Pricing, leadtimes look good for buyers
By Fred Gardner -- Purchasing, 5/20/1999
Purchasers of programmable logic controllers (PLCs) can count on favorable prices and leadtimes for at least the rest of this year, according to industry executives and analysts.Although the $2.1 billion market for programmable controllers is expanding fairly gradually for a high-tech market--about 7% per year, according to market experts--competition within the industry, as well as the increasing use of control solutions based on personal computers, will keep prices stable to soft this year.
"Typically, pricing runs at slightly under $10 per digital I/O (input/output) point, in units offering under 14 I/O points, and in the $50 to $60 range per analog I/O point," says Dave Carraher, PLC marketing manager at Cutler Hammer Inc., Westerville, Ohio. Volume OEM pricing tends to run lower.
"We don't see pricing going up in the near future," says Carraher. "But cost has become a big factor, and competition is focused at the price point. Margins have gone down, but suppliers can't raise prices because the market won't allow it. But we've all at least got to break even," Carraher added.
Dave Johnson, vice president, controllers, Rockwell Automation Inc., Mayfield Heights, Ohio, paints a similar picture. "In general, the value delivered for a dollar continues to go up," he says. "The average price for a function (I/O point) has continued to come down, where we expect a 2%-3% price drop, primarily because the customer doesn't spend less money, but gets more value," he says.
"On an I/O price-point basis, suppliers need to be in the $10 price area. In addition to price, customers also expect complete service before and after the sale, including design services," Johnson adds. "Leadtimes haven't changed much. They've not gone out. There are no critical materials or components shortages. The majority of orders are asked for and delivered in the same calendar month, and in many cases, just days," Johnson says.
Cuttler Hammer's Carraher notes, "Because competition is so great, leadtimes for standard product is off-the-shelf to two weeks at worst. Leadtimes for custom product stretch from six to ten weeks," Carraher says.
Industry analysts warn that as PLC suppliers are unable to raise prices, supplier revenue streams are shrinking. "The key revenue growth will continue to come from the sales of unbundled I/O and software, which so far has kept PLC suppliers out of the red, as hardware revenues decline at an annual rate exceeding 2%," according to a report from ARC Inc., Dedham, Mass.
The I/O segment of the PLC market is considered the most promising, according to ARC's study of the market. I/O now comprises the largest share of revenues from the traditional PLC, CPU (central processing unit), and I/O combination; it also is typically the most profitable portion of the system, according to the study. Most suppliers are creating separate I/O product businesses within their organizations. This approach provides suppliers the opportunity to extend the most profitable side of their business into new industries, says the study.
ARC's study also notes that PLC suppliers have begun selling their I/O and software as unbundled products because of the decline in prices and profits.
PLC expansion is coming primarily from smaller OEMs, who are looking for ways to improve their product offerings while holding a steady price line. Larger OEMs are opting to integrate control with other (control) systems already in place, as they find increased need for greater intelligence with ability to communicate data," Cuttler Hammer's Carraher adds.
At the purchasing end, Terry Sueltman, vice President and supply chain manager at Honneywell Inc.'s Industrial Automation & Controls Division, Phoenix, Ariz., notes that for MPUs devoted to control applications, prices have been declining. With about 30 suppliers working in-house with Honneywell at Phoenix, he notes a replenishment program keeps leadtimes down to a minimum of a week.
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