€INDUSTRY REPORT 33451A Navigational Instrument

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INDUSTRY REPORT 33451A

Navigational InstrumentManufacturing in the US

Guiding light: Expanding R&D budgets have enabled much-needed productinnovation

Jeremy Moses | December 2019

Navigational Instrument Manufacturing in the US December 2019

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ContentsABOUT THIS INDUSTRY..................................3

Industry Definition............................................................ 3Supply Chain..................................................................... 3Major Players....................................................................3Main Activities.................................................................. 3Similar Industries..............................................................3Related International Industries........................................4

AT A GLANCE...................................................5

Key Statistics Snapshot.................................................... 5Key Trends........................................................................5SWOT in the Industry........................................................ 5Executive Summary.......................................................... 5Industry Structure............................................................. 6Key Industry Data..............................................................7Major Players....................................................................8Products & Services Segmentation.................................. 8

INDUSTRY PERFORMANCE.............................9

Key External Drivers.......................................................... 9Industry Performance..................................................... 10Industry Data Timeseries................................................12

INDUSTRY OUTLOOK................................... 13

Revenue Outlook.............................................................14Industry Life Cycle.......................................................... 14Products & Services Segmentation................................ 15Supply Chain................................................................... 15Products & Services........................................................15Demand Determinants....................................................17Major Markets................................................................ 18International Trade......................................................... 20Business Locations........................................................ 22

COMPETITIVE LANDSCAPE.......................... 23

Market Share Concentration...........................................23Key Success Factors...................................................... 23Cost Structure Benchmarks...........................................24Basis of Competition...................................................... 25Barriers to Entry.............................................................. 25Industry Globalization..................................................... 26

MAJOR COMPANIES......................................27

Major Players..................................................................27Other Companies............................................................ 28

OPERATING CONDITIONS........................... 30

Capital Intensity.............................................................. 30Technology & Systems................................................... 31Technology & Systems................................................... 32Revenue Volatility........................................................... 32Regulation & Policy......................................................... 33Industry Assistance........................................................ 33

KEY STATISTICS.............................................35

Industry Data.................................................................. 35Annual Change............................................................... 35Key Ratios.......................................................................35Industry Financial Ratios................................................ 36Additional Resources......................................................37Industry Jargon...............................................................37Glossary..........................................................................37

LegendIcons are used throughout the report to indicate impact on the industry.

Negative impact

Neutral impact

Positive impact


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About This IndustryIndustry Definition The Navigational Instrument Manufacturing industry manufactures navigational, measuring and control

instruments. Its products include aeronautical instruments, appliance regulators and controls (exceptswitches), laboratory analytical instruments, navigation and guidance systems (except GPS) and physicalproperties testing equipment.

Supply Chain Supply Industries

Electrical Equipment Manufacturing

Plastic Products MiscellaneousManufacturing

Audio & Video Equipment Manufacturing

Plastic Pipe & Parts Manufacturing

Hose & Belt Manufacturing

Glass Product Manufacturing

Demand Industries

- Laboratory Supply Wholesaling

- Electronic Part & Equipment Wholesaling

- Jewelry & Watch Wholesaling

- Diagnostic & Medical Laboratories

- Car & Automobile Manufacturing

- Aircraft, Engine & Parts Manufacturing

Major Players Honeywell

Main Activities The primary activities of this industry are:

Manufacturing search, detection, navigation, guidance, aeronautical and nautical systems and instruments

Manufacturing automatic environmental controls

Manufacturing instruments for measuring, displaying and controlling industrial process variables

Manufacturing totalizing fluid meter and counting devices

Manufacturing instruments for measuring and testing electricity and electrical signals

Manufacturing analytical laboratory instruments

Manufacturing watches, clocks and parts

Manufacturing other measuring and controlling devices

The major products and services in this industry are:

Search, detection and navigation instruments

Automatic environmental control instruments

Industrial process control instruments

Totalizing fluid meter and counting devices

Electricity measuring and testing instruments

Analytical laboratory instruments

Other measuring and controlling devices including watches and clocks

Similar Industries 32619 - Plastic Products Miscellaneous Manufacturing in the US

This industry manufactures plastic products.

32721 - Glass Product Manufacturing in the US

This industry manufactures glass products.

33331 - Copier & Optical Machinery Manufacturing in the US

This industry manufactures commercial machinery such as copy machines.

33422 - Communication Equipment Manufacturing in the US

This industry manufactures communication equipment.


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33429 - Alarm, Horn & Traffic Control Equipment Manufacturing in the US

This industry manufactures alarms, horns and traffic control equipment.

33531 - Electrical Equipment Manufacturing in the US

This industry manufactures electrical equipment.

33593 - Wiring Device Manufacturing in the US

This industry manufactures wiring devices.

Related InternationalIndustries

C2419 - Measurement and Other Scientific Equipment Manufacturing in Australia

Industry firms primarily manufacture navigational, measuring, or other professional and scientificequipment that is not classified elsewhere. Operators that manufacture specialised parts for thisequipment are also included in the industry.

C26.510 - Measuring, Testing & Navigational Equipment Manufacturing in the UK

Companies in this industry manufacture a variety of measuring, testing and navigational equipment,including navigation instruments, nautical equipment and radars. The equipment is sold to manufacturers,technology development companies, independent laboratories, utilities firms and governments.

33451aCA - Navigational Instrument Manufacturing in Canada

This industry primarily manufactures navigational, measuring and control instruments. Its products includeaeronautical instruments, radar systems, driftmeters, sonar systems and equipment, flight recorders,bearing and situation instruments, wheel position indicators and transmitters primarily for aircrafts andmarine vessels.


