This Report Brought to you by:

OPPORTUNITY 2013

5
F

Trends Shaping the Machinery Industry in 2013

ollowing a 3.7% increase in 2012 over the previous year, U.S. purchasing and supply chain executives are more optimistic about capital expenditures in the manufacturing sector this year, according to the Institute for Supply Managements monthly survey. They expect to increase equipment spending by 7.6% in 2013. The top five industries expecting to make equipment investments are furniture and related products; primary metals; food, beverage and tobacco products; petroleum and coal products; and paper products. That outlook could change with the perceived ups and downs in the economy. We are still optimistic long term, says president of equipment financer Brandywine Capital Associates in a forecast issued by Equipment Leasing and Finance Association (ELFA). My concerns are for the short term and the ramifications of the issues our country faces on the economic level. Demand seems to ebb and flow based upon the days headlines. Here are five trends shaping the industrial machinery and equipment markets in 2013.

1. Mixed Market Outlook: Economic Uncertainty on One Side, Pent-Up Demand and Low Interest Rates on the Other
Manufacturers will take a cautious approach to capital equipment investments in 2013. While equipment users recognize the need to replace aging assets, global economic uncertainty will hamper the purchasing growth rate during the first half of the year, according to ELFA. Despite these issues, machine

Brought to you in association with:

Five Trends Shaping the Machinery Industry in 2013

purchasing activity should pick up during the second half of the year with the resolution of fiscal uncertainty in the United States. U.S. machinery shipments through December 2012 increased 9.1% year over year?, the U.S. Census Bureau reports. Construction machinery shipments led the way with a huge 38.8% increase. Industrial machinery shipments rose 13.4%, and mining equipment saw a 5.5% increase. Farm machinery shipments declined 13.7%. Looking forward, a 3.1% decline in new machinery orders and a 7.8% drop of machinery order backlogs through November point to a softening economy, Zacks Investment Research notes in its January machinery industry outlook,. Globally, the need for productivity advancements in agriculture and mining in emerging economies will increase demand for new machinery. Modernized methods of agriculture and growing complexity of mining/manufacturing methods will boost demand for technologically advanced equipment in these industries, Zacks reports. Moreover, looking ahead on the growth path, the emerging and developing nations will inevitably be an attractive destination for machine makers worldwide. In addition, a low-interest rate environment thats expected to continue at least through 2014 will allow companies to acquire more equipment while conserving cash. Business size will play a role in new equipment spending. Larger companies with easier access to credit will be more likely to increase capital

spending during 2013, while smaller companies will spend more cautiously.

2. Automation Revolution: Robot Sales Hit Record Levels

While news coverage of a recent research report from the Massachusetts Institute of Technology has resurrected public perceptions of robots as job destroyers, theres little debate globally about the value of using automation to enhance productivity and drive profitability. Historically low prices, easy programmability and enhanced flexibility continue to drive robot adoption by large and small companies alike. Through the third quarter of 2012, robot sales in the United States were up 20%, according to the Robotic Industry Association. Globally, robot sales increased 38% in 2011 (the latest year-end figures available), the International Federation of Robotics reports. Automotive OEMs and suppliers remain the number one buyers of robotic technology. But IMS Research notes a trend toward robots that carry smaller payloads (less than 15 kg). Through 2016, the fastest growing sectors for installing industrial robots will be the food and beverage industry, personal care and electronics, the market research firm predicts. Not every industry will be making significant investments in automation this year. Semiconductor equipment (which is notoriously cyclical) and photovoltaic manufacturing equipment

Brought to you in association with:

Five Trends Shaping the Machinery Industry in 2013

(suffering from global overcapacity) experienced steep drops in new automation purchases last year. That down cycle is expected to continue into 2013

