Profitability assured for European flow measurement instrument manufacturers

Citation

(1998), "Profitability assured for European flow measurement instrument manufacturers", Sensor Review, Vol. 18 No. 1. https://doi.org/10.1108/sr.1998.08718aab.011

Profitability assured for European flow measurement instrument manufacturers

Profitability assured for European flow measurement instrument manufacturers

The European flow measurement instrument industry is set for a promising future in terms of profitability despite seemingly disappointing rates of value growth.

According to MarketLine, market value is set to rise fairly slowly, at an annual rate of 2.5 per cent from its current level of US$584 million to reach US$681 million in 2002 (see Table IV).

These market value forecasts disguise a trend towards a large growth in volume sales highlighted by MarketLine, as prices in the market fall partly as a result of the following factors:

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  The instruments market is highly competitive with a large number of suppliers, due to the variety of customers, technologies and applications, and the low entry threshold into the market.

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  The changing nature of technology is pushing prices down, as technological advancement within one sector broadens the range of applications into other sectors, introducing further competition.

The continuing growth in value despite the pressure on prices indicates a substantial increase in the volumes of orders. Some of these orders come from existing customers renewing their equipment, others from tightening in regulation which occurs from time to time, either through the EU or on an individual national basis.

However, it is expansion of the customer base that is the key to the continuing profitability of the flowmeter manufacturers.

The economic sense of investment in flow measurement instruments is compounded by their use in many delivery metering applications. If the amount of product delivered to a customer can be metered more accurately, the supplier will gain extra sales revenue, which can be written off against the investment. This immediate impact on a manufacturer's top line is unusual for investment in machinery equipment, and this factor encourages new clients into the market as well as pushing existing clients into investing in higher accuracy equipment.

While it may appear that a fall in prices is in conflict with profitability, margins for manufacturers are assured. Although the price for an individual unit may be lower, the rising number of customers increases unit sales. Since a manufacturer's costs are essentially fixed, they will not rise in tandem with the order volumes. Suppliers will be paying much the same in wages, R&D and maintaining plant regardless of whether they are operating at 70 per cent capacity or 90 per cent capacity. Thus suppliers can produce a greater number of units and increase their revenues without significantly raising costs.

Coriolis flow measurement instruments, flowmeters which measure the force exerted by a moving liquid (the Coriolis effect) are the fastest growing sector in the instrumentation industry.

MarketLine forecasts that the Coriolis flowmeter sector will grow, on average at twice the market rate (see Table V).

The high growth rate forecast for the Coriolis flowmeter sector is primarily due to the good price/performance ratio of the product.

European Flow Measurement Instruments is available from MarketLine International at a cost of $1,995.

For further information contact Russ Milburn. Tel: (+44) 171 624 22 00.