And, even though manufacturers allocated fewer dollars to assembly technology in 2002 than they had in previous years, they spent most of what they planned. According to ASSEMBLY magazine’s seventh annual capital equipment spending survey, 52 percent of U.S. assembly plants spent 90 percent or more of their 2002 budgets for assembly equipment. That’s the highest such percentage in 5 years.

As for next year, the survey indicates that most manufacturers won’t spend any less than they did this year, and many will probably spend a bit more. U.S. assembly plants will spend a total of $2.15 billion on new equipment during 2003. That’s an increase of 0.9 percent from the $2.13 billion projected to be spent during 2002. The median equipment budget is unchanged from 2002, at $100,000, but the average budget has increased almost 5 percent, from $1,034,785 in 2002 to $1,086,161 in 2003.

Spending expectations for 2003 are the reverse of what they were in 2002. Thirty-one percent of respondents plan to spend more on assembly technology next year than they did this year, while only 24 percent plan to spend less. Forty-five percent of respondents expect to spend about the same in 2003 as they did in 2002.

The results from last year’s survey were dramatically different. For the only time in the 7-year history of the survey, the number of manufacturers that planned to spend less on assembly technology in the year ahead was greater than the number that planned to spend more. Last year, 31 percent of respondents said they would spend less on assembly technology in 2002 than they did in 2001, while only 24 percent planned to spend more.

Of course, the road to perdition is paved with good intentions, and actual 2003 budget figures do not necessarily reflect widespread growth in capital equipment outlays. Twenty-two percent of survey respondents plan to spend at least $500,000 on assembly technology next year—the same percentage as in 2002.

But, significant changes in spending plans can be seen at smaller spending levels. In 2002, 32 percent of plants planned to spend between $100,000 and $500,000 on assembly technology. In 2003, 28 percent will spend that much. In 2002, 46 percent of plants planned to spend less than $100,000. In 2003, 50 percent will do so, the highest such percentage in the history of the survey.

David Huether, chief economist for the National Association of Manufacturers (Washington, DC), says a prediction of slight growth in equipment spending is consistent with his organization’s data. "When we surveyed our members about their plans for overall capital investment in the first half of next year, we found that large companies will increase their investment by about 2 percent, while small companies will increase their investment by about 1 percent," he says. "My own expectation is that capital investment will increase faster than that. I don’t think we’ll see 10 percent growth in investment, but we’ll probably see more than 5 percent."

In another reversal from last year’s survey, manufacturers’ expectations for return on investment have shifted dramatically. Despite the pressure of short product life cycles and tight profit margins, manufacturers are willing to wait longer to pay off capital equipment investments. In 2001, only 56 percent of survey respondents were willing to wait more than a year before seeing a return on their equipment investments. That was the lowest such percentage in the survey’s history. This year, 79 percent of plants can wait that long—the highest such percentage in the survey’s history.

"I think manufacturers are coming to grips with the reality of slower economic growth," Huether says.

Manufacturers’ primary motives for buying assembly equipment haven’t changed. In order of importance, the top three remain:

• to reduce costs,
• to assemble a new product, and
• to increase capacity.

Electronics Industry Dethroned

Only 21 percent of plants in SIC 36 will spend more on assembly technology in 2003 than they did in 2002. That’s the lowest percentage of any industry.

Actual budget figures reinforce this fact. In 2003, just 12 percent of plants in SIC 36 will have equipment budgets of $1 million or more. That’s the lowest percentage in 7 years, and it marks the second straight year that the percentage of big-budget plants in this industry has decreased. In 2002, 16 percent of plants in SIC 36 had budgets over $1 million, and in 2001, 22 percent of plants had budgets that large.

Overall, this industry will spend some $581.3 million on assembly technology in 2003. Average spending per plant in SIC 36 will decrease from $939,270 in 2002 to $533,986 in 2003. The median spending figure remains $100,000.

