According to the results of IBO’s Fall 2012 Business Climate Survey, expectations for near-term instrument and laboratory product sales have hit their lowest point since spring 2009 (see graph, page 6). Twenty-four percent of respondents expect instrument and lab product sales to decline industry wide over the calendar-year fourth quarter 2012 and first quarter 2013. In the spring 2009 survey, 33% of respondents expected six-month sales to decline (see IBO 5/15/09). Earlier this year, a mere 11% of respondents expected sales to decline (see IBO 5/15/12), and last fall, only 4% expected sales to decline.

Despite the increased pessimism, 40% of survey respondents expect sales to moderately increase. However, 36% expect sales to stay the same. Thus, 60% of those surveyed do not expect sales to rise in the next two quarters, which is an increase from earlier in the year, when 53% did not expect sales to rise. The Fall 2012 Business Climate Survey is based on the receipt of 25 questionnaires from IBO subscribers and other companies, which were surveyed by email and phone in late September and early October.
The downgrade in expectations is not isolated to instrument companies. This month, the International Monetary Fund cut its 2013 forecast for global economic growth from July’s estimate of 3.9% to 3.6%. Nonetheless, this rate would be one-tenth of a percentage point increase from 2012’s expected growth rate. In fact, growth is projected to accelerate for most major countries and regions in 2013. Among the exceptions are the US, where growth is expected to decline one-tenth of a percentage point to 2.1%, and Japan, where growth is expected to fall one full percentage point to 1.2%.

Despite expectations for faster growth next year, uncertainty remains due to global economic events, particularly the EU debt crisis and slowing growth in China; both situations have worsened since the spring. The Duke University/CFO Magazine Global Business Outlook survey, which questioned 1,474 CFOs in late August and early September, found that the Optimism Index for CFOs in all four regions in the survey—the US (887 firms), Asia (257 firms), Latin America (164 firms) and Europe (166 firms)—had declined compared to its survey for the second quarter.  

The table below shows the latest survey results for the CFOs’ expected R&D and capital spending changes over the next 12 months by region. The only region for which the percentage expected to be spent on capital investments increased from the prior quarter was China. The only regions for which the percentage expected to be spent on R&D increased from the prior quarter was Asia (excluding China) and Latin America.
To gauge the extent to which possible economic events are weighing on instrument and lab product executives’ minds, IBO asked survey participants to rate from 1 to 5 the impact (with 1 indicating no impact and 5 indicating a major impact) of five possible future events on the instrument and lab products industry as a whole. Further slowing of Chinese economic growth (3.9) had the highest average rating among the five events, followed by a worsening of the EU debt crisis (3.7), political gridlock in governments worldwide (3.2), the US budget sequestration (3.0) and volatile currency changes (2.8). No event had an average rating above 4, indicating that none of the given events are expected to cripple the industry. However, all are expected to impact the industry, as all received average ratings above 2.5.

Because sales growth could become more difficult in upcoming months, executives were also asked to rate on a scale of 1 to 5 the effectiveness (with 1 indicating no effect and 5 indicating very effective) of five types of promotional offers. One question asked respondents specifically about promotional offers for instrument sales and gave five promotions to rate. The graph above shows that “discounts on combined purchases” and “free consumables with a purchase“ were rated the most effective promotions on average among the five choices. Interestingly, all of the promotions had an average rating of 3 or above but not above 3.5, suggesting their relative equality in terms of effectiveness. In total, all instrument promotions had an average rating of 3.2. However, not all these promotions are used by all respondents. The least used is the offer of “free consumables with a purchase,” which is used by only three-quarters of respondents.

The same question regarding the use of promotional offers was asked in regard to consumables purchases, with respondents asked to rate one of the same promotions used for instruments and four types of promotions used specifically for consumables. Two-for-one offers had the highest average rating, as shown in the chart below. In fact, four of the five promotions received average ratings above 3. Yet many of these promotions for consumables are not used by respondents. Both free gifts and free trials are used by only 60% of respondents.

As usual, respondents were also asked about near-term prospects for markets by region and industry. For the calendar-year fourth quarter 2012 and first quarter 2013, Southeast Asia had the highest average rating for expected sales growth at 3.5. It was one of five regions or countries that received an average rating of more than 3, indicating good prospects for sales in developing nations. Compared to the spring 2012 survey, the average ratings for three areas showed major swings. India’s average rating fell dramatically, going from 4.3 to 3.2, most likely tied to the country’s recent slowing growth. Likewise, China’s average rating fell from 4.3 to 3.2. In May, both countries had the highest average ratings. West Europe also suffered a drop, falling from an average rating of 2.5 to 2.1. The average rating for all regions was 2.7, compared with 2.8 in May.

As for end-markets, food, biotechnology, energy and environmental were the top four in terms of average ratings, just like in May. However, the prospects for the environmental market, which had the highest average rating in May, have softened, with its rating declining from 3.9 to 3.2. Average ratings have also tumbled for metals/mining, declining to 2.7 from 3.2, and for academia, which slid from 2.5 to 2.1. Showing a significant upturn was the chemical industry, with an average rating of 2.7 compared to 2.1 in May. The average rating for all end-markets was 3.0, the same as in May.