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At a GlanceKey StatisticsSnapshot

Total Revenue2019

$113.5bn

Annual Growth2014-2019

0.0%

Annual Growth2019-2024

1.0% Profit Margin

2019

6.3%

Wages as a share of Revenue2019

23.1%

Number of Businesses2014-2019

-0.6%

Key Trends Strong economic performance caused federal funding for transportation to decline

Demand for medical and bioscience diagnostic and testing equipment has remained strong

The number of employees is expected to decrease marginally

All industry product segments are expected to experience stronger demand

Internal competition is likely to pressure operators to increase productivity

Companies are likely to have more confidence in international trade

SWOT in theIndustry

Strengths

High & Steady Barriers toEntry

Low Volatility

Low Customer ClassConcentration

Low Product/ServiceConcentration

Low Capital Requirements

Weaknesses

High Competition

Low Profit vs. SectorAverage

Low Revenue perEmployee

Opportunities

High Revenue Growth(2019-2024)

High Performance Drivers

Trade-weighted index

Threats

Low Revenue Growth(2005-2019)

Low Revenue Growth(2014-2019)

Low Outlier Growth

Aggregate privateinvestment

ExecutiveSummary

The Navigational Instrument Manufacturing industry produces a widerange of devices, including search, detection and navigationalinstruments, appliance regulators and controls, laboratory analyticalinstruments and physical properties testing equipment.

The industry has a diverse clientele, including industries in air-traffic control, shipbuilding, construction,geophysical services and research. This variety of markets shields revenue from extreme fluctuations indownstream demand.

Economic growth over the five years to 2019 bolstered private investment and demand from the privatesector, benefiting analytical laboratory instruments manufacturers while increased federal funding fordefense during the second half of the period bolstered demand from the public sector for specializedsearch, detection and navigation instruments. Moreover, many industry products are nondiscretionary andhave steady demand regardless of macroeconomic conditions, though consumers may delay the purchaseof new instruments if adequate funds are not available.

However, economic growth did not benefit all parts of this industry; federal funding for transportation


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generally decreases when economic performance is strong, which hindered industry revenue during theperiod. Additionally, intense volatility in the price of crude oil and natural gas constricted demand fromgeophysical services while the appreciation of the US dollar negatively affected the industry's multinationalcorporations and hindered industry exports and profit. To remain competitive, domestic manufacturersinvested in the research and development of improved, high-tech products. Overall, industry revenue isexpected to increase at an annualized rate of 0.1% over the five years to 2019 to reach $113.5 billion,including an anticipated increase of 1.5% in 2019 alone.

Over the next five years, industry revenue is forecast to grow as demand from both public and privatesectors improves. Government funding of defense and transportation is expected to increase, benefitingoperators that manufacture products used by the military and by public transportation systems, while theworld price of crude oil is forecast to rebound, bolstering demand from geophysical services. Additionally,the value of the US dollar is expected to stabilize, benefiting international trade. Over the five years to2024, industry revenue is expected to increase at an annualized rate of 1.0% to reach $119.5 billion.

Industry Structure Level Trend

Life Cycle Mature

Revenue Volatility Low

Capital Intensity Low

Industry Assistance Medium Steady

Concentration Level Low

Level Trend

Regulation Level Heavy Steady

Technology Change High

Barriers to Entry High Steady

Industry Globalization Medium Increasing

Competition Level High Increasing


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Key Industry Data


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Major Players

Products & ServicesSegmentation


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Industry PerformanceKey External Drivers

o Demand from geophysical services

Growth in the Geophysical Services industry will typically lead to an increase in demand for industryproducts and, subsequently, revenue. Conversely, a decline in the Geophysical Services industry willtypically lower demand for industry products, leading to revenue declines for industry operators. Demandfrom geophysical services is expected to grow in 2019.

o Federal funding for defense

Navigational instruments are used in a variety of defense activities, such as military operations.Therefore, federal funding for defense typically moves in line with demand for industry products. Anincrease in defense spending will typically lead to greater industry revenue, while a decline in defensespending will typically lower industry revenue. Additionally, the government funds many start-ups, whichcontributes to industry expansion. Federal funding for defense is expected to increase in 2019,representing an opportunity for this industry.

o Trade-weighted index

The US dollar's exchange rate, as measured by the trade-weighted index (TWI), has a direct influence onthe level of imports and exports in the industry. When the value of the US dollar is high, imports becomeless costly and import volumes increase, creating a more price-competitive atmosphere; a strong dollaralso depresses industry exports because US products become more expensive on the world market. Anincrease in the TWI will typically hamper industry revenue. The TWI is expected to increase in 2019,posing a potential threat to this industry.

o Aggregate private investment

Industry growth is largely dependent on new product offerings that are demanded by a diverse bundle ofdownstream markets. Private investment is critical to the development of new technology and productsand will typically lead to revenue gains. Additionally, private investment can help develop new facilitiesand achieve greater efficiency, improving the industry's profit margin. Aggregate private investment isexpected to increase in 2019.


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Industry Performance The Navigational Instrument Manufacturing industry produces a rangeof technical devices that are demanded by a wide array of downstreammarkets.

As a result, demand for industry products varies and industry revenue is somewhat shielded from extremevolatility. Industry revenue is closely tied to the Geophysical Services industry (IBISWorld report 54136)and to federal funding for defense and transportation. Over the five years to 2019, demand from theGeophysical Services industry fluctuated intensely because of volatility in the price of crude oil and naturalgas. This hindered industry revenue as industry products are used by the Geophysical Services industry togather and map geophysical data to measure the amount of raw material in the earth. Additionally, theappreciation of the US dollar hindered international trade. However, many industry products arenondiscretionary, and federal funding for defense grew during the end of the period, bolstering industryrevenue. Overall, over the five years to 2019, revenue is expected to increase at an annualized rate of 0.1%to reach $113.5 billion, including an anticipated increase of 1.5% in 2019.