Moreover, assemblers in SIC 36 have been unable to spend as much as they initially planned. Only 47 percent of plants in this industry spent 90 percent or more of their 2002 equipment budgets. That’s the lowest percentage of any industry.

If the numbers for this industry are gloomy, there are some bright spots. For example, the cell phone industry may be turning the corner. New products, such as phones with color screens, cameras and video games, are persuading consumers to upgrade their phones despite a saturated market. In October, Nokia Corp. (Espoo, Finland) reported strong growth in phone sales in Europe, and Motorola Inc. (Schaumburg, IL) announced its first quarterly profit in 2 years. That same month, China agreed to buy $1.2 billion in telecommunications equipment from Motorola, Lucent Technologies Inc. (Murray Hill, NJ) and Qualcomm Inc. (San Diego).

Another possible bright spot in SIC 36 could be the white goods industry. Home sales have been strong despite the economic downturn, and a new home often gives people a reason to buy new appliances. In October, Maytag Corp. (Newton, IA) posted a third-quarter net income of $60.8 million, compared with a net loss of $29.7 million a year ago.

Machinery Makers Open Wallets

This shift may be more related to decreased spending by assemblers of electronics (SIC 36) and transportation equipment (SIC 37) than it is to dramatic increases in spending by manufacturers in SIC 35. Another reason for the shift may be that assembling products such as bulldozers is still something that U.S. manufacturers do much better than manufacturers in the rest of the world.

Either way, 32 percent of plants in SIC 35 plan to spend more on assembly technology in 2003 than they did in 2002. That’s slightly more than the percentage for the nation as a whole.

Moreover, 15 percent of plants in SIC 35 have budgets over $1 million. In contrast, 12 percent of plants in this SIC had budgets that large in 2002 and a mere 6 percent had budgets that large in 2001. In fact, of all U.S. plants with budgets over $1 million, more are in SIC 35 than any other industry—the first time that machinery manufacturers have held that distinction.

Midsize companies in SIC 35 are also planning to spend. Some 14 percent of plants in SIC 35 have budgets between $250,000 and $1 million. That’s almost double the 2002 percentage.

Overall, machinery makers will spend $753.5 million on assembly technology in 2003. Average spending per plant will be $787,995. Median spending per plant will be $80,000.

SIC 35 is not only planning to spend more than other industries, it actually has spent more. In 2002, 57 percent of plants in this industry spent at least 90 percent of their equipment budgets. That’s five points higher than the percentage for all U.S. plants, and it’s more than any other industry.

Where is this growth coming from? It’s hard to say. For example, according to AMT—The Association for Manufacturing Technology (Washington, DC), sales of machine tools in August totaled $139.17 million. That’s an increase of 4 percent compared with July sales, but it’s a decrease of 33.6 percent compared with August 2001 sales. Overall, sales of machine tools for the first 8 months of 2002 are down 24.7 percent compared with the same period in 2001.

On the other hand, the computer industry may be picking up. Dell Computer Corp. (Austin, TX) reported in August that computer shipments during the second quarter increased 23 percent in the United States and 18 percent worldwide compared with the same period last year.

Regardless of which segment of SIC 35 is behind the upturn in spending, the reason for the increase appears to be direct and indirect labor costs. From 1997 to 2001, SIC 35 was below the national figure in terms of the percentage of plants that invested in equipment to address direct labor costs. But, in 2002 and 2003, SIC 35 leads all industries in the percentage of plants that are concerned with this issue.

Given the low-volume, low-variety nature of the products assembled by companies in SIC 35, indirect labor costs have always been an issue, and this year is no exception. Almost half (49 percent) of all plants in SIC 35 are investing in equipment to target indirect labor costs, such as setup, maintenance and material handling. Indeed, in 4 of the past 7 years, including 2003, SIC 35 has led all other industries in the percentage of plants concerned about indirect labor costs.

