2009 Forecast: ‘Gut Check’ Time, Not ‘Give Up’ Time
| By: Winn Hardin, Contributing Editor
So far in 2009, each day brings AIA member companies a new wave of disappointing global economic news and the financial challenges are starting to reach home. Some vision companies have consolidated, while all gird for the challenges of 2009. However, as our interviews show, many machine vision suppliers saw this recession coming, positioned themselves to weather the downturn, and continue to form strategies that will help their companies to emerge stronger as the market turns later this year and gains upward momentum in 2010.
AIA Market Study Points the Way
“It’s true that 2009 is going to be a very challenging year,” explains AIA’s Director of Market Analysis, Paul Kellett. “That’s one of the main messages I delivered at our recent business conference in San Diego. But while we’re going to see pain in the short term, the machine vision industry will eventually return to its fundamental sales trend line, which has been historically solid and positive.” (See graph).
According to Kellett, “Economic forecasts and historical machine vision sales data suggest that we’ll start returning to the trend line in late 2010 because of pent up demand for machine vision products. Faced by growing competition in the global economy, manufacturers in both developed and developing countries will have to increase productivity, cost savings and product quality, and machine vision is essential to satisfying those needs.”
While ‘pent up demand’ may be hard to quantify, Kellett’s general prognosis has some big-name backers. According to the economist and Nobel Prize winner, Robert Solo, countries and companies maintain growth by either having the lowest labor costs leading to capital accumulation, or productivity growth. Between the two strategies, only productivity growth is sustainable. For example, China - a haven for low labor manufacturing in recent years - is already losing manufacturing jobs to India and other countries where labor costs are even lower. This is why the U.S. has lead global economic growth for so many years thanks to strong productivity growth.
Market Bright Spots
Kellett’s latest market report lays out several regional and industrial bright spots for 2009, including the still hot BRIC countries. “Not all areas of the world are equally impacted by the recession,” he says. “For example, Brazil is still forecast to have some impressive growth, and while China is slowing down, it will probably still have real GDP of 5-6% growth. I dedicated entire chapters to these topics in my 2009 market study.”
Other areas to watch include renewable energy and emerging electronic markets, such as the microelectromechanical systems (MEMS) market. Kellett’s 2009 market study - officially due out in March - spends two chapters discussing these two potentially lucrative markets for machine vision products.
“Some capital is being spent in the alternative energy space,” says Glenn Archer, Director of Business Development at EPIC Business Solutions (Saint Louis, Missouri). “Inspection of solar cells, wind turbine parts and the like are all growing areas. Also we have had some interest in agriculture uses of inspection.”
Renewable energies are just one set of emerging opportunities for machine vision technology. “We have already seen a trend toward diversification of the machine vision application markets before the economic crisis, with the rise of non-industrial applications such as medical/life science imaging, security and traffic, or even multimedia and entertainment,” explains Michael Cyros, recently re-elected President of the AIA Board of Directors and President of Allied Vision Technologies Inc. (Newburyport, Massachusetts). “For example, Allied Vision Technologies has a strong medical business and has identified the growth potential of non-industrial applications early; we showed interesting and real business applications in sports and entertainment at the VISION show in Stuttgart in 2007 and demonstrated applications in the areas of market research and interactive advertising in 2008. I strongly believe that this diversification of market segments will help the machine vision industry overcome the downturn of the economy.”
The widely discussed U.S. stimulus program could create more opportunities, according to Jørgen Andersen, CEO and President of JAI (San Jose, California). “Machine vision for traffic may benefit from the infrastructure money in the U.S. stimulus program,” explains Andersen. “Other countries are also putting stimulus money into infrastructure projects, including China and Europe.
While smart manufacturing companies continue to turn to machine vision solutions to bolster productivity and lower operational costs, EPIC’s Archer says that fast return on investment is critical to landing these new projects. “When we ask about capital projects we are told that the company is only spending on high pay-back projects - the sort of project that has a return on investment of three months. This seems incredibly short-sighted but it is the feedback we have been getting. Specific industries include automotive suppliers, food and beverage, packaging, plastics manufacturing, and metal fabrication.”
Within the machine vision product segments, GigE Vision ™ and smart cameras are expected to continue to gain market share, as will high-brightness LEDs and equipment used for 3D vision-guided robotics. “In the past, 2D type applications where the parts sit on a flat stable surface were the primary vision applications,” explains Fanuc Robotics (Rochester Hills, Michigan) National Account Manager, Ed Roney. “Now and moving into the future, parts are piled, stacked, or reside within a container, and 3D becomes necessary for the proper determination of how to handle the part or process the part. The new tilts added by the random presentation require that a full 3D position of the part must be found - not just how it rests on a surface.”
While You Wait for Better Days
Each of the companies interviewed for this article shared a common thread: they all spent considerable time and money looking forward, anticipating market changes, and preparing their operations for market changes. “We have been analyzing the crisis for quite some time and have looked at our own company to see what we can do better, what we can do to get more lean,” explains JAI’s Andersen. “We developed a plan and took precautions in the early phase of the recession.”
Surviving down markets takes more than a good sales plan. “Looking at manufacturing industries, the main factor is obviously a sustainable demand,” adds Allied Vision Technologies’ Cyros. “Another important one is the availability of credit for investment. Because of the financial crisis, there will probably be a lack of both in the market this year. Government plans to secure credits for businesses and sustain demand with infrastructure investments are welcome. The big question is if they will be enough… I think all these challenges will force the relatively young machine vision industry to mature and consolidate. Only suppliers with a strong technological know-how, a solid financial base and/or a critical size will be able to survive the tough times ahead. Consolidation has already started, such as the acquisition of Prosilica by Allied Vision Technologies demonstrates. This trend will certainly go on and is a positive force for our industry.”
In the meantime, U.S. suppliers of machine vision equipment can take comfort in the fact that they may be the first to see the light at the end of the tunnel. “The U.S. was the first to acknowledge the crisis, and once Americans see a problem, they do something about it,” says JAI’s Andersen. “I’m guessing that America will be the first to come out of the crisis,” although Andersen cautions that turn could be farther away than most would like.