Things didn't go the way the industry expected with the double whammy of a slowdown in the U.S. manufacturing economy and the fallout from the dot.com crash. This coupled with the emotional depression of 9-11, the ongoing terrorist alerts and the rumblings of war talk out of the White House all put pressure on the performance of U.S. job shops.
When ILS conducted the highly regarded Job Shop Index (JSI) last year, about half the respondents expected to match or exceed 2001 revenue plans and for 2002 about 70 percent expected to match or exceed 2001 revenues. Moderating this forecast was that slightly more than half the respondents expected slow orders in the first half of 2002, with growth occurring in the second half.
At the mid-year point ILS conducted an informal survey of some leading shops, which confirmed the JSI first-half forecast. But the prognosis for the second half was less optimistic—possibly because of the factors mentioned above. The two issues of greatest concern were increasing company bankruptcies and the resulting glut of low-selling-price, high-quality equipment that was proving attractive to competitors specifically in Mexico.
Discussions with several dozen job shoppers at the September IMTS did not engender encouragement for near-term prospects for an across-the-board business turnaround. This perception requires some clarification however. There are shops, lots of them, that are doing OK. We met several shop owners looking for laser equipment at IMTS, although the systems of interest included low-cost flatbed units, five-axis machines and tube cutters. The last two represent a shift in the shops' classic emphasis on flat sheet cutting.
For the past two years, flat sheet laser-cutter sales in the U.S. have dropped to the 425+ unit level, from an all-time high of 1000+ units in 2000. System suppliers agree that about 75–80 percent of new laser cutter sales are to job shops. And several of the leading suppliers estimate that more than half these sales are to shops already using lasers. So even in a depressed market, suppliers have found about 150 new job shop customers in North America each year, for the past two years. And about 175 units are being installed in shops already operating laser cutters. So one can conclude the total job shop business, while down by about 50 percent from previous years, still has some health.
Before commenting on the prevailing market conditions it will be helpful to update the October 1999 report ILS published on the U.S. job shop industry. Since then ILS has increased the number of U.S. jobs listed in its database to almost 4000. About half the 1300-company increase is attributable to existing shops that just weren't recorded in 1999.
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Figure 1 is a demographic map of shop population in the 50 states. What's significant is that the state rankings had to be changed from 1999 because of the growing number of recorded shops in most of the states. So much so that we created two new top categories—201–300 shops (in three states) and >300 shops (in three states). Among the states showing the highest percentage gains are Florida, North Carolina and Texas. Is there a message here? California still tops the list with almost 400 shops listed, although that state also tops the list in shop closures, especially in Silicon Valley thanks to problems in the computer market. One Bay Area shop owner told ILS that 30 of his competitors who used to laser cut thin-gauge stainless steel for this industry sector went out of business in the past 15 months.
Shops that receive more than 50 percent of their revue cutting sheet metal (we classify them as sheet metal shops) represent 58 percent of those listed in the ILS database. Figure 2, industry segmentation, in fact hasn't changed much since our last analysis, which is interesting because we would have bet the number of marking shops would have increased disproportionately.
The number we always find most interesting is the number of lasers per shop. Industry suppliers tell us that it is typical for a first-time laser shop to add additional systems within two years. The ILS database doesn't track this information so we rely on supplier information and shop owner anecdotes. As shown in Figure 3, 22 percent of the shops operate more than one laser, a slightly lower number than reported in 1999. We do not find any significance in this, because we think it is just a quirk that results from the large number of first-time users logged this year.
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And we didn't expect, nor find, any shift in the breakdown of laser types per shop, as shown in Figure 4. CO2 remains the prime laser used in job shops, not surprising because at least 70 percent of the shops listed in our database perform some amount of sheet metal cutting. It's been 30 years or more since the first laser job shop opened in Woburn, MA, using solid-state ruby lasers. And the first North American sheet metal shop started CO2 laser cutting with a Strippit combination laser/turret punch in 1978. Today solid-state, in the form of Nd:YAG lasers, and CO2 remain the lasers of choice for most industrial materials processing applications, and are expected to do so for some time to come.
The economic slowdown over the past 18 months has caused a larger number of shops to reduce operational schedules, with many going to a single 8-hour shift, moderated by overtime when needed. As a consequence the number of employees per shop (see Figure 5) has changed a bit from the 1999 report. We have not adjusted our numbers because employment seems to be climbing again as shops gear up for expanded operating hours.
Even considering the manufacturing recession of 1991-93, this current 15-month period has been one of the hardest for job shops in general and those shops with laser capability have not escaped the effects. The conundrum is that some shops are doing just fine, thank you. At a laser supplier's open house, earlier this spring, I had lunch with two shop owners, one located in Silicon Valley and one in the Northeast. The former has seen his business drop by more than 80 percent, while the latter is still running two 10-hour shifts, six days a week. The California shop owner was anxious to learn how the Northeast shop was so successful. The answer seemed to be diversification of customer base. The California shop had been dependent on the computer industry while the Northeast shop had a broad spectrum of customers.
At IMTS a Southeast shop owner told me his three machines are fully booked and he was in Chicago looking for another unit. He said he never lets any one customer represent more than 15 percent of his business and that he tries to select jobs from different industry sectors. Another, from the Midwest, wants to add a five-axis capability to the three flatbed cutters he owns now, but his banker is balking at making a loan, even though the shop has an impeccable financial record.
U.S. owners of shops with laser capability are facing up to several challenges today, over and above those mentioned in the opening paragraph of this article.
Chief among these, and totally unrelated to current market conditions is how to sustain bottom-line growth in a more competitive market. Increased laser competition is reducing revenues, because a surplus of laser systems in certain regions has driven hourly rates below breakeven numbers. Shop owners suggest that once current market shakeout is over, normalcy in hourly pricing will return.
A counter to the current negative market trend is service diversification, with many sheet metal shops, for example, offering additional forming and welding capabilities. Another successful ploy is to invest in automated, more powerful laser systems that act to shorten the turnaround time for response to customer needs. More than one shop owner has told us that he installed equipment that gives him a competitive edge. At IMTS several shop owners said they were going after niche markets—tube and plate cutting, three-dimensional processing, non-metal cutting and even structural I-beam fabrication were mentioned.
A trend first spotted in Germany several years ago has finally made it to the U.S.—cutting thicker stainless steel, on larger tables at higher speeds (more power). Also laser/plasma cutting, already established in Europe, is now a possibility here.
Several new cutting systems shown at IMTS and Fabtech this year are designed to assist shops in expanding their customer base by offering shorter lead times through automation, the ability to cut mixed metal and thickness loads and off-line programming.
Granted, the beginning of this decade has been difficult for U.S. shops. Not because they made the wrong move in adding laser capability but for market and economic reasons beyond their control. ILS believes the corner has been turned and that shops will begin to see a pickup in orders in the coming year. Our optimism is based on the better performance of some shops in this down economy. An expected diminishing of surplus machine inventories will drive up the selling price of used laser cutters. Perhaps some shops overextended by betting on markets that disappeared overnight. But, as the economists like to say, the fundamentals of laser job shopping are sound and it shouldn't take much to get things started again.