Industry overview
The global test and measurement industry comprises several sub-sectors, of which the most important for Spectris is the general manufacturing, or “productivity instrumentation”, sector in which the majority of Spectris businesses operate. Productivity instrumentation companies provide equipment which helps customers to improve their design, quality control and manufacturing processes, reduce costs and speed up time to market. The global test and measurement market is estimated to exceed $100 billion in sales annually, with the US accounting for approximately half of this¹. The productivity instrumentation sector in which Spectris specialises accounts for approximately 5-10% of the overall test and measurement market².

Productivity instrumentation is used in the design, manufacture, installation and monitoring of products ranging from flat panel displays to mobile phones, cars and product packaging. Instruments generally perform the processes of measurement (data acquisition), data analysis and reporting of results on parameters such as temperature, pressure, speed, composition, volume, vibration and other variables.

Although demand for productivity instrumentation is, to some extent, dependent on the situation in the end user markets served, there are a number of general factors which characterise the industry.

Industrial factors
At a macro-economic level, demand for test and measurement equipment is tied to economic conditions, particularly in the industrial sector. As a general rule, when conditions deteriorate, customers rein in spending on capital equipment. However, the impact on Spectris is lessened since our products generally involve low capital expenditure and bring rapid payback, enabling the customer to reduce his own costs for only a small outlay. In addition, R&D budgets are generally less affected by an economic downturn as customers continue to spend on test equipment in order to maintain their future product pipeline and market share. Although investment by customers in new manufacturing facilities may be postponed, the impact on Spectris is less severe, as the majority of our sales are from upgrades to existing processes rather than new capacity.

Increasing regulatory requirements, for example safety and environmental, are also driving demand for instrumentation to monitor production processes. Tougher environmental legislation, for example, requires reduced noise and exhaust emissions from vehicles, an area where Spectris companies Brüel & Kjær Sound & Vibration and Malvern Instruments are helping customers to meet the new standards. Water quality, hazardous gas emissions, lead and sulphur in petrol are other areas where increased regulation is driving demand for Spectris products.

Customer-driven demand
A number of factors drive demand for productivity instrumentation from the end-user customer’s objective of increasing profitability. Companies today are competing in an environment where they need to bring innovative products to market as fast as possible yet at the lowest possible unit cost. As products become increasingly complex, incorporating the latest technologies, sophisticated test and measurement products are required to support new design and manufacturing processes, improve efficiency and reduce wastage of expensive materials. Examples where Spectris companies have found new opportunities include increased complexity on 300mm semiconductor chips, drug research and manufacture, DVDs and flat panel displays.

Another factor for customers is product quality. With companies competing ever more intensely for market share they can no longer afford any risk to brand reputation from poor quality goods and product recalls. Quality control of the end product is an increasingly significant factor in the demand for productivity instrumentation. This is of particular importance as products are brought to market quicker and production volumes increase to provide greater efficiencies. PANalytical’s x-ray analysis equipment and NDC’s infrared technology are frequently to be found in quality control applications.

Speeding up time to market is key to achieving competitive advantage and bringing revenues from new products. Many companies use precision instrumentation in the design phase, as well as the manufacturing process, to shorten development cycles and bring new products to market quicker. This is particularly important in industries such as automotive, aerospace and the pharmaceutical industry, where development costs are high. Brüel & Kjær Sound & Vibration, Malvern Instruments and PANalytical are all helping customers to speed up their new product introduction processes.

Globalisation also represents a significant opportunity for productivity instrumentation companies as customers develop manufacturing facilities in emerging markets such as China, Eastern Europe and Mexico. These facilities require significant investment in instrumentation to ensure standards meet, or even exceed, those in the west. Many Spectris companies are supplying instrumentation to customers in these regions and the “In Perspective” feature in this issue takes a closer look at the benefits to the instrumentation industry from the shift in manufacturing towards lower cost economies.

Conclusion
In conclusion, the productivity instrumentation industry will continue to grow as customers seek to introduce new technologies more quickly, reduce costs, improve quality and meet increased regulation. According to US investment bank Robert W. Baird & Co, "while the global economic slowdown and significant disruption in a number of end markets have severely impacted the growth of many test and measurement companies in 2001 and 2002, we believe that a number of favourable trends will continue to drive above-average growth in the industry over the longer term"¹.Spectris is well placed to take advantage of these trends.

Hans Nilsson
Chief Executive, Spectris plc

¹ Source: Robert W. Baird & Co, September 2002

² Spectris estimates

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