Last January, when IBO issued its industry forecast for 2010, hard evidence of a recovery from the difficult times of 2009 was almost imperceptible. First- and second-quarter 2009 financial results were dismal, and the most recent factual readings were for the third quarter of 2009, when sales were flat. So it was indeed a ”leap of faith” to predict that 2010 would be a much better year.

Actually, there were good reasons to be optimistic, beyond the idea that these troubles could not go on indefinitely. Government stimulus programs were well underway in many nations of the world, particularly the US, Europe and China. Likewise, a number of industrial sectors were beginning to rebound economically, and the momentum was clearly positive.

IBO’s forecast for 2010 analytical and life science instrument sales was a growth rate of 5.2% (see IBO 1/15/10). As it is turning out, the instrument industry is likely to do a bit better for the year. We offer a revised estimate of 6.0% growth for 2010, which is certainly good news for the industry. Based on financial reports for the first quarter and reports just coming in for the second quarter (see pages 4 and 12), several technology segments are actually doing much better than forecast, with sales for some expanding at double-digit rates.

However, this strength will likely taper off in the second half of 2010. A good part of this change will be a function of stimulus programs coming to an end. In addition, a global focus on deficit reduction and the hesitancy of instrument customers to expand will retard growth somewhat.

Our final estimate of instrument demand for 2009 is -3.0%, about what we estimated in January. Our 2010 prediction of a strong rebound of 6.0% revenue growth represents a nine percentage point change, which is pretty dramatic for this industry, but welcome nevertheless.

Normally, the analytical and life science instrument industry is fairly insensitive to economic activity because the industry is so focused on government, academia, health care and other industry sectors that prosper even when other industrial activity and personal consumption expenditures suffer economically. Still, an improvement in economic activity “lifts all boats,” and that is what we are experiencing now, although the outlook is still worrisome.

Recently, the International Monetary Fund increased its forecast for 2010 global growth to 4.5%, primarily because of continued strong growth in China, India, Africa and Latin America. Likewise, while economic growth in the US, Europe and Japan are rated lower, overall these important regions are expected to expand at 3% or more this year, a much better level than what they experienced in 2009.

The graph above characterizes the original growth estimates and revised growth estimates for each major technology sector. As the graph indicates, every sector will do better than originally predicted. But some segments will show only modest improvements in part because the initial forecast proved to be on target. For example, NMR rebounded nicely, and color measurement benefited from increased automotive activity, while the rest of molecular spectroscopy has performed as expected. MS also is maintaining its leadership position in terms of growth rates among the segments, as deferred purchases of high-end instrument systems were finally made due to stimulus funding.

Sales for life science and surface science techniques are also likely to perform as expected. Each benefited from increased spending by pharmaceutical and biotechnology labs for life science products. Also, the much improved prospects for the semiconductor industry (see page 3) have been a boon for surface science techniques.

General lab products, especially lab balances, centrifuges and electrochemistry products, are back to their usual steady 3% growth track, following a very difficult 2009. Our original forecast assumed little or no growth, but the sales trends suggest these products will do much better. This is not because of stimulus spending, which is nonexistent for these products, but because overall industrial activity is looking much better. Likewise, deferred purchases are occurring, and these products tie into demand for life science–related applications. The lab automation sector has also similarly benefited from life science spending.

Similar to the technology sectors, sales to all industry segments are expected to grow, as shown in the graph below. Food and beverage, biotechnology, government and academia sales will lead the way in 2010, and likely in the years to come. The pharmaceutical, semiconductor, electronics and independent test, especially contract research organizations, markets will also offer solid growth this year. In addition, the petroleum and metals industries will have a better year. Sales to the chemical and polymer segments will only show marginal growth, but that is still a huge improvement over 2009.

Geographically, China and Asia-Pacific regions remain the focus of instrument companies, as each region promises growth of more than 8%. Latin America, especially Brazil, is not far behind, and may provide sustainable growth. The North American market will be strong. However, the prospects for Europe and Japan are more uncertain, though each region is still expected to offer growth of around 4%.

All in all, IBO’s original forecast was fairly close to the mark. This forecast is a much more pleasant situation to report than what we experienced last year. While some observers are still suggesting a double-dip recession in the US and Europe, indications are that business investment is strong—and for our industry, this is more important than personal consumption expenditures. Industry performance for the first half has been excellent, so a strong recovery in 2010 is pretty much in the cards.

Graph: Horizontal Line Graph

2010 Instrument Sales Growth by Technique Revised vs. Original Forecast

Original Forecast Revised Forecast

General Lab 0.1% 2.8%

Materials Characterization 4.0% 4.6%

Separations 3.8% 5.0%

Lab Automation 4.2% 5.8%

Surface Science 5.8% 6.0%

Life Science 5.9% 6.1%

Atomic Spectroscopy 5.3% 6.9%

Molecular Spectroscopy 8.2% 8.4%

Mass Spectrometry 8.2% 8.8%

Graph: Horizontal Line Graph

Revised Industry Growth Expectations for Instrument Sales for 2010

2009-10

Polymers 0.8%

Chemicals 1.3%

Metals 2.3%

Oil/Petrochem 3.5%

Semicon/Elect. 5.0%

Indep. Test 5.6%

Pharma 5.8%

Academia 6.3%

Government 6.4%

Biotech 8.5%

Food & Bev. 8.7%