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UK drives market is `in transition`
Published:  01 September, 2005

UK drives market is `in transition`

After battling three years of decline, the UK electric drives market is now in a transitional phase in terms of profitability and technology, according to a new report*. While unit sales are unlikely to increase significantly in the current weak economic climate, average unit prices are likely to rise as drives become more sophisticated, intelligent and networked.

The market analyst Frost & Sullivan forecasts a modest growth for the UK drives market this year, but adds that growth will accelerate in the mid to long term as more expensive, higher technology products become more popular. It forecasts that revenues will climb from about £124m in 2004, to some £149.3m by 2011.

Increasing sophistication will result in higher average prices and the shift from small numbers of high-power drives to greater numbers of low-power drives should boost the number of drives being sold. AC drives will remain the dominating technology with the AC servo sector, in particular, emerging as the primary growth engine. Both the standard AC and servo sectors will continue to grab market share from DC drives, F&S predicts.

Companies with a significant servo market share and strong high-tech products are likely to gain market share over their competitors, Frost & Sullivan adds.

Competition will remain intense, with manufacturers attempting to protect their market shares from lower-cost competitors, particularly new entrants from emerging economies. Although a static customer base and long product lifecycles create hurdles in establishing market presence, F&S expects the new breed of primarily Far Eastern manufacturers to use aggressive pricing to establish footholds in key market segments.

Established manufacturers expecting high rates of return, are likely to find the low-technology segments increasingly unattractive, while those with strong offerings in the higher technology product segments should prosper, Frost & Sullivan predicts.

F&S suggests that the key challenge confronting the UK drives market is how to resist the process of commoditisation - a trend that has afflicted the standard drives market for some time. As drive technologies have matured, it is proving increasingly difficult to sustain competitive differentiation through technological advances. With so many products now offering similar functions, the response of manufacturers has been to cut prices. This is the main reason for the enormous marginal pressure that the UK drives industry is facing, says Frost & Sullivan.

"For an individual manufacturer, responding to commoditisation is extremely difficult," explains F&S research analyst, Richard Tamworth. "The three traditional responses are: becoming cheaper by reducing margins, to protect and increase market share; focusing on smaller niches; or increasing the technical specification. With the advent of more intelligent drives, the UK drives market is now showing signs of all of these processes."

As British industry focuses increasingly on energy efficiency, wider acceptance of drives technology will ensue, F&S predicts. Continuing economic and technological developments will allow drives products to become commercially viable at lower power ratings, and to enter other sectors of the motion control arena. These positive pressures will result in better price stability and provide a platform for some modest price increases.

The trends towards intelligence and energy efficiency present expansion opportunities for drives manufacturers, F&S suggests. In particular, it says, the future development of the market is likely to hinge on the growth of intelligent drives.

More intelligent drives "offer greater revenue opportunities and, when combined with other value-added services, particularly at the installation and pre-installation stages, offer higher margin potential," says Tamworth. "While a current lack of product familiarity and the traditional preference for centralised solutions may restrain intelligent drives in the short term, increasing customer awareness and the move towards more sophisticated manufacturing platforms, means that over the long term, customers will place an increasing value on an intelligent drive`s ability to interact with its environment."

Over time, the falling prices of high-technology systems will reinforce the cost advantages of intelligent drives over separate drives and controls and boost their uptake. Increasing sophistication in high-end applications and in the servo market will also help to combat commoditisation, F&S forecasts.

It adds that in a weak industrial climate, retrofits, rather than new installs, will be a key target market. For instance, it is estimated that 50-60% of installed motors currently run without an inverter, and about half of these have the potential to be fitted with one. Cost reductions are likely to give a fillip to the retrofit process.

* European Electric Drives Market: United Kingdom Sourcebook. Frost & Sullivan will send you a "virtual brochure" with an overview of its analysis of the UK drives market if you send an email providing your full name, company name, title, telephone number, e-mail address, city, country and the source of this information (Drives & Controls Web site) to magdalena.oberland@frost.com.

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