Spectroscopy Market: Weathering the Storm and on the Path to Recovery

After weathering the economic downturn of 2009, the analytical instrumentation industry's business appears to have made a U-turn in 2010, primarily due to the burgeoning requirements of the life sciences and pharmaceutical industries and substantial demands from the chemical and petrochemical industries, in addition to growing environmental concerns. The analytical instrumentation industry managed the economic downturn better than most other industries even though some of its primary revenue streams, such as the replacement market, were hurt by procurement postponements.

Competition in the process analytical instrumentation market is intense, with large conglomerates competing among themselves and with niche market participants. With multinational participants accounting for more than half the revenue shares in this market, consolidation due to mergers and acquisition is set to further augment competition among key participants in this mature market. This results in declining prices affecting market revenues and vendor profit margins. The market participants should consider strategies to overcome this challenge in this highly competitive market by investing in research and development (R&D). This would result in new product innovations that could offer greater accuracy and reliability, besides being price competitive.

The spectroscopy market segment accounts for approximately 35.0% of total analytical instrumentation market revenues and is currently witnessing significant changes, with many new product introductions. This helps manufacturers provide better solutions that meet customer demands. This sector caters to many specialized applications across several end-users including chemical and petrochemical, oil and gas, life sciences (includes pharmaceutical and biotechnology), food safety, forensics, and so forth. With numerous technologies present in this market, it can be broken down into molecular spectroscopy, atomic spectroscopy, and mass spectrometry markets, with further classifications in each of them.

The spectroscopy market can also be broadly split into laboratory and process (online and in-situ) types depending on the location and usage of these instruments. The laboratory spectroscopy market is driven by adoption of these instruments for offline analysis. By combining many aspects of a laboratory instrument and a process control instrument, process spectroscopy enables process monitoring for improved product quality and efficient process control. At the beginning of the economic recession in 2009, several end-user industries started emphasizing the need to increase process throughput and efficiency by reducing delays in reporting. This need led to an increase in uptake of process spectroscopy instruments that provide more comprehensive, precise, and accurate information, faster than other laboratory instruments.

Mass Spectrometry Market to Lead Recovery

In the molecular spectroscopy market, product sales of infrared, near-infrared (NIR), and Raman instrumentation have picked up considerably in 2010, aided by stimulus packages, academic and research institutions, and government defense and homeland security spending. In 2009, nuclear magnetic resonance (NMR) spectroscopy, the largest segment in this molecular spectroscopy market, witnessed a decline in revenues mainly due to customers refraining from purchasing this high-cost product. Historically, revenues from this segment are mainly attributed to replacement sales, solely because of its high installed base population. Ultraviolet–visible (UV–vis) spectrometers and Fourier-transform infrared (FT-IR) spectrometers and other molecular spectroscopy market segments are expected to support the growth of this market in the next few years.

The atomic spectroscopy market is projected to expand significantly in the near term due mainly to demand from the life sciences sector with significant contribution from the X-ray diffraction product type. Revenues in the atomic absorption (AA) spectroscopy market in 2009 were supported by strong environmental sector sales, which balanced the decrease in sales in the global minerals and metals sector that pulled down market revenues.

Mass spectrometry products contribute a significant portion of revenues in the spectroscopy market. In 2010, revenues were estimated to be $1.8 billion and the market is expected to grow at a compounded annual growth rate of 4.0% for the period 2010–2014. The use of these products in tandem with chromatographic separation techniques such as gas chromatography–mass spectrometry (GC–MS), liquid chromatography–mass spectrometry (LC–MS) and ion mobility spectrometry–mass spectrometry (IMS–MS) has resulted in their widespread use due to increased capabilities. These combination instruments, also referred to as hyphenated systems, have shown remarkable growth rates in the recent past and are expected to grow at a steady pace. Also, inductively coupled plasma mass spectrometry (ICP-MS) is expected to replace inductively coupled plasma optical emission spectrometry (ICP-OES) because of its robustness, linear range, and matrix tolerance.

Into its fourth decade, ICP-MS serves as a valuable tool in the multi-element analysis that is used in a wide range of applications, including metallomics, bioimaging, proteomics, speciation analysis, and nanoscience (1). In 2009, underwhelming market trends hurt revenues in the ICP-MS market. But since Q3 of 2010, new product introductions and ICP's scope as a replacement product for other atomic spectroscopy instruments provided vendors in the ICP market ample opportunities resulting in higher revenue earnings in this product segment. Moreover, its application in elemental trace analysis and its higher price/performance ratio, in addition to its ease-of-use, drive sales of this product. Also, for its ability to provide a more detailed elemental analysis it scores high against AA spectroscopy, which is a cheaper alternative but is capable of performing a more limited elemental analysis.

Because spectroscopic techniques enable rapid, nondestructive analysis of samples, the pharmaceutical industry remains a key end-user. Nondispersive NIR spectroscopy is ideal for pharmaceutical tablets as it enables sampling by volume. As new pharmaceutical regulations require accurate analysis of finished pharmaceutical products such as tablets and capsules, analysts need spectrometers to verify and analyze compliance of their products with the required quantity of active ingredient. Traditionally, this analysis was performed with a high performance liquid chromatography (HPLC) system. Currently, the NIR spectroscopy technique is rapidly being used in this industry due to its implementation flexibility and accurate analysis capability.

Life Science and Petrochemical to Boost Revenues

The life science sector was one of the saviors of the spectroscopy market in 2009. Constant demand from this industry cushioned the impact of the downturn, positioning the spectroscopy market for a quick recovery as the economy gradually climbs out of recession. With support from the two main sectors within life sciences — namely pharmaceutical and medical biotechnology — the spectroscopy market is likely to witness increased demand in the next couple years.

