What did we learn about the business cycle From SPS/IPC/Drives in 2011?

Factory automation insiders believe, in spite of recent economic troubles in Europe, that the FA industry will remain strong, though perhaps growth may be reduced.

12/19/2011


The two main factory automation (FA) shows of the year, SPS and Hannover, provide an excellent opportunity to gauge industry momentum at two fairly evenly separated points of the year. The most recent one, SPS Nürnberg, didn’t disappoint. The organizers, Mesago, boasted substantial visitor and exhibitor growth compared with 2010, and this was evident from walking around. IMS Research attended with over 20 dedicated FA analysts, underlying our commitment to the show.

While our analysts met with a diverse array of attendees and exhibitors from around the world, our conversations were inevitably drawn to the economic and political events currently taking place in Europe. My concern going was that our discussions would highlight industry growth for FA equipment is entering a notable slowdown, and even worse, that this could be a precursor for another contraction. General sentiment, however, alleviated this concern (at least for now). Discussions regarding future order books suggested a softening in the fourth quarter, after what has been three very strong quarters of growth for FA equipment during 2011. Further, while most conversations about 2012 contained caveats in case of a possible Euro melt-down, in general people were projecting growth for 2012, if not somewhat moderated, versus what has been an extraordinary growth year for FA equipment in 2011. One vendor summed it up quite well “what we’re reading in the newspapers doesn’t correlate with what we’re seeing in our order books”.

If one examines revenues reported by publicly operated automation equipment entities as we do as part of our IAEE report, we can see that revenues for European-based vendors on a quarter-to-quarter basis actually contracted during the third quarter. The quarterly signal (the blue series in the accompanying chart) is a noisy one, and really the rolling annual average presents a better barometer of where we are. Clearly revenues peaked in the second quarter, but the last four quarters were 16.7% improved over the equivalent timeframe a year earlier. This doesn’t provide us the forward looking information we’d really like to have, but if one factors in the insight discussed above, a soft fourth quarter followed by a moderated growth profile would represent good news for automation equipment vendors. What is our current forecast for 2012? 10.2% in Europe and 12.1% globally. An upcoming blog authored by our machinery production expert Andrew Robertson should add some insight to our position.

Graph highlighting the Industrial Automation Electronic Equipment (IAEE) Automation Index from 1Q 2009 to 3Q 2011. Courtesy: IMS Research



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