Federal funding

Federal funding for defense decreased during the beginning of the current period as the United States'presence in the Middle East declined. Concurrently, strong economic performance caused federal fundingfor transportation to decline, as the government generally increases spending on transportation duringeconomic downturns in efforts to buffer job losses; conversely, it decreases spending when economicperformance is strong. However, federal funding for defense rebounded in 2018 and is expected to growstrongly in 2019, causing revenue to increase. Public sector consumers are important for the search,detection and navigation system product segment as some of the largest industry operators cater to themilitary. Some industry operators serve international governments as well as the domestic government, asindustry operators are global leaders in their respective fields.

Downstream markets

Although strong economic performance hindered demand from the public sector, the private sectorremained a consistent source of demand for the industry. Increased private investment and corporateprofit enabled more construction and travel, which increases downstream demand for measuring devices,navigation instruments and automatic environmental controls. Additionally, research and development(R&D) expenditure increased, benefiting operators that manufacture analytical laboratory instruments. Forexample, demand for high-tech industry products has increased from medical and automotive industriesthat require industry products. Moreover, increased regulation for product standards across a variety ofindustries bolstered revenue as industry products are required to test the quality and safety of differentproducts.

Many electricity-measuring instruments are fixed to buildings where they measure power usage for utilitiescompanies. Consequently, demand for these instruments is contingent upon the level of constructionactivity. Continued economic growth has bolstered construction activity, producing greater demand forindustry products used in utilities and testing. Over the five years to 2019, the value of construction isexpected to increase at an annualized rate of 1.1%.

Demand from the aircraft and shipbuilding industries, which make heavy use of navigational instrumentsin their products, also aided industry revenue. Since federal defense spending increased at an annualizedrate of 1.1% during the period, demand from the Shipbuilding industry (IBISWorld report 33661a) and fromthe Aircraft, Engine and Parts Manufacturing industry (IBISWorld report 33641a) has grown, supportingrevenue from the search, detection and navigation instruments product segment.

Demand for medical and bioscience diagnostic and testing equipment has remained strong over the pastfive years, providing industry operators with a growing customer segment. These products are oftennondiscretionary and experience rapid technological innovation, bolstering industry revenue. Additionally,analytical laboratory instruments do not experience as much foreign competition as other productsegments in this industry, as scientific research and development in the United States is particularlystrong. Thermo Fisher Scientific Inc., one of the industry's major players, is mainly active in this area of themarket. The company has expanded through the acquisition of operators that offer niche diagnosticproducts for researchers and physicians. In addition, research and development expenditure has increasedat an annualized rate of 3.0% over the five years to 2019. As result, analytical laboratory instruments havegrown as a share of industry revenue, to 17.8% in 2019, up from 16.6% in 2014.

Although domestic operators are global leaders in product quality and innovation, the appreciation of the



US dollar caused domestically produced goods to be less affordable in foreign markets. Consequently,exports declined at an annualized rate of 1.3% over the past five years, to total $29.3 billion in 2019.Moreover, volatility in the trade-weighted index (TWI) compromised the ability of multinationalcorporations to estimate the effect of exchange rates on revenue. This restricted imports, which areexpected to decrease at an annualized rate of 0.2% to reach $34.6 billion during the same period.

Shrinking industry participation

Over the five years to 2019, the number of enterprises is estimated to decline because of inconsistentdemand, shrinking profitability and high barriers to entry. Operators that cannot secure long-term contractsor withstand consecutive years of operating losses are often forced to exit the industry. The number ofindustry enterprises is estimated to decline at an annualized rate of 0.6% to 3,670 over the five years to2019. Additionally, the industry has consolidated as large companies have diversified their productofferings by acquiring smaller, more-specialized operators. As result of consolidation, the number ofemployees is expected to decrease marginally. However, wages increased at an annualized rate of 0.3% tototal $26.3 billion as higher-skill employees have been necessary to develop more-advanced products.

Larger operators are better able to fulfil large manufacturing orders and service a variety of consumerneeds. Large operators also have economies of scale, meaning they benefit from increased operatingefficiency and a lower per-unit cost for their products. Although industry consolidation has resulted inhigher profit margins for some companies, overall industry profit margins have fluctuated. In 2019,average profit (measured as earnings before interest and taxes) is estimated to account for 6.3% ofrevenue, down from 7.5% in 2014.



Industry DataTimeseries

Revenue

($m)IVA

($m)Estab.(Units)

Enterprises(Units)

Employment(Units)

Exports($m)

Imports($m)

Wages($m)

DomesticDemand

($m)

Research &development

expenditure($b)