Trouble in Transportation

Consider the automotive industry. U.S. auto sales surged 13 percent in August to the highest level this year, as consumers took advantage of no-interest financing offers. Sales are on track to make 2002 nearly as strong a year for the auto market as last year, which was the second-best in U.S. history. Compared with sales in August 2001, sales at General Motors Corp. (Detroit) jumped 18 percent, sales at Ford Motor Co. (Dearborn, MI) increased 8.2 percent, and sales at DaimlerChrysler AG (Stuttgart, Germany) rose 21 percent.

The strong sales have also benefited automotive suppliers. In October, both Lear Corp. (Southfield, MI) and Tower Automotive Inc. (Grand Rapids, MI) reported strong third-quarter earnings.

The defense industry has also had a good year. In July, Lockheed Martin Corp. (Bethesda, MD), the nation’s largest military contractor, said net income more than doubled during the second quarter.

However, if the strong performance of the automotive and defense industries will translate into increased investment in assembly technology in 2003, there’s little evidence to show it. Manufacturers in SIC 37 will spend $301.5 million on assembly technology in 2003, or just 14 percent of total U.S. spending on assembly technology in 2003. That’s half of what SIC 37 contributed to total spending in 1999 and the lowest showing for the industry in 7 years.

Thirty percent of plants in SIC 37 will spend less on assembly technology in 2003 than they did in 2002. That compares with 24 percent for all U.S. plants.

Twenty percent of plants in SIC 37 will spend at least $1 million on assembly technology in 2003. That’s the highest percentage of any industry this year, but it’s 16 points less than the 36 percent of plants in SIC 37 that spent at least $1 million on assembly technology in 2002, and it’s half the 40 percent of plants that spent as much in 1999.

Median spending per plant will be $100,000. That’s still a lot of zeros, but it’s much less than the 2002 median of $300,000. Average spending per plant in SIC 37 next year will be approximately $1.29 million.

Why isn’t the transportation equipment industry, as a whole, spending more on assembly technology? One reason may be the downturn in the civil aircraft industry. In October, Boeing Co. (Chicago) said it expects to deliver 380 planes this year, which would be down 28 percent from the 527 planes it delivered in 2001. In 2003, Boeing expects to deliver 275 to 300 aircraft. And in August, Bombardier Inc. (Montreal), which makes trains and recreational vehicles in addition to small and midsize passenger jets, slashed its net-income target for the current fiscal year by 21 percent, blaming a downturn in the market for business jets.

In a speech to start the Farnborough International Air Show in England in July, Philip Condit, Boeing’s chairman and chief executive officer, described the current downturn in the world aviation industry as "the worst in more than 35 years."

Another reason that SIC 37 will be spending less on assembly technology next year may be that the industry has simply reached capacity. Just 35 percent of plants in SIC 37 are buying equipment to increase capacity. That’s 7 points less than the percentage for all U.S. plants and it’s the lowest such percentage of any industry. In fact, in 5 of the past 7 years, SIC 37 has had the fewest number of plants investing in technology to increase capacity.

Instead, SIC 37 has been particularly concerned with increasing the quality of its products. In 6 of the past 7 years, SIC 37 has been above the national figure in terms of the amount of plants that are buying equipment to meet more stringent quality standards. In fact, in 3 of the past 7 years, SIC 37 has led all other industries in this percentage.

Warranty and field service costs may be behind this industry’s obsession with quality control. For the past 6 years, the amount of plants in SIC 37 that are buying technology to reduce warranty costs has been above the percentage for all U.S. plants. In many cases, the percentage has been significantly above the national figure. In 1998, for example, it was 55 percent more. The following year, it was 62 percent higher. And in 2002, it was nearly double.

Metal Products Moves Up

In terms of spending on assembly technology, the industry has had a somewhat smaller stature, but that could change next year. In 2002, manufacturers of cans, cutlery, hand tools, plumbing fixtures, fasteners, stampings, small arms and ammunition accounted for just 9 percent of total equipment spending—the least of any industry. In 2003, SIC 34 will represent 16 percent of total spending, putting the industry behind only SIC 35 and SIC 36.

