IBO Revised Forecast: A Severe Downturn

One of the enduring features of the analytical and life science instrument industry is its steadfastness. Although sales ebb and flow based on changes in applications and market requirements, they seldom exhibit significant year-to-year fluctuations. Unfortunately, 2009 appears to be a glaring exception.

In January, when the 2009 IBO forecast issue was researched and published (see IBO 1/15/09), little documented evidence was available to indicate what had occurred in the fourth quarter of 2008, and virtually nothing was available about the real prospects for 2009. However, there was certainly no shortage of anecdotal information that suggested 2009 would be a difficult year for the industry, especially the first half. Accordingly, our overall growth estimate for 2009 was downgraded to 4.8%, almost three full percentage points less than what we had estimated just six months earlier—truly a tectonic change for the industry.

Sadly, this lower projection was not nearly enough of a downgrade. Our revised estimate for 2009 is now -3.1%, marking the first revenue decline for the industry since 1983. This is the result of a confluence or forces that has overwhelmed most businesses in the world economy, and now our industry as well.

Normally, the analytical and life science instrument industry is fairly insensitive to economic activity since the industry is so focused on government, academia, health care and other market sectors that prosper even when housing, consumer purchases and general industrial activity suffers economically. So, unless the world is in recession, our industry continues to grow. Alas, a recession is exactly the situation that we are now experiencing, and have experienced for longer than we would like to think. (The US has officially been in recession since October 2007—the longest US recession since the Second World War.)

The International Monetary Fund’s (IMF) July forecast estimates that world economic output will decline 1.4% this year and grow 2.5% in 2010. Advanced economies are expected to shrink 3.8% this year, before stabilizing with 0.6% growth in 2010. The US economy declined 6.4% in the first quarter and 1.0% in the second quarter. In the first quarter, Japan’s economy shrank 14%, while the Euro zone showed a 2.5% GDP decline. Emerging economies continue to expand and are estimated to grow 1.5% this year, led by China’s 7.5% growth and India’s 5.4% growth. In 2010, emerging economies’ economic output is estimated to expand 4.7%.

Even though bad news is all around, there is light at the end of the tunnel. Glimmers of economic improvements are showing up, especially in the US, as industrial production picks up and economic confidence returns. Neither the pharmaceutical nor commodities industries are expected to rebound this year, but stimulus funding, emerging markets, and demand for service and consumables should fuel sales. As a result, sales for the analytical and life science instrument industry should do much better in the second half, but not enough to make up for the terrible first-half performance of most major companies.

Instrument demand by technology is very much affected by the industries they serve, which suggests some technologies have been less impacted than others by the recession, such as those that have significant sales for government and academia research. This is particularly true this year because of the aggressive stimulus programs enacted in the US, Europe, Japan, China and elsewhere. Sales of technologies used in the semiconductor, chemical, petroleum, construction and automotive industries are suffering the most.

Examining sales according to the nine technology segments in the forecast issue, life science instrumentation is the only segment that IBO still predicts will turn in positive growth for the year, albeit at a lower level of 2.2% growth, versus the earlier estimate of 7% growth. Sequencing, PCR and microarray sales are driving life science instrument growth, while products for cell analysis are exhibiting decreased sales activity. In addition, life science instrumentation in particular should benefit from US stimulus funding.

The sector where sales have been the most negatively affected is laboratory automation (liquid handling, robotics and LIMS). The growth rate forecast for 2009 for this sector has been revised from +4.4% to -9.3%. A re-examination of priorities by end-users, combined with delays in procurement has taken its toll. Sales of separations technologies are also expected to decline this year, falling 5.3%. GC has been affected by lower spending in the petroleum and chemical industries. Likewise, LC will also do poorly because of lower unit sales, except for UHPLC instruments.

Molecular spectroscopy is a mixed bag, as infrared, NIR and Raman continue to show solid growth, but color analysis instrumentation, due to its industrial applications, and NMR have more dismal prospects. NMR sales are expected to benefit from stimulus funding, but more so in 2010. Atomic spectroscopy is likewise bimodal, with X-ray diffraction and ICP/MS spectrometers holding their own, but sales of X-ray fluorescence, arc-spark, atomic absorption and ICP spectrometers all remain vulnerable to the decline in the metals and minerals industries, as well as slower demand for environmental analysis applications.

MS sales are also expected to decline this year, but only 1.8%, the least amount among the nine technology segments because of the technology’s orientation to government, academia and health care sectors, as well as stimulus spending. Higher-priced instruments are experiencing customer resistance, except where higher performance is a critical requirement. In addition, more routine instrumentation is being replaced less aggressively, as quality control and analytical service applications are currently under utilized and replacement cycles are extended. A similar situation exists for laboratory balances and electrochemistry products, two major categories in the general lab instrumentation segment.

Sales of surface science instrumentation, already depressed because of the semiconductor and electronic sectors, have sunk even lower. Recent signs of a recovery in the second half are encouraging, and high-end microscopy sales are expected to benefit from stimulus funding for energy and life science research. Materials characterization techniques are estimated to be the second-worse performer after lab automation, as physical testing, thermal analysis and particle characterization all suffer from the travails of the plastics, paint, chemicals and machinery industries.

All in all, the year is shaping up to be a big disappointment. However,, we should finish with positive results for the fourth quarter and be poised for a strong rebound in 2010. One cannot be sure this scenario will develop, but the probability seems good based on indications. We look forward to a 2010 forecast that will be both realistic and robust.

Chart: 2009 Instrument Sales Growth by Technique Revised vs. Original Forecast

Original Forecast Revised Forecast

Lab Automation 4.4% -9.3%

Materials Charac. 2.0% -8.4%

General Lab 3.0% -6.9%

Separations 3.5% -5.3%

Molecular Spec. 6.2% -3.8%

Surface Science 3.3% -3.4%

Atomic Spec. 2.1% -2.6%

Mass Spec. 7.6% -1.8%

Life Science 7.3% 2.2%

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