2002 99,962 34,602 4,551 3,988 344,055 25,992 18,967 27,346 92,937 239

2003 98,628 35,152 4,469 3,881 325,367 26,148 20,239 27,155 92,720 243

2004 108,783 38,796 4,452 3,874 324,418 29,361 22,762 27,675 102,184 246

2005 104,788 35,613 4,481 3,904 306,305 28,711 23,878 26,244 99,955 259

2006 108,704 37,624 4,466 3,872 314,836 31,998 25,347 27,126 102,053 275

2007 119,746 40,164 4,487 3,896 326,773 32,592 28,933 28,130 116,087 291

2008 122,551 37,223 4,595 4,002 317,058 32,271 28,648 27,408 118,928 308

2009 113,644 35,488 4,388 3,790 302,144 25,782 22,824 26,343 110,685 297

2010 119,323 39,028 4,320 3,751 303,112 29,529 26,253 27,495 116,047 291

2011 124,112 40,656 4,278 3,717 306,618 32,592 29,445 28,136 120,965 296

2012 119,902 38,252 4,423 3,868 303,449 33,791 32,579 27,558 118,690 303

2013 114,539 36,032 4,379 3,817 291,748 33,637 32,485 26,261 113,387 317

2014 113,173 36,343 4,359 3,789 282,043 31,266 34,853 25,811 116,761 329

2015 109,013 35,185 4,304 3,749 281,970 29,392 35,185 26,416 114,806 340

2016 110,638 34,257 4,203 3,666 278,406 27,829 33,285 25,960 116,094 354

2017 110,397 34,233 4,184 3,650 277,155 27,965 33,027 25,855 115,459 364

2018 111,734 34,866 4,193 3,656 278,593 29,086 33,917 26,025 116,565 376

2019 113,458 35,367 4,212 3,670 280,677 29,293 34,570 26,261 118,736 381

2020 115,898 36,062 4,231 3,682 283,934 29,806 34,942 26,618 121,034 391

2021 117,225 36,435 4,238 3,686 285,766 30,288 34,704 26,816 121,642 401

2022 118,052 36,717 4,240 3,686 287,109 30,291 34,992 26,955 122,753 411

2023 118,775 37,013 4,245 3,689 288,384 30,529 34,628 27,084 122,875 421

2024 119,462 37,277 4,259 3,700 289,860 30,572 34,995 27,226 123,885 431



Industry Outlook Over the five years to 2024, Navigational Instrument Manufacturing

industry revenue is expected to increase at an annualized rate of 1.0%to $119.5 billion.

During the period, the trade-weighted index is expected to decline slightly with significantly reducedvolatility, alleviating some import penetration and enabling companies to better predict the effect ofcurrency fluctuations on their investments. Downstream demand is expected to increase as federalfunding for defense and transportation increases. Additionally, rising corporate profit is anticipated tosupport more private research and development (R&D) spending, which will facilitate product innovation.Continued demand from downstream markets and emerging markets, such as energy and healthcare, mayalso contribute to the industry's projected growth. Moreover, increased regulation standards for productquality will require testing and measuring devices provided by industry operators. Overall, all industryproduct segments are expected to experience stronger demand over the next five years.

Productivity, technology and research and development

Internal competition is likely to pressure operators to increase productivity and produce more-competitiveproducts. This, in turn, may support continued investment in product innovation and research anddevelopment (R&D). Over the five years to 2024, R&D expenditure is expected to increase at an annualizedrate of 2.5%. Consequently, this will enable industry operators to develop and launch new products,particularly in search, detection and navigational instruments, where the pressure to provide cost-effectiveand efficient instruments has stimulated R&D expenditure for developing computer-assisted equipment.

Moreover, increased R&D spending will stimulate demand from downstream consumers of analyticallaboratory instruments that use industry products for their own R&D. This segment is also expected tobenefit from increasing regulation regarding product quality standards. At the same time, industryoperators will likely experience growing competition from outside the United States, as manufacturinggiants such as China also increase R&D spending and offer high-quality instruments at lower prices.Additionally, foreign countries such as Germany are global leaders in scientific development, providing asource of competition for industry operators. To remain competitive, industry operators must differentiatetheir products and services to secure contracts with consumers.

The industrial production index, which measures the output from the mining, manufacturing, electric andgas industries, is forecast to increase at an annualized rate of 1.1% over the five years to 2024, bolsteringdemand for products used to measure, display and control industrial process variables such astemperature, humidity, pressure, density and acidity. As industrial markets shift away from labor-intensivefacilities to specialized, value-added services, demand for technologically advanced products will increase,further supporting revenue growth.

Industry trends

The number of industry enterprises is expected to decrease at an annualized rate of 0.2% over the fiveyears to 2024, to reach 3,700 as downstream demand grows, creating new opportunities. However,industry consolidation is expected to continue as larger companies acquire smaller ones, especially onesthat specialize in niche markets such as alternative energy. The expected increase in downstream demandis likely to benefit these larger companies more than their smaller counterparts as they expand theirproduct lines and offer all-inclusive solutions. This expansion is also expected to drive employmentgrowth; the number of industry employees is expected to increase at an annualized rate of 0.6% to reach289,860 workers over the five years to 2024. Additionally, industry profit is expected to increase due todecreasing wages as a percentage of revenue and the development of new products that command higherprices.

A stronger dollar's effect on trade

Over the five years to 2024, exports are expected to increase at an annualized rate of 0.9% to $30.6 billion.This is partially due to demand from original equipment manufacturers (OEM) in China, Canada andMexico which may use industry products as a part of a finished product. Similarly, imports are forecast toincrease at an annualized rate of 0.2% to total $35.0 billion in 2024. As the trade-weighted index is forecastto remain relatively stable, with a very slight decline, companies are likely to have more confidence ininternational trade as their investments will not be subject to significant losses resulting from exchange



rate fluctuations.

Revenue Outlook

Revenue

($m)IVA

($m)Estab.(Units)

Enterprises(Units)

Employment(Units)

Exports($m)

Imports($m)

Wages($m)

DomesticDemand

($m)


expenditure ($b)

2019 113,458 35,367 4,212 3,670 280,677 29,293 34,570 26,261 118,736 381

2020 115,898 36,062 4,231 3,682 283,934 29,806 34,942 26,618 121,034 391

2021 117,225 36,435 4,238 3,686 285,766 30,288 34,704 26,816 121,642 401

2022 118,052 36,717 4,240 3,686 287,109 30,291 34,992 26,955 122,753 411

2023 118,775 37,013 4,245 3,689 288,384 30,529 34,628 27,084 122,875 421

2024 119,462 37,277 4,259 3,700 289,860 30,572 34,995 27,226 123,885 431

Industry Life Cycle The life cycle stage of this industry is Mature

NOTE

Key Considerations: An industry's life cycle stage is determined by multiple factors, such as IVA vs. GDP performance and establishmentgrowth. Other qualitative factors must also be considered, which mean that the indicative life cycle stage shown above may not reflect theindustry's actual life cycle stage as determined by the analyst. Please refer to the below analysis for more information.