Overall, SIC 34 will spend $344.5 million on new equipment next year. Median spending per plant will increase 22 percent, from $55,000 in 2002 to $67,500 in 2003. Average spending per plant next year will amount to $894,581.

Twenty percent of plants in SIC 34 will allocate $1 million or more to assembly technology in 2003. That’s the highest percentage in the industry’s history and it’s more than three Arial the 2002 percentage.

Forty-eight percent of plants in SIC 34 will buy equipment next year to increase capacity—more than in any other industry. In fact, during the past 5 years, SIC 35 has ranked No. 1 or No. 2 nationally in the number of plants that have purchased equipment to increase capacity.

Quality issues have lately become a concern in this industry. In 2003, 29 percent of plants in SIC 34 will buy equipment to increase the quality of their products. That’s more than any other industry and the second straight year that SIC 34 has been above the national total. However, this wasn’t always the case. Indeed, from 1997 to 2001, SIC 34 ranked last among the five major industries covered by ASSEMBLY in terms of the number of plants purchasing equipment to increase quality.

Instruments Industry Stalls

After increasing 3 straight years, the percent of plants in SIC 38 that will spend at least $1 million on assembly technology will decrease by half, from 25 percent in 2002 to 12 percent in 2003. The percent of plants with budgets between $250,000 and $1 million will decrease from 18 percent in 2002 to 12 percent in 2003.

Overall, manufacturers in SIC 38 will spend $172.2 million on equipment in 2003. Median spending per plant will decrease from $135,000 in 2002 to just $50,000 in 2003. Average spending per plant in 2003 will be $375,905.

The need to assemble new products often fuels demand for spending on capital equipment, and a lack of new products could be one reason why assemblers in SIC 38 won’t be spending as much on equipment next year. Just 29 percent of plants will buy equipment to assemble a new product in 2003. Not only is that figure well below the national figure of 47 percent, it’s the lowest amount for any industry in the 7-year history of the survey.

The good news in this industry is that it appears to have labor costs under control. Eighty-one percent of plants in SIC 38 are targeting the cost of direct labor for investment in assembly equipment. That still makes direct labor the No. 1 cost target of manufacturers in SIC 38, but it’s a much lower percentage than any other industry and it’s the second straight year that SIC 38 has held that distinction. Additionally, over the past 7 years, SIC 38 has averaged the fewest number of plants that are targeting the cost of indirect labor, such as setup and maintenance.

Another bright spot in SIC 38 can be found among manufacturers of disposable medical devices. In July, Becton, Dickinson and Co. (Franklin Lakes, NJ) reported third quarter revenues of $998 million, an increase of 6 percent from the same period a year ago. And in October, Johnson & Johnson (New Brunswick, NJ) said third quarter sales for its medical devices and diagnostics group totaled $3.14 billion, an increase of 13 percent compared with the sales during the same period last year.

Regional Trends

Equipment spending in the nine-state Northeast region will taper off significantly next year. In 2002, this region accounted for 19 percent of all U.S. equipment spending. In 2003, the Northeast will represent 11 percent of total spending. In fact, next year will mark the first time in the survey’s history that the Northeast, which includes New York, New Jersey, Pennsylvania and Massachusetts, will spend less on assembly technology than any other region.

Thirty-one percent of Northeast manufacturers plan to spend less on assembly technology in 2003 than they did in 2002. That’s the most of any region, and it’s actually higher than the percentage of Northeast plants that expected to spend less in 2002, when a record number of plants nationwide tightened their purse strings. The median 2003 equipment budget for plants in the Northeast is $50,000, or half the 2002 figure. The average budget is $740,602.

At least Northeastern plants aren’t feeling a credit squeeze. Eighty-five percent of plants in the region can afford to wait more than a year to see a return on their equipment investments. That’s well more than the percentage for the nation as a whole, and it marks the fifth straight year that the Northeast has been above the national figure.

