Recovery Seen For Storage Equipment Sector
Cycle will return to growth during 2008.
By John Nofsinger
At this time last year, signs were pointing to the storage equipment sector growing through 2007, experiencing a cyclic downturn in 2008 and beginning a mild recovery in 2009.
As it turns out, the cyclic downturn began in 2007—a year sooner than expected—which resulted in flat to slightly negative growth for 2007 versus 2006. The good news is that the mild recovery is now expected in mid-2008, with projections pointing to 2008 shipments ending up 5 percent over 2007 levels. Growth should continue well into 2009.
It is abundantly clear that consumption habits in the United States fuel investment in the enabling infrastructure. This can be seen by looking at Table 1, which shows the change in total business sales using the year/year or 12/12 method. Note the continuing over-performance of wholesale over manufacturing.
In predicting the performance of the various material handling equipment sectors, we watch the broader Material Handling Equipment Manufacturers Forecast (MHEM) produced quarterly by Material Handling Industry of America, as well as forecasts by Global Insight. While individual equipment sectors will lead or lag MHEM slightly, the tool does serve as a very good proxy. The storage equipment sector is leading MHEM in the current cycle.
That said, with indicators pointing to a mild recovery in 2008, positioning and timing will be especially important in the new year. Here are some of the factors that are worth consideration in the business plans of storage equipment providers for 2008:
- Capacity utilization should remain just over 80 percent. This remains the historical trigger point for capital spending.
- Some sectors (i.e., automated or integrated solutions) are hotter than other segments for a variety of reasons.
- Tremendous attention is being placed on looming worker shortages and keeping existing workers healthy and on the job.
- Consolidation and outsourcing are continuing to displace traditional activities, creating new opportunities.
- End-use sectors will be at various points on their traditional business cycles. Accord
ing to the Manufacturers Alliance, sectors that are expected to be in a period of growth as
we enter 2008 include pharmaceuticals and medicines, medical equipment and supplies, private non-residential construction, public works construction, communications equipment, electrical equipment, electric lighting equipment, oil and gas well drilling, aerospace products and parts, and industrial machinery.
- Sectors expected to be in a period of decline as we enter 2008 include semiconductors; engines, turbines and power transmissions; construction machinery; iron, steel and aluminum; housing; household appliances; motor vehicles and parts; electronic computer equipment; paper; and HVAC equipment.
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