Life Cycle Reasons

o The industry's market segmentsare established

o The industry has undergoneconsolidation over the past fiveyears

o The industry will grow more slowlythan the US GDP

Over the 10 years to 2024, industry value added (IVA), which measures an industry's contribution to theoverall economy, for the Navigational Instrument Manufacturing industry is expected to grow at anannualized rate of 0.3% while US gross domestic product (GDP) is expected to increase at an annualizedrate of 2.1% during the same period. IVA growth that is slower than GDP growth is indicative of a matureindustry. Additionally, this industry is showing signs of some consolidation as the number of enterprises isexpected to decrease at an annualized rate of 0.2% over the 10 years to 2024.

Technological change is important in this industry, but only for certain product segments. For productsthat are less technologically advanced, import competition is somewhat high as foreign companies canproduce at a lower cost. In general, the industry's market segments are well defined and established,including government aircraft and ship manufacturers, laboratory services and construction. However, newmarket segments, such as renewable energy and geophysical services, are emerging and creating newopportunities for industry operators. Although technological change is important to parts of this industry,these changes are not rapid enough for this industry to be considered in the growth phase.



Products & Services SegmentationSupply Chain

Products & Services

This industry manufactures a range of instruments, with search,detection and navigational instruments forming the largest productsegment.

Other significant product groups include electricity measuring and testing instruments and analyticallaboratory instruments.

Search, detection and navigational instruments

Search, detection and navigational instruments account for 43.6% of total industry revenue, up from 42.1%in 2014. Major products include radar (radio detection and ranging), sonar (sound navigation ranging),gyroscopes and airborne navigational systems. The segment also includes transmitters and displays;fathometers; compasses (except portable); drift meters and sextants.

Many of these products are manufactured for commercial and military markets. As result, federal funding



for defense greatly affects demand for products in this segment. Federal funding for defense declinedduring the beginning of the period but rebounded in 2018 and is forecast to continue growing. Operators inthis segment also sell to foreign governments. Products for commercial markets include depth finders;fish finders; air-traffic control systems; navigational aids for ships, planes and land vehicles and speed-detection devices. Most of these products can also be used for military applications or with radar defensesystems. Import competition from Mexico and China affects this product segment, particularly for lowervalue-added products.

Analytical laboratory instruments

This segment includes manufacturers of electron and proton microscopes, moisture analyzers,monochrometers, nephelometers, photometers, as well as neutron activation analysis devices and particlebeam excitation instruments. These product categories are highly specific and serve scientific, researchand academic communities in medicine, chemistry, engineering and physics. As result, research anddevelopment expenditure impacts this product segment. This segment is estimated to account for 17.8%of industry revenue. Over the past five years, laboratory instruments have increased their share of totalrevenue. Manufacturers in this product segment contend with lower competition due to the specializednature of the products.

Electricity measuring and testing instruments

The instruments and devices in this segment are used to measure and test the characteristics ofelectricity and electrical signals. A large variety of products comprise this segment, including alternatorand generator testers, automotive electrical engine diagnostic equipment, battery testers and electricaltesting equipment, among other products. Ohmmeters are used to measure the amount of electricalresistance in a circuit. Likewise, watt-hour meters are often used to measure the amount of power used bya utility customer. They are typically mounted on an outside wall of a home or building. Electricitymeasuring and testing instruments are expected to account for 10.5% of industry revenue in 2019. Thissegment has declined as a share of revenue as other segments expanded more rapidly.

Industrial process instruments

Industrial process instruments account for an estimated 9.9% of industry revenue in 2019, down slightlyfrom 11.0% in 2014. These instruments are used to measure, display or control industrial processvariables such as concentration, pressure, density, acidity, temperature and humidity. Revenue from thissegment varies in line with the industrial production index, which measure output from the mining,manufacturing, electric and gas industries. This product segment is subject to higher import competitionas these products can often be manufactured abroad at a lower cost.

Other

This industry manufactures many other products including fluid meters and counting devices, industrialprocesses controls, environmental controls and watches and clocks. Likewise, a diversified number ofcustomers use these products. For example, altimeters are used to measure the altitude of an objectabove a set level. Altimeters, when used with a topographic map, are used by consumers in hiking andclimbing to verify location. The government uses them to measure pressure outside of aircrafts. Withinthis segment, automatic environmental controls account for an estimated 2.4% of industry revenue andmeter and counting devices account for an estimated 5.2% of industry revenue. The remaining 10.6% ofindustry revenue is made up of miscellaneous devices including watches and clocks.



Demand DeterminantsA variety of factors influence demand for measuring, testing andnavigational instruments.

Capital spending on equipment by public and private institutions is one of the most important factors, as itdetermines product development and enhancement. The industry has a diverse customer base, includingpharmaceutical and chemical companies, laboratories, universities, government organizations andresearch institutions that demand equally diverse products. Currently, the majority of funding is derivedfrom private enterprise; however, the government also plays a significant role in funding industry start-upcompanies. Consequently, spending by government organizations is also dependent on their ability tosecure funding on a federal level.

The lifespan of capital equipment in hospitals, research laboratories, industry, schools and tertiaryinstitutions also influences demand for industry products. The lifespan of a product depends on the typeof product; however, frequent equipment replacements will typically increase demand for industryproducts.

