In January, when IBO issued its industry forecast for 2011 (see IBO 1/15/11), we were just coming off a year of robust growth and a sense of euphoria. The question was: could we keep up the momentum? Of course, we thought. Early in the year, without the benefit of fourth-quarter results from the previous year, one’s crystal ball can be somewhat cloudy. However, there were strong indications that the growth would continue, perhaps not as full-bodied, but still good. Concerns of double-dip recessions had ebbed, and progress was being made in many quarters as industry after industry recovered.

However, that was before all the difficulties during the first seven months of 2011. These include the continuing saga of the European sovereign debt crises, the impact of various national austerity programs, the Japanese earthquake and tsunami, America’s political battle over deficits and debt, and a possible slowing of Chinese growth. These events certainly suggest a cloudy future. On the other hand, our industry has shown very good results thus far in 2011, so one can take some solace in that fact.

IBO’s forecast for 2011 analytical and life science instrument industry sales was a growth rate of 5.6%. This prediction was somewhat of a comedown from the 7% growth recording in 2010, but it was respectable. During the first quarter of 2011, many industry suppliers have reported strong growth for their businesses, averaging almost 8%, with especially strong growth related to emerging markets. Initial readings from some firms for the second quarter suggest slightly lower growth but still higher than IBO’s 5.6% forecast. Thus, the only way for the year to match our projection would be for the second half to perform at well under 5%, and that simply is not in the cards. So IBO is revising its forecast for 2011 sales to be in the 6.0% to 6.2% range of growth.

Economic trends continue to be mostly encouraging. In May, the International Monetary Fund (IMF) issued its Revised World Economic Outlook that indicated the world output would increase 4.4% in 2011. Both the Organization for Economic Co-operation and Development and the IMF expect Advanced Economies growth to increase less than 2.2%. This may be a little optimistic given the recently reported 0.8% GDP growth of the US for the first half.

The IMF also projected 6% growth for emerging economies. Emerging economies have become quite vital to our industry’s growth. Accordingly, IBO continues to project the strongest growth this year for China, Other Asia-Pacific and Latin America. Likewise, Rest of World growth will be about 5%, mostly due to Middle Eastern activity, despite the turmoil in that region. We predict that emerging markets will grow about 7.5% in 2011. The US and Canada will show good results with about 5.8% growth, while Europe and Japan will be laggards. The UK austerity programs and the closing of pharmaceutical industry facilities will hurt European prospects, and the Japanese recovery after March’s earthquake will be slow but steady.

Industry growth from an analytical technique standpoint has been generally better than expected for most categories, but especially for MS, materials characterization and atomic spectroscopy. Each segment has benefitted and will continue to benefit from strong demand from customer groups such as proteomics research, food labs, chemical and polymer facilities, and the metals and mineral industries. Other areas, such as general analytical techniques, including laboratory balances and electrochemistry, lab automation, and surface science will expand at slightly slower rates than previously predicted as pent-up demand is satisfied and the end-markets stabilize.

As has been suggested, market demand from various industries is what drives revenue growth for the analytical and life science instrument industry. Since 2010, there have been significant changes in demand by industry segment, although some industries have continued to be exceptionally strong performers. The food and beverage sector, including agriculture, will remain the leading area, with instrument sales growth expected to be about 8.7% in 2011. This is a function of increased interest in food safety around the world, the advent of new food formulations and the desire to produce healthy food. Biotechnology also vies for the instrument industry’s attention, as biopharmaceutical drug entities become a more important component of pharmaceutical sales and as other genetically engineered products are developed. Of course, the pharmaceutical industry will be an important market driver, but without the historically strong push from big pharma as those firms restructure. Fortunately, generic drug producers, small pharma and contract research organizations have generally taken up the slack.

On the downside, governmental and academic demand is expected to be weaker throughout 2011 and perhaps into 2012. Budget cuts in the US and certain European countries, especially the UK, have reduced demand in these sectors, particularly for more sophisticated and expensive instrumentation as well as for aftermarket purchases. In 2009 and especially 2010, these two markets were strong sources of demand for instrument companies, but this year, depending on the technology segment, they have been quite disappointing. Life science suppliers, as well as MS and separations vendors, have already experienced the negative impact. Since our forecast in January, IBO has lowered expectations for these markets from more than 6% growth to well under 5%. Reduced government funding and uncertainties regarding future support are likely to be continuing concerns.

But, overall, the news is positive. The industry is performing better than expected, and applications are expanding to include new areas of growth. Emerging markets have given new life to slow-growing segments, such as laboratory equipment, as well as to a wide range of instrumentation, as new labs are opened in China, India and Brazil. As the developed regions of North America, Europe and Japan work to resolve some of their difficulties, prospects for the future will be bright.

 Bar Graph: Revised Regional Growth Expectations for 2011 Instrument Sales
 Japan             3.8%
 Europe            4.8%
 Rest of World     5.0%
 US & Canada       5.8%
 Latin America     7.5%
 Asia Pacific      7.9%
 China             8.8%
 Bar Graph: Revised Industry Growth Expectations for 2011 Instrument Sales
 Metals            3.50%
 Chemicals	         3.80%
 Oil/Petrochem.    4.00%
 Semicon/Elect.    4.60%
 Government        4.60%
 Polymers	         4.80%
 Academia          5.20%
 Indep. Test       5.50%
 Pharma.           5.60%
 Biotech           8.20%
 Food & Bev.       8.70%