is expecting governmental attempts to stimulate economies through investment in infrastructure, including power and water and wastewater, to benefit the PLC market, while longer term its looking to China and India to resume growth and revive vendors' fortunes.