Business climate survey: biotech leads Chinese demand.

Twice a year, IBO surveys 25 executives at analytical and life science instrument companies about six-month prospects for instrument sales and about major issues facing the industry. The participants include many of the industry's largest instrument companies as well as companies representing a variety of instrument techniques and end-user markets. In this spring's survey, IBO queried executives about trade shows, sales in Asian countries and China.

Instrument company executives are slightly more optimistic about future sales than they were last fall, according to the IBO Spring Business Climate Survey. Compared to 29% of executives last fall, 38% of surveyed executives now expect instrument sales to increase modestly in the next six months. This is also an improvement from a year ago, when only 23% of executives expected a moderate increase in sales.

The brighter outlook on the part of instrument executives contrasts with the US Conference Board's April survey of CEOs that found that only 35% of executives expect conditions in their industries to improve in the next six months, down from 44% in the fourth quarter of 2005. The US Conference Board's survey is based on a broader range of industries, indicating that the instrument industry may be less seriously affected than other industries by current economic issues such as higher oil prices, rising inflation and weaker consumer spending.

This spring's survey could not ignore the industry's biggest news in sometime: the planned merger of Thermo Electron and Fisher Scientific (see IBO 5/15/06). Given five choices as to what the primary effect of the proposed merger would be, 26% of respondents said "wait and see," and 26% chose "other." Of those choosing "other," the comments were varied. More than one executive noted that the acquisition would impact Fisher's main rival in laboratory distribution, VWR International, perhaps increasing that company's sales or leading it to partner with a large company. Among the comments of executives surveyed were that the merger. would lead to greater consolidation; would help Thermo and Fisher's OEM businesses; would hurt instrument choices and support; and would impact Thermo's diagnostics business.

Of the choices provided, 17% of surveyed respondents expect the merger to lead to more distributors being purchased by instrument companies, 13% expect it to result in greater selectivity by distributors of products of fered, and 9% each expect it to increase the investment community's interest in the industry and to have very little impact. The wide range of opinions emphasize just how novel a merger of this size is for the instrument industry and how it will impact a number of areas, including distribution and specific product lines.

IBO also asked survey participants about trade shows. The relatively poor attendance at some of the larger US and European trade shows has raised the issue of whether companies are reallocating resources to trade shows in faster growing markets, such as Asia. IBO asked respondents to rank from 1 to 5 their companies' interest in trade shows according to region (1 indicated the company is "unlikely to attend" and 5 indicated the company "will definitely attend"). The US had an average rating of 4.8, making it the most popular region of the five regions executives were asked about, for trade shows. Seventy-five percent of those surveyed rated the US a 5. However, it must be noted that the majority of executives surveyed are based in the US.

Europe's average rating was 4.0 as 46% of respondents rated the region a 5. Results suggest that the US and Europe are still important regions for trade shows, supporting the theory that smaller, more specialized trade shows are receiving greater attention from instrument companies to the detriment of larger shows. Asia received an average rating of 3.5, with 36% and 25% of those surveyed giving it a 4 and 5, respectively.

Asia is the fastest growing region for multinational instrument companies as China and India continue to fuel double-digit sales growth for many companies. IBO wondered how other countries in the region stacked up to the two countries that have garnered the most attention. Survey participants were asked to rank on a scale of I to 5 the six-month prospects for instrument sales to six Asian nations (1 indicated worsening market conditions and 5 indicated great improvement in market conditions). As the graph on page 7 shows, China received the highest average rating of 4.2, with 53% of respondents giving it a 4. Thirty-nine percent of survey participants gave India a 4, resulting in an average rating for the country of 3.8. China's higher average rating suggests that China is clearly the fastest growing market in

Asia among surveyed companies. No other country of the six countries that IBO asked about received a rating above 3.5. However, the four other Asian nations all had average ratings above 3, indicating that although their markets are not growing as quickly as China or India's, Australia, Singapore, South Korea and Taiwan also have stable, healthy markets for analytical instrumentation. Therefore, companies' investments in Asia can also be expected to benefit, and benefit from, several nations.

To further examine the fast growing Chinese market, IBO asked respondents to rate on a scale of I to 5 the six-month prospects for instrument sales in China to nine end-user markets. The graph on page 7 illustrates the results. Six of the markets received an average rating of 3.5 or above, led by the biotech and pharmaceutical industries. Thirty-five percent of those surveyed rated the pharmaceutical market a 5. However, 30% each rated it a 3 and 4, suggesting that the growth in the Chinese pharmaceutical market is benefiting some companies more than others. In contrast, China's biotech market received a 4 rating from 65% of respondents, constituting a more widespread endorsement of the market's strength. Academia was the only other market which was rated a 4 by more than 50% of respondents. Although electronics/semiconductors and independent testing each received average ratings of 3.3, they were the only two markets to receive any ratings of 1.

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