Instrument industry sales should remain stable in the next six months, according to IBO’s Spring Business Climate Survey. Twice a year IBO conducts a survey of analytical instrument companies and associated suppliers. Twenty-four executives were surveyed from companies whose combined sales exceed $5 billion.

Fifty-eight percent of the instrument and laboratory product–related company executives who were surveyed earlier this month stated that they expect instrument sales in general to stay the same in the next six months. A third of respondents expect sales to increase moderately. The results are also an notable change from IBO’s Fall 2006 Business Climate Survey (see IBO 10/15/06), in which 56% of surveyed executives expected sales to increase moderately. In fact, this is the lowest percentage of executives to expect a six-month increase in sales since IBO’s Fall 2002 Business Climate Survey (see IBO 10/31/02). These results are also evident in the outlook for sales by end-user market and region reported on page 4.

The guarded forecast is something of a surprise considering the strength of the global economy, especially markets in Europe and Asia. The Business Roundtable’s Economic Outlook Survey, released in March, found that 73% of executives from a range of industries expect their companies’ sales to increase in the six months and only 12% expect sales to stay the same. A major concern, as noted below, is the US economic outlook and additionally, for European companies, exchange rates. In addition, weaker US academic and government spending as well as fluctuations in pharmaceutical spending may have made executives more cautious than usual in their outlook.

However, according to the survey, it is a cool down in the industrial sector that most concerns instrument industry executives. Asked which of five choices (constrained spending by big pharma, increased competition, seasonal spending patters, slowing industrial spending, other) was of greatest concern as to its effect on instrument sales over the next six months, more than half of the respondents cited slowing industrial spending. However, concerns related to pharmaceutical spending are also prevalent as 18% chose constrained spending by big pharma as the greatest concern.

The concerns about an industrial slowdown may be connected to worries about the US economy. Asked which of five macroeconomic trends (exchange rates, an overheated Chinese economy, protectionism, US economic uncertainty, other) was of greatest concern as to its effect on instrument sales over the next six months, US economic uncertainty was cited by 71% of respondents. These results are consistent with the Goldman Sachs Confidence Index, released last month, which found that US CEOs are most concerned about a slowdown in capital spending. Notably, European companies were more likely to choose exchange rates as the greatest concern, indicating that the weakness of the US dollar is causing difficulty for instrument companies headquartered in Europe.

Despite such uncertainty, executives’ expectations for specific regional markets is generally positive, yet restrained confidence in sales prospects was evident. Respondents were asked to rate the six-month sales prospects for nine economic regions on a scale of 1 to 5 (1 indicated a substantial decline in sales, 3 indicated no change in sales and 5 indicated a substantial improvement in sales). Only the US received an average rating of less than 3. However, China was the only region to receive an average rating of more than 4. The average rating was 3.5, consistent with expectations for sales to remain the same. The results are also largely consistent with the fall 2006 results, except for South America. In this survey, the average rating for South America was 3.1, compared to an average rating of 2.5 in the Fall survey.

The biggest change among the ratings for end-user markets was the strength of the food and agriculture market. The average rating for six-month sales prospects for the food and agriculture market was 3.8, the same as the 3.8 average rating for biotechnology in the fall 2006 survey. Although the mix of companies, and thus product lines represented, that responded to this month’s survey versus those companies surveyed last fall is different, the change is notable and perhaps reflects the higher profile of food safety following the investigations of pet deaths in the US linked to Chinese imports. The average rating for end-user markets was 3.2, once again consistent with executives’ expectation for steady sales in the next six months.

Finally, executives were asked about the pace of mergers and acquisitions among instrument and laboratory product companies in the next six months. Asked if the pace would increase, decrease or stay the same, 79% of respondents said it would increase and none said it would decrease. Among the reasons cited were companies’ cash liquidity, the trend toward consolidation, and mergers and acquisitions as an engine for growth.