The global economic downturn has resulted in an unprecedented attempt by world governments to help stimulate their individual economies, with the hope that these combined efforts will have a cumulative effect of breaking the downward spiral and lifting the global economy out of its crisis.
Since the United States represents the largest single economy in the world, how the funds in the U.S. stimulus package are allocated could have a huge impact on the potential growth of the motors and drives industry. Frost & Sullivan's Economic Research and Analytics (ERA) group has examined the U.S. stimulus plan and mapped out the funds into different industries (see Figure 1).
Despite these efforts, we know that the current global economic crisis has negatively impacted most global industrial markets. What began as a localized financial crisis in the United States quickly spread globally to encompass every economy.
While it is expected that these types of downturns will impact the motors and drives industry, most companies agree that there is traditionally a three to six month delay before that impact is felt. This is primarily due to ongoing versus new project expenditures. Since companies have already received funding for ongoing projects, even during a downturn, this funding continues.
However, since the financial markets, particularly the credit market, were at the root of the current downturn, both the supply side and the demand side were affected. OEMs, equipment users and end-product manufacturers did not have credit to make new investments to manufacture their products, open new facilities or make upgrades to their existing facilities and equipment. Companies found that their customers were postponing existing orders and delaying new projects. This resulted in a faster decline in demand for motors and drives during the fourth quarter of 2008 than had been seen in previous economic downturns.
It is important to note that the same type of delay can also be seen during an economic recovery. OEMs and manufacturers tend to be conservative when it comes to reinitiating their new investments. They typically want to experience one to two quarters of positive growth before they start reinvesting. However, with multiple stimulus packages worldwide, it is quite possible that companies may not wait as long a period to begin reinvesting.
Looking at the growth potential for the North American motors and drives industry from 2008 to 2011 (see Figure 3), servo motors/drive, gear motor/drives, DC fractional hp motors and AC fractional hp motors are showing the strongest growth potential. This is being fueled by key end-user industries, like business equipment, home appliances, packaging/material handling, food and beverage and medical equipment. Generally speaking, smaller motors, either fractional or those in the small NEMA frame sizes, are weathering the economic crisis better than the larger frame sizes. These tend to be sold into markets where the motors are part of or sold to support more direct consumer products, like electronic equipment that is less capital intensive, or necessities, like utilities and food.
A key challenge for many motor and drive suppliers is to identify key opportunities and when reinvestment will begin, particularly in the short term. The motors and drives market is expected to bottom out during the latter half of 2009 and early 2010. While the next few quarters are expected to be bumpy, all of the motor and drive markets should return to pre-crisis growth levels by 2011. The high levels of growth expected during the 2009 to 2011 timeframe is expected to be from increased investment as global economies recover and growing demand while manufacturers anticipate that recovery.
Using data assembled from our ongoing research into the motor and drives market, several key end-user verticals are expected to perform better than others and may warrant greater attention for near-term growth. The end-user verticals have been mapped based on their percentage of revenues and the expected growth potential during the period 2008 to 2012 (see Figure 4). The farther up and to the right an industry appears in the graph, the better prospects that industry vertical has during the analysis period. The industry verticals with the highest total growth potential appear in the highlighted crescent in Figure 4.
In North America, petrochemical, business equipment, food and beverage, HVAC and packaging/material handling markets are anticipated to have strong growth. While the material handling and food and beverage industries should experience slowdowns in 2009, they are expected to rally in 2010. The HVAC market should experience significant benefits from the stimulus package because of the aging of installed equipment and the incentives to upgrade the equipment to more energy efficient units. In fact, only the automotive and mining industries are anticipated to experience long-term negative effects. (It should be noted that the automotive industry, in at least North America and Europe, was experiencing negative growth prior to the financial crisis that occurred in September 2008.)
Despite conservative attitudes and delayed capital investments, customers are rapidly reaching points where they can no longer postpone needed replacements and upgrades. Unlike the gloom predicted about the state of the current economy, the North American motors and drives market is poised for recovery. It promises strong growth in nearly all the major end-user verticals and is expected to continue expanding into competing technologies, such as hydraulic and pneumatic equipment.