The importance of environmental applications also is growing, as process spectrometers are increasingly being used to monitor wastewater and process water for contaminants. This increase in demand for process spectrometers is due to the need to keep environmental degradation in check by monitoring effluents and process and potable water.

Petroleum demand in North America, particularly in the United States, continues to increase through 2010 after the economic stagnation in 2009. With the economy recovering well and resulting in a positive impact on end-user industries, especially the chemical and petrochemical industries, the increased industrial activity is aiding in the growth of the analytical instrumentation market. The spectroscopy market is expected to gain from this sector's improved performance with an increase in mass spectrometry segment revenues expected in the next couple of years.

In 2010, the outlook for the semiconductor industry looks bright with industry reports highlighting consistently increasing sales volumes. This augurs well for the ICP segment of the spectrometry market because this technique typically addresses the sensitivity factor of measurement, which is expected to drive growth in the next couple of years.

An important consumer of AA spectroscopy products is the mines and minerals industry, the growth of which has declined since mid 2008, hurting spectroscopy revenues from this industry. Only regional environmental regulations provided a certain level of buoyancy for this market, which reported a growth of 3.2% in 2009. The year 2010, however, witnessed renewed interest in the minerals and mines industry, which usually supports high end products resulting in increased sales and a higher growth rate. It is expected that at the turn of the year the revenues of the AA spectroscopy market segment will reach $1.9 billion and would report a growth rate of 4.5%.

Asia Pacific: The Leading Light

Traditionally, the United States and Europe along with Japan contribute a major part of the revenues of the total spectroscopy market. In Europe, the United Kingdom leads in the life science industry with about 600 and 780 companies in the pharmaceutical and medical biotechnology sector that have a combined annual turnover of around £19.8 billion, which represents about 4.5% of the global turnover and 15.7% of the total European turnover (2). However, even though several key indicators such as industrial production and capacity utilization have shown increasing trends since the beginning of 2010, several issues such as the European debt crisis are likely to affect growth in the short term.

Asia Pacific is growing the fastest, with major contributions from China and India where a huge demand for spectrometers is generated from greenfield projects that are being set up in various end-user industries. The region's life science industry is robust and is expected to contribute hugely to spectroscopy market growth in the coming years.

Consolidation to Determine the Leader

The public and private funding bodies in the European Union support investments in clinical and molecular research resulting in the continued growth of this market over the next couple of years. This is likely to result in steady growth for the spectroscopy market. The technique's capability to analyze proteins and metabolites results in the increased usage of spectrometers in the fields of medical research and clinical diagnostics and is likely to be complemented by the rapid implementation of this technique in the medical field.

LC–MS instruments are widely used in pharmaceutical manufacturing processes, including process development research, manufacturing, and quality control. These instruments rode out the wave of the pharmaceutical industry's slower performance in 2009, following which 2010 has been a better year. Besides pharmaceutical applications, these instruments are also applied in biotechnology, food safety, chemical, petrochemical, forensics, homeland security, environmental, academic, and government markets.

Consolidation in this market is not as vigorous as in the overall analytical instrumentation market, although Bruker's acquisition of the laboratory GC, GC–MS-MS, and ICP-MS product lines of Varian Inc. in 2010 enabled Bruker to expand its mass spectrometry portfolio into the chemical analysis markets. In the short and medium terms such inorganic growth options are likely to lead to more market consolidation.

In particular, the pharmaceutical industry's process analytical technology (PAT) initiative, global green environment initiatives supported by regional regulations and demand from the chemical and petrochemical industries are likely to drive the demand for process spectroscopy instruments over the next couple of years.

Another growth area in the spectroscopy market is the handheld or the portable type. This reflects the trend toward miniaturization in all products in all industrial products.

Innovative Market Participants to Succeed

The spectroscopy market is mainly technology oriented and the market rankings of market participants are likely to be governed by the innovations and annual R&D allocations made each year. New product introductions have occurred even during the economic recession as many of the participants spend considerable amounts of money on R&D activities.

Some of the key participants in this market include Agilent Technologies Inc., Applied Biosystems Group, Bruker Daltonics Inc., JEOL Ltd., PerkinElmer Inc., Shimadzu Corporation, Thermo Fisher Scientific, and Waters Corporation. Most of these participants are headquartered in the United States or Europe and have sales and marketing operations in Asia Pacific and rest-of-world (RoW) regions.

With higher demand in the developing countries in Asia Pacific and RoW regions, the vendors in this market are already strengthening their presence in these regions with improved distribution networks in addition to setting up manufacturing units, which is likely to result in long-term returns beyond 2010. For example, in 2010, Agilent Technologies started manufacturing mass spectrometer products in Singapore to increase its focus in this region.

Conclusion

The current economic environment promises to aid growth across most end-user industries in the spectroscopy market. In 2010 and beyond, it is expected that this market will recover from the dip witnessed in 2009 and surge toward market high revenues.

Technical developments and product innovation are expected to drive the market along the growth curve. The molecular spectroscopy and mass spectrometry markets are expected to witness higher growth rates and improve their share in the process analytical instrumentation market.

With many pharmaceutical and biotechnology companies relocating their manufacturing and R&D activities to China and India, these two growth engines of Asia are poised to improve their contributions. The next few years will see Asia Pacific emerging as significant markets for spectroscopy products.

Sivakumar Narayanaswamy is an Industry Analyst for Frost & Sullivan's Measurement & Instrumentation Group.

References

(1) C. Engelhard, Anal. Bioanal. Chem. (epub ahead of print, October 29, 2010).

(2) Life Science 2010: Delivering the Blueprint, Department of Business, Innovation and Skills, UK (January 2010).