It’s a different story in the 16-state South region, which includes Texas, Kentucky, Tennessee and Maryland. Manufacturers here will spend a total of $581.3 million on assembly technology in 2003—18 percent more than they spent in 2002. Overall, the South will represent 27 percent of total spending in the United States next year—the region’s highest share since 1998.

Twenty percent of Southern plants will spend at least $1 million on assembly technology in 2003, up 4 points from the 2002 percentage. The median budget for 2003 is $100,000, while average spending per plant is $562,573.

The West leads the nation in the amount of plants (35 percent) that will spend more on equipment next year than they did this year. Plants in Washington, California, Colorado, Arizona and the other nine states that make up this region will spend a total of $430.6 million on assembly technology in 2003, an 18 percent increase from 2002 spending.

Overall, the region will account for 20 percent of total equipment spending in the United States, the region’s highest share to date. Though only 10 percent of plants in the West have budgets over $1 million, 19 percent have budgets between $250,000 and $1 million—the highest percentage in the country. On average, an assembly plant in the West will spend $414,560 on equipment in 2003. The median budget figure is $100,000.

Equipment suppliers may want to take these numbers with a grain of salt, however. Less than half (47 percent) the plants in the West spent 90 percent or more of their 2002 budgets, the lowest such percentage in the country. This is not uncommon for this region. Indeed, for the past 4 years, the West has posted the fewest number of plants spending at least 90 percent of their budgets.

Western plants also expect their equipment investments to pay off faster than manufacturers in any other region. In 4 of the past 7 years, the West has tallied the fewest number of plants nationwide that can wait a year or more to pay off equipment.

Manufacturers in the 12-state Midwest region, which includes Illinois, Michigan and Ohio, will spend $904.3 million on assembly technology in 2003. That’s approximately 3 percent more than the region spent in 2002, and it represents 42 percent of all equipment spending in the United States.

About the same amount of Midwestern plants will spend over $1 million on equipment in 2003 as in 2002. However, the amount of plants with budgets between $250,000 and $1 million will increase from 13 percent in 2002 to 16 percent in 2003. The median budget figure in this region will hold steady at $100,000. The average 2003 equipment budget is $972,206.

Technology Forecast

The assembly technology that will enjoy the largest increase in sales next year could be conveyors. Some 31 percent of plants will buy conveyors next year, compared with 27 percent in 2002. Demand will increase in every industry except for SIC 34. Sales of conveyors are expected to increase 13 percent, from $85 million in 2002 to $96 million in 2003.

"Last year, a lot of projects were put on hold that are just now starting to be done," says Kevin D. Gingerich, marketing services manager for Bosch Rexroth Corp. (Buchanan, MI). "A 13 percent increase is a good deal more than what we’ve forecasted, but conveyors are a broad technology. We’re guardedly optimistic."

After 2 straight years of decreased demand, spending on wire processing equipment is expected to increase 12 percent, from $64 million in 2002 to $72 million in 2003. Demand will be particularly strong in SICs 35 and 37. Twenty-two percent of plants in SIC 35 will buy wire processing equipment next year, or twice the 2002 percentage, and 28 percent of plants in SIC 37 will buy wire processors next year, the most of any industry. The increased demand in SIC 37 may indicate the growing use of electronic devices, such as navigation systems, in automotive interiors. It could also be a sign that the automotive industry is gearing up for new technologies, such as fuel cells and flat, flexible cable.

"Spending next year will continue at the same level as this year," predicts Pete Doyon, vice president of product management at Schleuniger Inc. (Manchester, NH). "Although the economy will expand and manufacturing activity will increase next year, companies will be reluctant to make capital equipment purchases until they are convinced that the growth will be sustainable."

Another technology that could enjoy double-digit sales growth is robots. Twenty percent of respondents will invest in robots in 2003, compared with 18 percent in 2002. Spending on robots is expected to increase 10 percent, from $107 million in 2002 to $118 million in 2003.