3. Its All About Uptime: Cloud Computing Improves Equipment Maintenance Practices
Across all machinery types, information technology advancements are helping equipment users improve uptime and boost output without having to make major new capital investments. Cloud computing, for example, is transforming the way companies collect and analyze vast amounts of machine data. By tying equipment monitoring systems to the cloud, production managers are better able to leverage the reams of real-time data that is already being reported by their equipment. The combination of fourth-generation (4G) communications technology and cloud computing provides the speed and bandwidth to transmit larger amounts of data over longer distances at higher speeds, writes Arthur Visser from market research firm Bishop & Associates. Users can access equipment data online and via mobile apps from anywhere in the world. Cloud solutions are now offered by asset-management software providers, adds Tim Miller of CyberMetrics in Plant Services. This includes cloud-enabled, computerized maintenance management systems and enterprise asset management software. The main advantage of such solutions is the elimination of costs associated with constantly purchasing and upgrading new software and hardware. It also means no waiting for IT to schedule deployment or relying on IT to manage a large database, Miller writes. Cloud computing can provide maintenance-centric software functionality while eliminating the IT needs of legacy software solutions. End-users typically pay a monthly fee for the cloud services but dont have any IT-related overhead. The cloud also allows multiple users from distant locations to collaborate in real time

and analyze larger volumes of maintenance data from many machines and locations.

4. Boom and Bust: Demand for Fracking Equipment Declines

Oil and natural gas company executives have to be adept at capitalizing on market opportunities before they peter out. In recent years, newer drilling techniques, such as horizontal drilling combined with hydraulic fracturing (fracking), have helped the industry unlock vast amounts of oil and natural gas from shale deposits. Manufacturers of pumping, pipes and drilling equipment have benefitted from this upswing. Halliburton, the worlds largest provider of hydraulic-fracturing services, reports stronger than anticipated fourth-quarter 2012 profits and sales. But in its press release announcing its financial results, the company says that North American sales were down 5%, which is in line with a decline in number

Brought to you in association with:

Five Trends Shaping the Machinery Industry in 2013

of land-based drilling rigs in the United States. In addition, Halliburton reports that its profits were down 22% because of declines in drilling activity and downward price pressure caused by an equipment glut. While the number of oil rigs climbed in December 2012 compared to the previous year, over the 12-month period the number of natural gas rigs fell 49% (to 416) compared to the same month last year. The overall land and offshore rig count for North America stood at 2,086 at the end of December, down 12.6% from the same month last year. Although the worldwide count was also down in December, the number of operating rigs increased in Europe, the Middle East and Africa. On the technology side, drilling equipment providers continue to work on solutions to address environmental concerns related to groundwater contamination, chemical storage and emissions. Halliburton, for instance, has developed a machine used for fracking that stores sand and propping agents in vertical tanksharnessing gravity to deliver the materials through a simplified mixing system. Each unit is equipped with a real-time inventory monitoring system that signals a remote-operations center when supplies need to be replenished. This helps eliminate some of the logistical, economical and environmental problems of trucks lined up and waiting to deliver material.

5. Lean and Beyond: Equipment Makers Find Innovative Ways to Respond to Market Changes and Manage Costs
Equipment manufacturers are becoming more responsive to changing customer needs, market ups-and-downs and cost challenges through a combination of lean manufacturing methods, restructuring and new technology. On the cost side, for example, tractor manufacturer Case New Holland automated 70% of its weld shop in its Wichita, Kan., plant to reduce material handling and increase autonomous maintenance, IndustryWeek reports. In the assembly area, fully automated tuggers now move parts, allowing workers to focus on more value-added activities. Working on its administrative processes, construction-equipment manufacturer Komatsu Ltd. launched a shared-services center to lower its operating costs and improve access to strategic information, according to consulting firm Accenture. The shared-services center supports accounts payable and receivable, fixed assets and general accounting functions at Komatsus U.S. headquarters and 10 of its North American subsidiaries. The center has helped Komatsu cut financial operating costs and improve access to strategic information. Other heavy-equipment producers have had to re-allocate resources more dramatically. As the slowdown in economic growth in China prompted mining operations in that country and elsewhere to slow down, machinery manufacturer Joy Global Inc. announced a number of restructuring initiatives and cost-savings plans to reduce global production capacity to match current order rates. To respond effectively to such market changes, as well as customer demand for more product and feature variations, equipment manufacturers continue to hone their manufacture-to-order, configureto-order and engineer-to-order capabilities. Information systems and increased modularization have made it possible to deliver highly customized equipment with ever shorter lead times.

Brought to you in association with: