Despite turbulent economic times, particularly in Europe, most test companies continue to deliver strong results. Forecasts once again show growth for 2012, although not at the levels seen over the past two years. This was expected considering the high double-digit growth rates witnessed in 2011 and 2010, which is atypical for such a developed market.
Now that the industry has passed its pre-downturn level, growth is expected to return to its historical mid-single digits. An increase in overall R&D spending and more focus on R&D return on investment (ROI), combined with growth in the global manufacturing sector and 4G deployments, foreshadow greater demand for test equipment across applications in 2012 and beyond.
More Conservative Growth In 2012
The T&M industry experienced significant growth in 2011 versus 2010 (see the table). Several companies, including Agilent Technologies, Danaher (T&M division includes Tektronix, Fluke, and Keithley Instruments among other companies), and National Instruments witnessed close to a 20% boost in annual revenue.
Among global test-equipment manufacturers, Anritsu stood out with its 31.9% revenue jump over the previous year. LeCroy, a more focused organization than the aforementioned companies, also registered one of the highest growth rates in 2011.
On the semiconductor test front, Advantest tops the charts in terms of growth with 52.6% over 2010. No doubt its acquisition of Verigy in 2011, a company that previously ranked third in this market space, augmented that number by adding approximately $330 million in revenues.
Rental test-equipment leaders Electro Rent and TRS-RenTelco also saw strong performance in 2011—another clear indicator of the positive state of the industry in 2011, demonstrating how customers are diversifying their test strategies.
What does all of this mean for 2012? So far, public announcements made by major test-equipment vendors this year confirm the trend toward a positive, albeit conservative outlook for the T&M industry. Test companies remain cautious mainly due to the economic challenges faced in Europe and China.
A key driver for growth in 2011 and 2012 involves test equipment for wireless manufacturing, mainly the result of explosive smart-phone adoption. Global smart-phone sales, which reached $345.0 million in 2011 (76.8% over 2010), are expected to mushroom to over $1.22 billion by 2018. For general-purpose test-equipment companies and semiconductor test manufacturers, the proliferation of mobile devices, including smart phones and other mobile devices, will continue to be the key growth driver into the foreseeable future.
Impact Of R&D, Manufacturing
Though concerns abound regarding U.S. federal R&D spending, global R&D spending is expected to increase by 5.2% percent in 2012 ($1.4 trillion), according to the latest Battelle and R&D Magazine’s forecast (Fig. 1). While this augurs well for the test and measurement industry, perhaps even more important is the greater focus on ROI in this arena. Measured in terms of improved product quality and sales, the higher emphasis on ROI will likely contribute to greater demand for testing and test equipment in R&D applications moving forward.
On the manufacturing front, JP Morgan suggests modest manufacturing expansion for the fifth month in a row in April globally, although the performance by region varies greatly (according to the latest information on the global manufacturing Purchasing Managers Index, or PMI, from the firm).
The U.S. remains one of the main drivers for global manufacturing growth (Fig. 2). However, research indicates electronic OEMs will more heavily rely on electronics manufacturing services (EMS) providers and original design manufacturers (ODM), which will drive their demand for test equipment. Considering the value proposition of these companies, this also would push demand for test equipment in emerging countries.
The transition to 4G around the world will certainly create huge opportunities for growth in field test equipment this year and beyond (Fig. 3). Main driving factors will be the higher complexity and sensitivity of such networks to both internal and external sources of interference, and increased competition among telecommunications service providers.