Business Climate Survey: Sales to Slow

As the world economic community grapples with a financial crisis that has shattered the US and European banking industries, constrained credit and unnerved stock markets, business sentiment has plummeted. Despite governmental intervention to shore up liquidity, uncertainty and dread continue to dominate the economic outlook.

The fall 2008 IBO Business Climate Survey finds the six-month outlook of executives at analytical and life science instrument companies at an all-time low in the survey’s 13-year history. Forty-three percent of the executives surveyed expect instrument sales for the industry as a whole to decline in the next six months. The only other time the percentage of respondents expecting a decline exceeded 15% was the fall of 2001, when 42% forecasted that instrument sales would slide.

The fall 2008 IBO Business Climate Survey was conducted during the first two weeks of October by phone and email. Results were compiled based on the responses of 23 executives at analytical and life science instrument makers, representing a variety of technologies and end-markets.

Thirty-five percent of executives surveyed expect instrument sales to stay the same in the next six months and 17% expect them to increase moderately. In the survey conducted this spring (see IBO 5/15/08), 59% of respondents expected sales to increase moderately over the next six months and 41% expected them to remain the same. In light of the sudden and dramatic economic events of the past few months, executives’ outlooks appear to have drastically changed.

Survey participants were also asked what general effect the current US economic crisis would have on the instrument industry as a whole. They were given four choices, including “Other”. More than half of the executives surveyed expect the crisis to have an effect on the industry. Forty-three percent expect the crisis to have a modest negative effect, 26% expect it to have no effect and 22% expect it to have a severe effect. Among the comments were that the negative effects would have a greater impact on smaller companies and that only certain markets would be affected.

Respondents were then asked, if a negative effect was expected, which of five choices, including “Other”, would be the most pronounced negative effect. Respondents could choose multiple answers. Thirty-five percent of those surveyed expect slower sales growth worldwide to be the most pronounced effect, compared to slower US sales growth (26%), harder to obtain financing (9%) and increased costs of doing business (4%).

Asked to specifically name the end-market that they believe is most vulnerable to the US economic crisis, respondents gave a number of answers to the open-ended question. Life science was the most common answer, as it was given by a third of respondents. Pharmaceutical spending was the second most common answer. Other responses included municipal government and the environmental market.

Next, survey participants were asked the open-ended question of how the US economic crisis has affected their companies’ plans to do business in the next six months. Thirty-five percent of respondents gave answers indicating that their companies had or were planning to cut costs. However, 40% indicated that their companies have made no changes. Two participants stated that changes had “not yet” been made, and one response stated that no changes would be made for the next six months. However, both answers indicate that such changes could be in the future.

In line with their diminished expectations for sales growth, respondents’ outlook for geographic and end-user markets has also softened compared to earlier this year. Executives were asked to rate the six-month prospects for instrument sales in nine regions on a scale from 1 to 5, with 1 indicating worsening sales, 3 indicating stable sales and 5 indicating improving sales. As the graph above shows, China received the highest average rating of 3.4. In the spring survey, China also received the highest average rating, however, at that time, its rating was 4.3. In fact, all eight regions in the spring survey received average ratings of 3 or higher. In contrast, in this survey, only three regions—China, Southeast Asia and India—received average ratings higher than 3, and no region received a rating of more than 3.4. These results suggest that survey participants expect instrument sales to decline in six of the nine regions in the survey, including the two largest instrument markets, the US and Europe.

However, the total average rating for all nine regions was 2.9. In fact, no region received an average rating of less than 2.4, suggesting that while sales growth is expected be to moderate in the next six months, an extreme decline is not forecasted. The results also align closely with sale trends prior to the economic crisis, as Japan and the US have each experienced slower sales growth in recent years.

The story for end-markets is much the same (see graph, page 4). The 10 end-markets, about which survey participants were asked, yielded an average rating of 2.6. Only one end-user market, biotechnology, received an average rating of 3 or above. Biotech was the second highest-rated market in the spring survey, receiving an average rating of 3.6. The pharmaceutical industry, which was rated the highest last spring, received an average rating of 2.6 in the latest survey. However, no market received an average rating of less than 2, indicating that while sales may be expected to decline, the decline is not anticipated to be severe.

Nevertheless, the survey results indicate that expectations for sales growth among instrument company executives have been reduced in light of macroeconomic conditions. No doubt, the unprecedented nature of recent economic events have heightened the concerns of most companies, even those, such as analytical instrument companies, that historically have been less affected by macroeconomic trends.

Executive Expectations for Instrument Sales for the Next Six Months

Fall 03 Spring 04 Fall 04 Spring 05 Fall 05 Spring 06 Fall 06 Spring07 Fall 07 Spring 08 Fall 08

Decline 0% 0% 4% 0% 0% 4% 0% 0% 4% 0% 43%

Stay Same 18% 25% 33% 23% 29% 38% 36% 58% 32% 41% 35%

Moderate Increase 82% 67% 63% 73% 67% 50% 56% 33% 56% 59% 17%

Substantial Increase 0% 8% 0% 4% 4% 8% 8% 8% 8% 0% 4%

Average Ratings for Sales Growth Prospects for the Next Six Months (1=Substantial Decline, 3= No Change, 5=Substantial Increase)

Japan 2.4

Western Europe 2.6

North America 2.6

Eastern Europe 2.7

Latin America 2.8

Middle East 2.9

India 3.1

Southeast Asia 3.2

China 3.4

Average Ratings for Sales Growth Prospects for the Next Six Months (1=Substantial Decline, 3=No Change, 5=Substantial Increase)


Govt. 2.4

Chemical 2.4


Pharma 2.6

Academia 2.8

Food 2.9

Environment 2.9

Agriculture 2.9

Biotech 3.0

Six-Month Sales Outlook: Fall 2008 Results vs. Spring 2008 Results

Spring 08 Fall 08

Govt. 3.1 2.4

Chemical 3.5 2.4

Metals/Mining3.2 2.5

Pharma 3.9 2.6

Academia 3.1 2.8

Environment 3.5 2.9

Biotech 3.6 3.0

Six-Month Sales Outlook: Fall 2008 Results vs. Spring 2008 Results

Spring 08 Fall 08

Japan 3 2.4

Western Europe 3.5 2.6

Eastern Europe 3.4 2.7

Latin America 3.4 2.8

India 3.7 3.1

China 4.3 3.4

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