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Good News from 37,000 Feet

October 3, 2008 By: Ed Ramsden


Ed Ramsden

War, recession, the presidential race—some days it doesn't pay to turn on the news. Amid our current environment of doom and gloom, however, there are a few bright spots, at least for people making sensors. There are significant industries that have been quietly growing amid the economic turmoil. And some of these industries might need to sense something.

Figure 1 lists ten U.S. manufacturing industries that have shown both respectable growth and a substantial market base. There are others with these characteristics, but I felt a need to limit the list to something reasonable (doesn't everyone love a 'Top 10 list'?). The numbers shown are based on aggregate economic data, so they represent a 37,000 foot view—while not exactly a guide to who's door to knock on, they can at least suggest a neighborhood to canvass.

Figure 1. Ten Potential Markets (by annual $ growth)

Market 2006 Shipments ($billion) % Annual Growth,

2001–2006
Irradiation apparatus 10.9 20.4
Resource recovery equipment
(oil and gas mining) 		14.8 11.8
Construction machinery 35.2 11.3
Boat building 11.4 9.5
Conveyor equipment 9.6 8.8
Industrial trucks and stackers 7.7 8.0
Fluid power
(pumps, cylinders, etc.) 		8.5 7.4
Farm Machinery 19.8 7.1
Medical/surgical
equipment & supplies 		80.0 6.6
Analytical laboratory equipment 10.1 3.9

The Dilution Factor

How much of an opportunity do these markets represent for the sensors industry? That is a difficult question to answer on two counts. The first is the dilution factor of how much sensor content there is in the final products. Although application penetration for sensors is on a generally increasing trend, this figure can be pretty low, ranging from a few tenths of a percent to a few percent, depending on the product. For the case of construction equipment, with $35 billion of shipments, this range of dilution factors would result in a total sensors market of between $35 million (0.1%) to $350 million (1%).

The second thing that makes the estimation of market opportunities difficult is that not all potential markets have the same sensing requirements. A particular industry segment may represent a huge serviceable market, but if they are looking for sensing functions you don't provide, it may not a realizable opportunity, at least for you.

Figure 1 only lists industries that could incorporate sensors in their end-products. For those industries that are sensor end-users, there may still be substantial markets, but the dilution factors could be orders of magnitude lower. This is the primary reason I omitted certain very high-growth/high-stability industries (e.g. pet food manufacturing) from consideration; their purchase of a sensor is likely to be a one-off event to build production capability, as opposed to ongoing purchases that get resold as part of their product offerings. If, however, you offer higher value, more highly integrated sensors, many of these end-user industries may also have the potential of forming significant markets.

The R-word

According to figures released by the U.S. Bureau of Economic Analysis, America's GDP growth for the first quarter of 2008 squeaked along at a 0.6% annual rate. Prospects for the near future look a little better, but still nothing to celebrate. The Economist (September 27, 2008) forecasts growth of 1.6% for 2008 and 1.3% for 2009. So even if we are not in a recession by the official metrics, the economy overall is still probably going to feel pretty lean for the next few years. How will our current downturn affect sales in the above described markets?

Fortunately, recessions (or downturns) do not affect every segment of the economy equally—some are hit worse than others. In the recession of 2001–2002, which was largely a result of a technology bubble, technology was hammered especially hard. For example, U.S. semiconductor shipments dropped about 30% (in dollars shipped) between 2000 and 2001. Some industries, however, not only sailed through that recession relatively unscathed, but actually increased sales. Of the markets listed in Figure 1, irradiation apparatus, resource recovery equipment, farm machinery, medical equipment and analytic laboratory equipment saw positive sales growth between 1999 and 2001. Granted, every downturn is different, and as the investment industry likes to say in the fine print, 'past performance is no guarantee of future returns'. Still, if an industry survived one recession, there is a decent chance that it will survive another.

Closing Thoughts

Despite the recent economic downturn, the general outlook for the U.S. sensor industry remains bright.. The American economy is sufficiently diverse to almost always have a few growing industries. This, coupled with general trends toward using more sensors in more applications should ensure continuing opportunities for those looking for them.






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