Worldwide DCS market back on growth path through 2008
Dedham, MA—The worldwide market for distributed control systems (DCSs) is expected to grow at a close to 4% compound annual growth rate (CAGR) and reach almost $12 billion by the end of 2008, according to recent research by the ARC Advisory Group.
Dedham, MA— The worldwide market for distributed control systems (DCSs) is expected to grow at a close to 4% compound annual growth rate (CAGR) and reach almost $12 billion by the end of 2008, according to recent research by the ARC Advisory Group.
'The DCS market has returned to recovery and ARC has scaled up our growth estimates to almost 4% compounded annual growth between 2003 and 2008. This is admittedly a conservative estimate, and growth over the five-year period could be even greater if recovery persists through the end of 2004, which seems a likely scenario,' says Larry O'Brien, ARC research director and author of its 'DCS Worldwide Outlook.' 'The factors contributing to future growth far outweigh the negative factors. These positive factors also appear to be global and far-reaching trends that will continue throughout the next several years.'
Services aid growth
Once taken for granted, automation services are now becoming a mainstay for automation suppliers in the face of declining hardware revenues. Users are realizing that even in-house services have a cost and, in some cases, they have to pay a premium for them. Increasingly they are outsourcing more and more of these service functions to automation suppliers. Automation suppliers and users alike are still adjusting to this transition, but the end result could have a significant impact on manufacturers' bottom lines, according to ARC's study.
The report adds that service is the fastest growing segment of the automation market because the pools of engineering expertise formerly at major user companies have shrunk to critically low levels. Many automation services required during a factory's lifecycle are no longer performed in house. Users are looking to the next logical choice for these services, which is the suppliers that provide the automation products, systems, and software that keep their plants running.
ARC adds that market growth in China through 2008 will remain the strongest of any geographic region. China continues to invest in basic industries and in constructing large integrated refining and petrochemical plants, power plants, and other key infrastructures in industries, such as cement and steel. China s GDP growth will reach 9.4% in 2004, with growth of 8.9% forecast for 2005. China's demand for oil rose by 11.4% in 2003, making it the world's second largest oil importer after the U.S. China's oil demand is predicted to surge to 400 million tons in 2020, with an average increase of 12% per year.
U.S. productivity, output up
In the U.S., manufacturing productivity continues to climb with an increase of close to 7% in 2004's second quarter (2Q04), compared to 2Q03. Non-durable goods manufacturing productivity increased close to 10% in 2Q04. While there is no way to measure the impact of advanced automation on productivity from these statistics, supplier results combined with increases in market activity for high value-added automation products and services shows that automation's impact on productivity is significant.
However, as U.S. companies continue to increase capacity utilization, they move closer to the point at which plant expansions and modernizations must be made. Capacity utilization in the U.S. and Europe continues to increase, while developing markets in Asia, Latin America, and Eastern Europe continue to add significant amounts of capacity. Manufacturing output in the U.S. increased by 0.5% in August 2004. By then, U.S. manufacturing capacity utilization had increased to almost 77%, which was almost 4 percentage points above 2003's levels. Many refineries are already stretched to the limit. Capacity utilization for U.S. industries in the crude stage of processing, for example, was at 85% in August 2004.
Migration vs. upgrading
At some point, users must choose to upgrade their existing control system or migrate to a new one. Sometimes, upgrades are not possible because the system has been phased out altogether, or the installed system is based on outdated architecture. ARC believes in migrating to a new system when the old one keeps users from taking advantage of a new business opportunity, or it poses an imminent threat of unscheduled downtime.
However, control system replacement is hard to justify. Usually, lower TCO and better ease of use don't justify replacement. At best, you get a 25% cut in annual TCO, which is less than 2% of replacement costs. While the downtime threat of the existing system can be a major factor in the decision to migrate, the migration process itself can also cause interruption in process operations and is a major pain point for users wishing to migrate.
In addition, the market for process control systems has changed. Most DCSs used to be sold to new installations in heavy process industries, such as refining, petrochemicals, power, and pulp and paper. Today, reduced capital spending, a depressed economy, and more focus on getting more out of existing assets means that most systems sold are for replacement applications, according to ARC.
For more information on this study, go to: www.arcweb.com/research/auto/dcs-ww.asp .
Control Engineering Daily News Desk
Jim Montague, news editor