Compact AC drive profit margins down in 2012 but forecast to improve
IMS Research (acquired by IHS, Inc.) forecasts that global compact AC low-voltage drive sales will grow to $3 billion in 2016. Compact AC drives are those rated less than 25 kW, used primarily in fan and pump applications. End-users are increasingly demanding a low priced, simple product and the industry is responding by splitting compact AC motor drive product lines into a simpler lower-priced line and a more complex, higher-functioning and expensive drive.
“Compact AC drive average selling price declines accelerated in 2012, especially in EMEA and Japan where prices fell nearly 4 percent. Suppliers accepted lower overall margins on compact drives to maintain and secure customers to which they sell higher margin products,” commented IMS Research analyst Rolando Campos.
Despite economic slowdowns in Asia and Europe in 2012, demand for low-end drives remained strong, partly due to lower prices facilitating budget approvals in a tight-lending environment, but also as separate lines of drives increased options for customers. In 2012, compact AC drive shipments grew 2.6 percent over 2011 levels, reaching nearly 11 million unit shipments.
Compact drives are much less complicated to manufacture, making it easier for suppliers to introduce products in the market. After experiencing success in China, numerous domestic suppliers such as Delta and INVT are entering EMEA, and have captured market share in the region over the past year. The Chinese market for compact AC drives has grown rapidly over the past several years to $880 million in 2012 and forecast to nearly double in 2016.
Due to intense competition and the penetration of new lower cost compact drives, profit margins declined in 2012. Reluctance to reduce compact drive prices in line with the overall industry has resulted in a loss of market share for some companies in EMEA and Japan. In response to a more competitive market, some suppliers are moving towards drive products and markets with less competition, more opportunity to add value, and higher potential margins.
Compact AC drive prices are estimated to have declined by nearly 2 percent in 2012. As the global economy recovers, compact AC drive price declines are predicted to moderate, resulting in higher profit margins for compact AC drive sales. IMS Research forecasts that future compact AC drive price declines will moderate to about -1 percent CAGR from 2012 to 2016.