Another important demand determinant is technological change and innovation. Demand increases withthe development of new products, which can enhance the functions of earlier equipment or achievegreater efficiency. New products can also increase the industry's customer base. The ability to patent newproduct innovations and other intellectual property rights encourages new product development and,subsequently, demand for products. Without sufficient protection for intellectual property, manufacturersdo not have adequate incentives to invest the large sums of research & development required to developnew products. Since demand is driven by new product introductions, intellectual property protection is animportant factor that supports demand for measuring, testing and navigational instruments.

Changes in domestic and international regulations, such as an increase in compliance and enforcementactivities can delay or prevent the approval of new products, which will affect exports and imports ofgoods. Additionally, the US dollar's exchange rate will affect trade, as measured by the trade-weightedindex. An appreciating dollar will depress export revenue because US products become more expensive onthe global market. At the same time, appreciation will increase the purchasing power of US consumers,leading to a rise in import volumes that can also threaten demand for domestically produced industryproducts.



Major Markets

Exports

In 2019, exports will generate an estimated 25.8% of total industry revenue. The industry's diverseproducts are demanded globally by downstream customers involved in healthcare, shipbuilding, aircraftmanufacturing and construction. The largest export destinations are China, Canada, Mexico and Germany.Over the past five years, exports have decreased as a percentage of industry revenue due to robustdomestic demand and an appreciation of the US dollar, making domestically produced goods lessaffordable in foreign markets.

Original equipment manufacturers

Original equipment manufacturers (OEM) are one of the largest downstream markets, accounting for13.0% of industry revenue. Original equipment manufacturers produce parts and equipment that may beused by another manufacturer. OEMs include plane manufacturers, consumer goods manufacturers andconstruction equipment manufacturers. All of these manufacturers use a variety of navigational,measuring, testing, displaying and controlling instruments and equipment. OEMs have accounted for aconsistent share of revenue over the past five years due to the variety of products they use.

Scientific laboratories

Scientific laboratories account for an estimated 13.2% of industry revenue. Customers include healthcareproviders, laboratories, private research institutions, pharmaceutical companies and chemical companies.This segment uses analytical laboratory instruments and other apparatus. Scientific laboratories haveincreased their portion of industry revenue over the past five years due to their steadily increasinginvestment in industry products as well as increased regulation standards which require more rigorousproduct testing.

Government clients

Government clients account for an estimated 8.2% of revenue. The Navy, Air Force and Army all requireproducts across a range of industry segments. For example, sonar devices are used in antisubmarinewarfare, torpedoes, mines, mine hunting, submarine navigation, aircrafts, underwater communication andocean surveillance. During the beginning of the current period, a decrease in federal funding for defensehas threatened government contracts and investment. However, over the five years to 2019, federalfunding for defense is expected to increase as defense spending is grew strongly in 2018 and is expectedto grow strongly in 2019, leading to an increase in this downstream market.

Transportation

The transportation market accounts for an estimated 26.3% of industry revenue and includes airports,business and commercial aviation, railways, nautical transportation and space transportation. Industry



products are used as components of most forms of transportation and include aeronautical systems andcontrol instruments, aircraft navigation instruments, environment indicators and sensors, display systemsand distance measuring equipment. This market has remained stable over the five years to 2019.

Other

The other market segment of the industry includes domestic households, utility and other sectors. Allother domestic markets generate 13.5% of revenue.



International Trade

Exports in this industry are High and Steady

Imports in this industry are Medium and Steady

Trade has been a central topic in the industry for the past five years. The export market is estimated toaccount for 25.8% of industry revenue in 2019. Additionally, this industry faces some import competition.Imports are expected to account for 29.1% of domestic demand in 2019. However, import penetration is agreater threat to lower value-added industry goods.

Imports

Over the five years to 2019, IBISWorld expects imports to decrease at an annualized rate of 0.2% to reach$34.6 billion. Since certain instruments and devices can be made in countries with lower labor andproduction costs, imports of these products have increased. However, the majority of industry revenue



comes from products that are not easily made in low-cost countries, as high-tech products requiresignificant investment in research and development as well as highly skilled employees.

The top four countries that imports come from are Mexico, Switzerland, Japan and China which representan estimated 18.8%, 11.0%, 10.1% and 9.7% of total imports, respectively. For the majority of industrygoods, Mexico is the main source of imports because of its close proximity to the United States andbecause it is a source of less-expensive labor for less advanced industry product production. Additionally,for watches and clocks, Switzerland is the main source of imports.

Exports

Over the five years to 2019, exports have declined at an annualized rate of 1.3% to $29.3 billion. Theappreciation of the US dollar has discouraged exports by making US produced goods less affordablerelative to foreign produced goods. Additionally, the United States has more strict labor and productionregulations, increasing the costs of production for domestic companies. Since it is difficult to compete onthe basis of price, industry operators compete on the basis of quality and on technological advancement.The main export destinations are China, Canada, Mexico and Germany which represent an estimated11.5%, 10.5%, 8.4% and 6.5% of total exports, respectively. Certain Middle Eastern countries, such as SaudiArabia, Kuwait and the United Arab Emirates received significant portions of search, detection, navigationand aeronautical and nautical system exports in various years as political relations with the Middle Eastfluctuated. As the United States has reduced its presence in the Middle East, the need for industryproducts abroad also declined. The main product exports from the United States include laboratory andelectrical instruments, counting devices and fluid meters and industrial process products to Canada andChina.



