One positive aspect of state government-imposed COVID-19 lockdowns is that time is now made possible for relaxed reflection of the pandemic’s impact on the global industrial laser market. As we finished preparing the annual economic review for 2020, we took into account that 2019 was the first year that industrial laser revenues showed revenue losses since the recession of 2008-2009. This result was driven mainly by a low average unit selling price battle among the domestic suppliers in the largest single market for industrial lasers, China. We also factored in microprocessing revenue declines, as planned product deliveries ramped down in a major application (laser processing of handheld displays). Consequently, we anticipated that laser revenues would, in 2020, begin a transition from high growth to slower growth in the near term, causing us to forecast a modest single-digit growth that could possibly return the industry to the pre-2019 revenue trend line of 8.31% CAGR.
In our projections, we also considered then increasing industry analysts’ views that globalization, as an advanced nation economic policy, had run its course, led by the nationalistic comments by the administration in Washington. This outlook began to have a dampening effect on expanding laser markets in Eastern Europe and some Asean nations, the latter which were bidding to replace China as a low-labor-rate manufacturer. This coupled with U.S. tampering on tariffs precipitated talk of economic recession and our industry trend file filled up with disturbing projections on global recession.
As 2020 began, we noted industrial laser leader Germany’s unexpected, but welcome turn from incipient recession, countering a political trend in the Western European market that had Italy, Spain, and France (all significant industrial laser system markets) leaning toward nationalistic economic policies. In Europe, Germany is the largest supplier of, and market for, industrial laser processing systems and a major exporter to China.
Major market news early in 2020 began to turn negative as automobile sales were down globally, especially in the high-selling-price luxury market in China, where car sales dropped 43% in March, and the commercial aircraft sector is experiencing the impact of the delivery shutdown of the Boeing 737 Max. Both of these had been considered in our 2020 forecast, even though laser equipment sales to these specific industries were not a major factor in 2019. However, the fallout from these two, on their suppliers, was of more concern, as capital equipment budgets were adjusted downward.
The laser sheet metal cutting market, coming off a decade of strong growth, experienced a slow start in 2020 due primarily to slow demand in Eastern Europe and India and brought on by the problems in China’s leading laser cutting system industry, which scaled back and shutdown in response to the virus spread. Other markets for laser welding and microfabrication remained strong and demand for additive manufacturing equipment recovered after late-2019 overcapacity in user markets perked up.
And then, disaster struck. The novel Coronavirus, first detected in Wuhan, China in December 2019, expanded and that city went into lockdown late in January 2020, precipitating a countrywide shutdown just as the annual Chinese New Year holiday commenced. The world’s single largest industrial laser market came to a virtual halt after recording single-digit annual growth (8.8%) in 2019. Now, the economic growth forecast for 2020 is -2%, the first time this has happened in many years. Even though many laser companies in China are starting back to production in early April, there are many uncertainties looming over the industry. The supply chain customer demands, especially in international markets, and the way to conduct business, etc., are all under discussion and they remain huge challenges for Chinese industry.
COVID-19 spread first to South Korea, then jumping to Italy, Spain, France, and the UK, where manufacturing halted. The U.S., acting more slowly, placed ‘critical essential’ industry status on manufacturing plants, blocking nonessential laser products into the market. As a result, most of manufacturing in the U.S. is now in mandatory or voluntary shutdown.
As this is written, quarterly reports from industrial laser equipment companies have yet to appear, but anecdotal comments suggest first-quarter 2020 revenue will be down dramatically, as will second-quarter guidance forecasts. The rest of the year is a guess at this point, but practically it is difficult to envision the industry rallying to show positive-growth numbers in 2020. Even meeting 2019 revenue levels with only six months of ramped-up product shipments may likely be a difficult-to-meet goal as the global markets slowly return to health.
Industrial laser systems are now being included in global machine tool sales reports, such as Gardner Intelligence and the AMT—therefore, it is now possible to place the above laser industry comments relative to 2019 in perspective. Twelve of the 15 top machine tool-consuming countries experienced a decline in purchasing in 2019 to the lowest level since 2010. Coronavirus aside, the global market for machine tools was in contraction before 2020 started. China, for example, was down more than 25%. As with lasers, this country represents a significant portion of machine tool sales, about 30%.
This is offered to those pre-judging the current position of the industrial laser market, which appears to be mirroring machine tool sales.