"We think business is going to start to recover next year, and 10 percent growth is a pretty fair working number right now," says Joe Campbell, vice president of marketing at Adept Technology Inc. (Livermore, CA). "We’re seeing tremendous activity in some industries, but we’re not seeing it across the board. It’s very program-driven."

Demand for robots will be strong in SICs 34, 35 and 36. Ironically, demand for robots in SIC 37—traditionally one of the biggest consumers of robots—is expected to decrease, from 38 percent of plants in 2002 to 17 percent in 2003.

The market for printed circuit board (PCB) assembly equipment will increase 7 percent, from $149 million in 2002 to $160 million in 2003. Twenty-five percent of plants plan to buy component placement and insertion equipment, printers, soldering machines, and rework and repair technology. That compares with 21 percent in 2002. The biggest demand for PCB assembly equipment will come not from SIC 36, but from SICs 35 and 37.

"Indications are that there will be an increase in spending for assembly equipment," says Henry Mann, president of Manncorp (Huntingdon Valley, PA). "We are seeing more...OEMs bring production back in-house. Lower cost and more efficient assembly equipment seems to produce a lower cost product than outsourcing in many instances. Equipment suppliers have been able to provide equipment that meets current high-tech requirements, including BGA and micro BGA placement, lead-free soldering and critical rework, without a large increase in production personnel."

Although demand for workstations and ergonomic accessories will increase substantially next year, spending on such equipment will increase only slightly. Some 59 percent of respondents will buy workstations next year, up 8 points from the 2002 percentage. However, spending on workstations will increase only 2 percent, from $107 million in 2002 to $109 million in 2003.

"The quantity of workstations purchased may increase, but that does not necessarily mean that spending will increase," explains Ray Gottsleben, vice president of sales and marketing for Arlink Inc. (Burlington, Ontario, Canada). "There are still many companies that have never taken the next step in productivity that a well-designed workstation can provide, and return on investment for workstations is usually very good. ...The problem, however, is the amount of surplus equipment, including workstations, in the market."

Survey Method and Demographics

ASSEMBLY magazine is sent to 60,078 assembly professionals in more than 35,600 locations. Questionnaires were mailed July 25 to manufacturing managers and other professionals in similar positions, who hold the highest degree of equipment purchasing influence in a representative group of 2,500 plants. The cutoff date for returning the surveys was Aug. 28.

Some 673 surveys were returned for a response rate of 27 percent—the highest rate in the survey’s history. Sixty-five percent of respondents were OEMs, 26 percent were contract manufacturers, and 9 percent were unclassified.

For statistical reliability, the survey was only sent to manufacturers in SICs 34 through 38, which represent 90 percent of ASSEMBLY’s readership. By industry, 15 percent of respondents were in SIC 34, 37 percent were in SIC 35, 26 percent were in SIC 36, 11 percent were in SIC 37, and 11 percent were in SIC 38.

Geographically, 23 percent of respondents were located in the Northeast, 42 percent were in the Midwest, 16 percent were in the South, and 19 percent were in the West.

Nineteen percent of respondents had 25 employees or less, 15 percent had 26 to 50 employees, 18 percent had 51 to 100 employees, 21 percent had 101 to 250 employees, 15 percent had 251 to 500 employees, and 12 percent had more than 500 employees.

Thirty-three percent of respondents assemble products that can fit inside a 12-inch cube, 19 percent make products that can fit inside a 24-inch cube, 13 percent make products that fit inside a 36-inch cube, 16 percent make products that fit inside a 6-foot cube, and 19 percent make products that are larger than a 6-foot cube.

Some 18 percent of respondents were high-volume manufacturers, 50 percent were mid-volume manufacturers, and 32 percent were low-volume manufacturers. Thirty-one percent of respondents were high-variety manufacturers, 48 percent were mid-variety manufacturers, and 21 percent were low-variety manufacturers.

Overall, the survey results have a sampling error of ±3.8 percent.