Business Locations

Several factors affect industry locations, including proximity to complementary industries, customers andsuppliers. The West region contains 24.0% of establishments, making it the most popular location forindustry operators. Historically, the West has been a hotbed of technology innovation, which attractsskilled employees and provides operators with access to a wide selection of labor. Additionally, theregion's high population (17.3% of national population) provides ample demand for construction markets,which use industry products such as thermostats in the construction of office buildings, houses,apartments and condominiums. The West also contains well-known research universities, such as UCLAand Caltech, which use laboratory analytical equipment. In the West, Californian alone contains 18.4% ofestablishments, making it the most popular state in the country for industry establishments.

Following the West, the Great Lakes, Mid-Atlantic and Southeast regions contain the next highest numberof establishments with 15.7%, 15.3% and 13.8%, respectively. Like the West region, all three of theseregions contain large percentages of the US population. The Great Lakes has 14.5% of the US population,while the Mid-Atlantic has 15.2% and the Southeast has 25.7% of the population. High populations benefitthese regions by providing a large supply of labor and construction markets that use industry products.The Great Lakes region has traditionally been home to a large number of automotive manufactures, whichuse industry products such as fuel gauges, in the construction of automobiles. The Mid-Atlantic region'sshare of industry establishments is boosted by Pennsylvania, which is the fourth most popular state forestablishments with 5.0%. The Mid-Atlantic region also contains universities with well-known engineeringand STEM programs, such as Johns Hopkins University and Columbia University.



Competitive LandscapeMarket ShareConcentration

Concentration in this industry is Low

The industry encompasses manufacturers that produce a diverse set of instruments and devices.Consequently, the industry is fragmented and most companies claim less than 5.0% of the industry's totalrevenue. For example, Thermo Fisher Scientific Inc. is one of the largest manufacturers of analyticalinstruments but accounts for just 3.6% of industry revenue. Despite the low level of concentration acrossthe industry, concentration can vary by product segments within the industry. For example, the search,detection and navigation instrument product has a much higher concentration as only a few companiesmanufacture military navigation equipment while the analytical laboratory instrument product segmenthas a slightly lower concentration as many manufacturers in this segment specialize on specificinstruments.

Key Success Factors IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are:

Access to the latest technology: It is beneficial for industry operators to have access to technologicaldevelopments through R&D and the development of strategic alliances.

Having links with suppliers: Established relationships with distributors and suppliers are essential tosuccess in the industry.

Develop export markets: A focus on export markets increases capacity utilization and reduces relianceon the domestic market.

Economies of scale: It is important for operators in the industry to be able to achieve a lower per unitcost.

Access to highly skilled workforce: Skilled staff members are needed to develop products and operateadvanced machinery.

Research and development: Operators must invest in research and development to offer new productsand remain competitive



Cost StructureBenchmarks

Profit

Consolidation trends and advancements in technology are expected to drive improvements in industryprofitability, but import competition, high research and development costs and increased wage costs haveplaced downward pressure on the average industry profit margin. Consequently, profit, defined as earningsbefore interest and taxes, are expected to average 6.3% of industry revenue in 2019, down from 7.5% in2014. However, the profit margin can change depending on the type of products a company produces.Higher value-added products will have higher profit margins while low value-added products experiencehigher import competition and lower profit margins. For example, analytical laboratory instrumentmanufacturers have above-average profit while industrial measuring, displaying and controllinginstruments have lower profit margins.

Wages

Wages are expected to account for 23.1% of industry revenue in 2019, up slightly from 22.8% in 2014.Labor is used to operate various pieces of machinery and equipment and to manufacture industryproducts. However, operators are shifting away from a dependence on labor and are increasingly relyingon technology and machinery to automate processes and improve efficiency. While many processes havebeen automated, most operators continue to require labor to manufacture specialty products and researchnew products. A different type of labor is required in research and development. Researchers are used todevelop new products that can better compete with low cost imports; however, these employees oftenrequire higher wages. Therefore, the average wage is relatively high at $93,563 in 2019.

Purchases

Purchases are the largest expense for the Navigational Instrument Manufacturing industry. IBISWorldestimates that purchases account for 35.8% of industry revenue in 2019, down from 36.6% in 2014.Purchased materials include fabricated metal products, printed circuit boards, semiconductors, electroniccircuitry products, fabricated plastic products, current-carrying wiring devices, electronic computingequipment and many other materials, components and supplies.

Marketing

Marketing costs are anticipated to account for 0.5% of industry revenue in 2019.

Depreciation

Depreciation costs for the industry are estimated at 1.7% of total revenue in 2019. Companies incurdepreciation costs for fixed assets such as machinery, office furniture or computers.

Rent

Rent accounts for 0.8% of total revenue and depends on the size and location of the operator.



Utilities

Utilities expenses are minimal for the industry and are anticipated to account for 0.5% of industry revenue.

Other Costs

All other costs, including freight, legal fees, research and development, insurance expenditures and costsassociated with environmental law compliance are expected to account for 31.3% of revenue.

Basis of Competition Competition in this industry is High and the trend is Increasing

Overall, the Navigational Instrument Manufacturing industry has a highlevel of competition.

The major points of competition in the industry involve brand strength, price, niche markets, technology,subcontracting, product innovation and value-added services. Brand strength and breadth of product linesare points of competition between companies. Existing and established companies that offer a range ofrecognized quality products gain greater market presence and product acceptance. Price is another factor,particularly as many industry products are intermediate inputs for downstream industries.

Operators can compete by supplying products to niche markets. The specialized nature of many productsmanufactured in this industry captures demand from downstream niche markets. Companies alsocompete on new product development, hoping to be first in the market and benefit from patents andintellectual property protection.

Technological efficiency is a basis of competition achieved through a high level of research &development (R&D), in addition to employing technical staff that are adaptive and aware. Technicalefficiencies in manufacturing can lead to lower labor costs and enable operators to better compete withlow cost imports. Additionally, R&D enables companies to develop new products, which may lead to higherprofit for operators.

