Test and Measurement Industry: Transformational Shifts Ahead

by Jessy Cavazos, Industry Director – Frost & Sullivan

The electronic test and measurement (T&M) industry has been taken by storm lately, with trends such as Internet of Things (IoT), millimeter-wave (mm-wave) frequencies, and 5G suggesting significant changes in requirements for test equipment, thus opening up opportunities for vendors.

Growth Prospects and Key Trends for Electronic T&M

Used across the life cycle of a product, from research and development (R&D) to manufacturing to deployment, test and measurement instruments are critical to ensure product performance and shorten time-to-market (TTM) although customer requirements differ widely across these segments. Generating about $2 billion globally in 2015, the R&D segment of the new general purpose test market is expected to witness single-digit growth rates over the next 5 years that will steadily accelerate and results in the market reaching $2.4 billion by 2021. The R&D T&M market will benefit from high-speed digital trends and a revitalized bit error ratio tester (BERT) market driven by the data center buildout with the emergence of 400 gigabit Ethernet (GbE) technologies and complex modulation signals such as Pulse Amplitude Modulation (PAM)-4. Although the R&D T&M market relies heavily on the oscilloscopes market (Figure 1), the contribution of radio frequency/microwave (RF/MW) test equipment to the revenues, especially that of signal analyzers, will be much greater 5 years from now. RF/MW test and measurement equipment such as signal generators, network analyzers, and power meters will also benefit from the move to higher frequencies and wider bandwidths due to the advent of disruptive technologies like 5G, but also by a general move towards higher frequencies in aerospace and defense (A&D), automotive radars, and other industries. Today, over half of the market revenues for test and measurement equipment used in the laboratory come from instruments with a frequency range of up to 6 GHz. By 2021, the share of revenue coming from instruments with a frequency range of over 26.5 GHz will be about 5 percentage points higher than it was in 2015.

In manufacturing applications, test and measurement equipment vendors have faced a tougher environment, with stiff competition due to lower technical requirements in comparison to the R&D segment. While the market was challenged over the past few years, generating about $1.6 billion in 2015, it is expected to follow a recovering trend and reach $1.8 billion by 2020 (Figure 2). One of the greatest challenges ahead though is to make the testing of mm-wave frequencies cost-effective in the mass production environment. This challenge will grow in importance over time and become more significant with the deployment of technologies such as 802.11ad (WiGig) and 5G. In the short term, IoT generates plenty of challenges for manufacturers. Many are struggling to add connectivity to devices that have never been connected before. They lack expertise in RF and related fields. There is also significant price  pressure from the consumer that impacts the entire value chain. Manufacturers are thus looking for cost-effective solutions from T&M OEMs, who must provide such solutions while addressing more complex technologies that drive costs up. With the wide variety of IoT, manufacturers also require solutions with extensive capabilities and flexibility. Plagued by a host of challenges, the manufacturing environment presents significant opportunities to T&M for innovation. Outside of providing faster and less expensive instruments of higher performance, one of the key opportunities for T&M vendors in the manufacturing environment is to provide expertise. There is a strong desire across industries for using the huge amount of data being generated by manufacturing operations to improve production yield among other metrics.

Key Opportunities

Increased Penetration of Modular Instrumentation

The advent of more complex technologies and efforts to reduce the cost of test and TTM are expected to continue to drive the growth of automation across industries, expanding the addressable market for modular instrumentation. In addition, measurement speed, flexibility, and other aspects of modular instrumentation contribute to driving demand for such instrumentation over traditional equipment, fueling the growth of this market. Among the different standards that make up modular instruments, PXI certainly stands out. This market is expected to witness double-digit growth over the next 5-7 years, growing from $702 million in 2015 to $2.2 billion in 2022 (Figure 3). While the PXI market will witness significant growth over the next few years, it will also transform itself, making foray in R&D. Primarily a replacement play in the manufacturing environment up until now, PXI is expected to evolve towards a more balanced footprint across R&D and manufacturing spaces over time. It is seeing increasing adoption as an R&D platform due to greater complexity and flexibility requirements in such applications.

Differentiation through Software Gains Importance

New business models are also set to revolutionize the T&M industry over the next decade. While the higher complexity of technologies across industries has called for a higher demand for test, the new test and measurement equipment market has not witnessed proportional growth. There are several reasons for that, including software upgrades, which have become the norm in the industry and extend the useful life of instruments. With rapid changes in technology, customers became increasingly concerned about the longevity of their equipment, driving suppliers to offer software upgrades. Software upgrades are now common in the industry to add functionality to hardware over time and keep up with changing test needs. Differentiation through software will become increasingly important. From a business model perspective, this is expected to evolve to software-as-a-service (SaaS) and cloud licensing.

Growing Demand for Rental and Leasing Services

Another reason why the new test and measurement equipment market has not witnessed the growth it should have seen with the proliferation of smart products and ubiquitous connectivity is the growing awareness about expenses and use related to test and measurement equipment. With the economic downturns of 2002 and 2008, test and measurement made its way to the radars of financial directors and controllers, driving scrutiny over this large capital expense and related costs. Companies have been more attentive to usage of those assets and devised strategies to better manage it. As a result, there has been growing awareness about different acquisition means, including rental and leasing services. While currently low, the penetration of such services in the industry has steadily increased; it is expected to continue in the future and could reach 30% eventually. In 2015, this market’s revenues ranged between $520 and $540 million for North America and Europe. While a large proportion of this market lies with field applications, both R&D and manufacturing applications represent opportunities for rental and leasing services. In research, one-off projects hold potential for rental services and the price tag and fast evolution of technology present opportunities for leasing services in development applications. In manufacturing, companies requiring high flexibility, dealing with seasonality, and having a high focus on cost provide opportunities for such services.

Steady Growth of Calibration and Repair Services

Other services offer T&M OEMs significant revenue opportunities, notably calibration and repair. This market has been growing steadily over the past few years, feeding off the large installed base of test and measurement equipment worldwide. Despite lackluster growth in the new electronic test equipment market, T&M OEMs continue to sell millions of dollars’ worth of equipment on an annual basis and customers looking to use their equipment longer increase their demand for calibration and repair services. Moreover, requirements for higher product quality and safety continue to increase. High-tech products are also growing in importance; their higher complexity calls for the use of more complex and accurate instrumentation, requiring more complex calibration routines and procedures as well as tighter calibration intervals to limit the number and importance of out-of-tolerance (OOT) issues. Totaling $1.31 billion in 2015, the calibration and repair services market in North America is expected to grow to $1.85 billion by 2022. In Europe, this market generated $1.51 billion in 2015 and will likely reach $2.13 billion by 2022.

Big Data Analytics Solutions and Services

Beyond traditional services like calibration and repair or rental and leasing services, big data analytics solutions and services can greatly benefit companies across industries, to improve their operations across departments as well as their competitiveness by enabling them to improve product/service quality and shortening their TTM. Test data is a goldmine for improvements that has been largely untapped. It can help streamline the development and manufacturing process and reduce waste, thereby improving productivity. Many organizations have realized that they could benefit tremendously from leveraging test data and some have developed in-house systems to harness it. These are typically in the form of databases where test data is stored and programs are run to generate the information they need. However, they lack awareness about what is possible. With the commoditization of hardware, expertise in big data and predictive analytical models will become a competitive advantage for vendors.

 Test is More than New Equipment

While 2016 is expected to be soft for the electronics test equipment market, this is merely due to the high concentration of the market on the new test equipment space. A plethora of opportunities related to test exist that market participants can tap into. Market participants must broaden their view of the test market and capture adjacent growth opportunities while addressing areas of need in their core markets.

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