A Market Analysis and Forecast Through 2008 by Arc Advisory covers the world wide distributed control systems (DCS) market. The Distributed Control System (DCS) market returned to recovery and ARC scaled up its growth estimates in 2003 to almost 4 percent compounded annual growth between 2003 and 2008. This is admittedly a conservative estimate, and growth over the five-year period could be even greater if the recovery persists through the end of 2004, which seems a likely scenario. The factors contributing to future growth far outweigh the negative factors. These positive factors also appear to be global and far-reaching trends that will continue throughout the next several years.
A primary growth driver for the DCS market is the increasing importance and stellar growth in the services business. Once taken for granted, automation services are now becoming a mainstay for the automation suppliers in the face of declining hardware revenues. Users have come to realize that even in-house services have a cost and in some cases, they have to pay a premium for them. Increasingly they are outsourcing more and more of these service functions to automation suppliers. Automation suppliers and users alike are still adjusting to this transition, but the end result could have a significant impact on manufacturers' bottom lines.
Strategic issues discussed in the study include:
Shipments of DCS by Industry
Oil & Gas
Refining
Chemical
Pharmaceutical
Food & Beverage
Pulp & Paper
Power
Metals & Mining
Cement & Glass
Water & Wastewater
Other
The worldwide market for Distributed Control Systems (DCSs) will grow at a Compounded Annual Growth Rate (CAGR) of close to 4 percent through 2008 to reach almost $12 billion. “The DCS market has returned to recovery and ARC has scaled up our growth estimates to almost 4 percent compounded annual growth between 2003 and 2008. This is admittedly a conservative estimate, and growth over the five-year period could be even greater if the recovery persists through the end of 2004, which seems a likely scenario. The factors contributing to future growth far outweigh the negative factors. These positive factors also appear to be global and far-reaching trends that will continue throughout the next several years,” according to ARC Research Director Larry O’Brien, the principal author of ARC’s DCS Worldwide Outlook Study.
Service Business Provides Impetus for Growth
Once
taken for granted, automation services are now becoming a mainstay for
automation suppliers in the face of declining hardware revenues. Users have come
to realize that even in-house services have a cost and, in some cases, they have
to pay a premium for them. Increasingly they are outsourcing more and more of
these service functions to automation suppliers. Automation suppliers and users
alike are still adjusting to this transition, but the end result could have a
significant impact on manufacturers' bottom lines.
Service is the fastest growing segment of the automation market today, and with good reason. The vast pools of engineering expertise that used to exist at major user companies have shrunk to critically low levels. Many of the automation services that are required throughout the lifecycle of a plant or factory can no longer be performed in house. Users are looking to the next logical choice for these services — the suppliers that provide them with the automation products, systems, and software that keep their plants running.
China Growth Engine Remains Strong
Market growth in China through 2008 will remain the strongest of any geographic region. China continues to invest in basic industries and the construction of large integrated refining and petrochemical plants, power plants, and other key infrastructural development in industries such as cement and steel will only increase. China’s GDP growth will reach 9.4 percent in 2004, with growth of 8.9 percent forecasted for 2005. China's demand for oil rose by 11.4 percent in 2003, making it the world's second largest oil importer after the United States. China's oil demand is predicted to surge to 400 million tons in 2020, with an average increase of 12 percent per year.
Productivity and Industrial Output Still on the Rise
In the US, manufacturing productivity continues to climb with an increase of close to 7 percent in the second quarter compared to the same period last year. Non-durable goods manufacturing productivity experienced an increase of close to 10 percent in the quarter. While there is no way to measure the impact of advanced automation on productivity from these statistics., the supplier results combined with increases in market activity for high value-added automation products and services clearly shows that automation’s impact on productivity is significant.
As
companies continue to increase their capacity utilization, they drive closer to
the point where plant expansions and modernizations must be made. Capacity
utilization in the US and Europe continues to increase, while developing markets
in Asia, Latin America, and Eastern Europe continue to add significant amounts
of capacity. Manufacturing output in the US increased by 0.5 percent in August
of 2004. By August of 2004, US manufacturing capacity utilization increased to
almost 77 percent — almost 4 percentage points above the levels of 2003. Many
refineries are already stretched to the limit. Capacity utilization for US
industries in the crude stage of processing, for example, was at 85 percent in
August of 2004.
Migration Becomes Burgeoning Issue
At some point, users must choose to upgrade their existing control system or migrate to a new one. Sometimes, upgrades are not possible because the system has been phased out altogether or the installed system is based on an outdated architecture. ARC believes in migrating to a new system when the old one keeps users from taking advantage of a new business opportunity or presents the imminent threat of unscheduled downtime.
Control system replacement is hard to justify. Usually, lower TCO and better ease of use do not justify replacement. At best, you get a 25 percent cut in annual TCO, which is less than 2 percent of replacement cost. While the downtime threat of the existing system can be a major factor in the decision to migrate, the migration process itself can also cause interruption in process operations and is a major pain point for users wishing to migrate.
The market for process control systems has changed. Most DCSs used to be sold for new installations in heavy process industries like refining, petrochemicals, power, and pulp & paper. Today, reduced capital spending, a depressed economy, and more focus on getting more out of existing assets means that most systems sold are for replacement applications.