Pharmaceuticals and Biotech

IMS Health forecasts worldwide pharmaceutical sales to increase 4.5%–5.5% this year, on par with 2008, to more than $820 billion (see IBO 10/31/08). The substantial cash holdings of major pharmaceutical companies could increase M&A activities. The target of these acquisitions are expected to be smaller biotech firms that are unable to access financing due to the credit freeze and greater investor caution. The difficulty in attaining financing that some small biotech companies experienced in late 2008 is forecasted to continue in 2009, resulting in consolidation and restructurings (see IBO 11/30/08). In contrast, mature biotech firms are expected to show good prospects. Burrill & Co. estimates that US biotechs raised $30,126 million in new financing in 2008, down 32.1% from 2007. Public and private financing declined 54.0% to $10,103 million, while partnering raised $20,023 million, a 10.5% decrease. In 2009, Burrill forecasts that US biotechs will raise $50 billion in total.

Chemicals

Chemical companies announced spending cutbacks, production cuts and layoffs in late 2008 as demand weakened due to the global economic crisis, tighter credit for its customers and a downturn in consumer demand. The American Chemistry Council estimates that chemical output rose 2.2% last year and will increase 1.5% in 2009 and 3.3% in 2010. Chemical production in developed countries is estimated to decline 0.9% this year, matching last year’s decline. However, chemical production Africa and the Middle East are forecasted to grow 4.4% this year, following a 7.0% increase last year. Chemical production in Latin America, Asia Pacific and Emerging Europe is expected to grow 3.7%, 3.5% and 2.5% this year, respectively. The European Chemical Industry Council forecasts US chemical production to grow 0.5% in 2009 and chemical production by the EU-27 to decline 0.3% (see IBO 11/30/08). Analysts predict a greater number of bankruptcies and increased consolidation among chemical companies.

Semiconductors

Demand for semiconductors slowed in late 2008 as consumer spending fell and the financial crisis grew. The Semiconductor Industry Associates (SIA) estimates that 2008 semiconductor sales increased 2.2% to $261.2 billion. Noting poor visibility for the market, the SIA forecasts sales to grow 5.6% this year and 7.4% in 2010. In December, Gartner revised its forecast for sales of semiconductor equipment (see IBO 10/31/08) and now estimates them to fall 31.7% in 2009. Sales of semiconductor equipment fell 30.6% last year to $31.1 billion. Gartner also estimates that semiconductor capital spending declined 27.3% in 2008 to $46.1 billion and that it will decline 34.1% in 2009, before recovering in 2010 to grow 13.9% Likewise, semiconductor equipment spending is expected to grow 17.7% in 2010. According to the Semiconductor Equipment and Materials International (SEMI), capital equipment sales fell 27.7% in 2008 to $30.91 billion and are expected to decline 21.4% this year. Based on historical trends, SEMI forecasts capital equipment sales to increase 30.8% in 2010.

Energy

Following a 22% increase in capital spending in 2008, capital budgets for oil exploration and production are expected to fall 12% in 2009, before rebounding in 2010, according to a December survey of 357 companies by Barclays Capital Resources. In aggregate, the world’s six largest oil firms are forecasted to decrease capital spending by 2%. Major oil companies in Asia and Latin America are expected to have a mixed outlook. Middle Eastern companies’ spending is expected to decline 2% in 2009 on average. Clean energy is expected to get a boost again this year from government initiatives. However, the credit crisis has made raising funding for such companies more difficult. New Energy Finance estimates investments in clean energy companies fell 4% in 2008 (see IBO 11/15/08). Cleantech Group reported in January that 2008 venture-capital investments in clean technologies rose 38% to $8.4 billion and forecasts investments to fall to $7 billion in 2009.

Metals and Mining

A drop in metals pricing, prompted by slowing demand from China and for consumer products suddenly hit the metals and mining industries in mid-2008, ending a five-year boom. The result was cutbacks by mining companies in production and capital investments that are expected to continue into this year and next. In October, Citigroup estimated that capital expenditures by the mining sector could fall as much as 40% in 2009. Fitch Ratings estimates capital spending for the base metals industry will fall an average of 5%–15% in 2009 and 35%–40% in 2010. Similarly, steel makers have announced dramatic cuts in order to slow spending and keep prices from collapsing (see IBO 12/15/08). The OECD estimated in December that world steel-making capacity rose 4.7% in 2008 to 1,636 million tons. Moody’s estimates a slight upturn in late 2009, but that steel production is unlikely to return to the levels experienced in early 2008 until 2013. World Steel Dynamics estimates that steel output will drop 13.9% this year before growing 12.9% in 2010. Credit Suisse predicts steel production will fall 10% this year.

Chart: Industry Growth Expectations for Instrument Sales for 2009

Metals -2.5%

Semicon/Elect. -1.0%

Polymers 1.8%

Chemicals 2.2%

Oil/Petrochem 3.5%

Indep. Test 5.2%

Academia 5.3%

Government 5.5%

Pharma 5.8%

Biotech 7.2%

Food & Bev. 7.4%