Finally, an industry operator can gain a competitive edge by offering value-added services. These servicesinclude providing design solutions, application engineering and software development, repairs and generalpost-sales services.

Barriers to Entry Barriers to Entry in this industry are High and the trend is Steady

The industry has high barriers to entry due to several factors.

Due to the industry's competitive nature, it requires significant investment in research and developmentand high fixed capital costs to produce quality navigational, measuring and control instruments. Theindustry has a high level of technology change, which can hinder the entry of new operators. Gainingaccess to the latest technology can also be costly but is essential to remain competitive. The NavigationalInstrument Manufacturing industry is also heavily regulated, which can deter the entry of new players.Operators must be able to comply with government regulation to successfully enter the industry.

The cost of insurance is another factor for new entrants. Manufacturers need insurance to cover productliability claims. Operators require highly skilled and talented employees in their operations. Productionteams in turn require skilled employees that can develop and construct a quality navigational, measuringor control instrument device. Additionally, the industry has a low level of concentration, which contributesto competition between operators.

Several other issues do not constitute barriers to entry, but they can prevent the success of new entrantsto the industry. Existing player dominance within certain markets is one of these factors (concentrationvaries by product segment, see Market Share Concentration). These companies often have strong brandrecognition, a good reputation and well-developed relationships with distributors. New entrants may haveto invest significant funds in marketing activities to establish the same industry links and gain marketpresence. Established operators also have the benefit of producing at reduced unit costs. Scale can alsoincrease negotiating power in purchasing raw materials and acquiring smaller companies.

Barriers to Entry Checklist

Competition High



Concentration Low

Life Cycle Stage Mature

Technology Change High

Regulation & Policy Heavy

Industry Assistance Medium

Industry Globalization Globalization in this industry is Medium and the trend is Increasing

The industry has a moderate level of globalization. In addition to domestic activities, companies oftenoperate internationally. Furthermore, foreign operators also have establishments and facilities in theUnited States.

The level of international trade is significant, with exports accounting for 25.8% of revenue. At the sametime, imports are expected to satisfy 29.1% of domestic demand. While volatility in the trade-weightedindex has discouraged international trade over the past five years, it's expected stability will likely facilitatean increase in both imports and exports as multinational corporations consider expanding their globalpresence.



Major CompaniesMajor Players

Honeywell International Inc.

Market Share: 5.1%

Currently headquartered in Morris Plains, NJ (with plans to relocate to Charlotte, NC), HoneywellInternational Inc. (Honeywell) is a technology and manufacturing company that provides aerospaceproducts and services; turbochargers; control, sensing and security technologies; specialty chemicals;electronic and advanced materials; process technology for refining and petrochemicals; and energyefficient products and solutions. In 2017 (latest data available), the company generated $41.8 billion innet sales and employed 131,000 people, 46,000 of which are located in the United States.

The company operates in the Navigational Instrument Manufacturing industry through its production ofaerospace devices, automatic environment controls, sensors, switches and other measuring andcontrolling devices. In 2014, Honeywell underwent structural changes, aligning its transportationsystems business with the aerospace segment to better take advantage of engineering and technologysimilarities. This structural change led to a growth in revenue in 2014. Additionally, the company'sstrong relationships with government customers, as well as strong brand recognition, makes it one ofthe top players within the industry.

Financial performance



Over the five years to 2019, Honeywell's industry-relevant revenue is estimated to decline at anannualized rate of 5.4% to total $5.8 billion. This decline mostly happened during the beginning of theperiod because of large declines in the price of crude oil, which weakened demand from energyindustries. Moreover, declines in federal funding for defense negatively impacted Honeywell's aerospacebusiness. However, Honeywell's revenue increased as the price of oil rebounded and federal funding fordefense grew. Overall, Honeywell's strong relationships with government customers, as well as thediversity of its product portfolio, make its industry influence strong. As a result, operating income isexpected to increase at an annualized rate of 2.7% to $919.0 million, as the company is able to bolsterprofit margins through economies of scale. Continued demand from the government, as well asindustrial clients, will likely bolster Honeywell's performance over the next five years.

Other Companies United Technologies Corporation

Market Share: 3.9% United Technologies Corporation (UTC) was incorporated in 1934 and provides high-technology products

and services to aerospace industries and building systems globally. UTC has expanded its participation inthe Navigational Instrument Manufacturing industry organically and through strategic acquisitions.

In September 2017, UTC, along with Rockwell Collins Inc. (Rockwell Collins), announced a definitiveagreement wherein UTC would acquire Rockwell Collins, which provides avionics and informationtechnology systems to government agencies and aircraft manufacturers. Rockwell Collins employed29,000 workers worldwide and participated in the industry though its government systems (previouslynavigation systems) segment and through its production of displays, controls and other equipment foraircraft manufacturers. The acquisition expanded UTC's aerospace business. Upon completion of thetransaction, Rockwell Collins and UTC Aerospace Systems became new business unit named CollinsAerospace Systems. Additionally, UTC participates in this industry through its UTC Climate, Controls &Security segment. Industry-relevant products include intelligent building control systems and automaticenvironment control devices. UTC's industry-relevant revenue is estimated to total $4.5 billion in 2019.

Thermo Fisher Scientific Inc.

Market Share: 3.6% Established in 1956, Thermo Fisher Scientific Inc. (Thermo Fisher), formerly Thermo Electron Corporation,

supplies products and services for research, analysis, discovery and diagnostics. The company isheadquartered in Waltham, MA. Thermo Fisher employs 70,000 people and served over 400,000customers worldwide. At the end of 2018, the company generated $24.4 billion in revenue (latest dataavailable).

Thermo Fisher operates under four business segments: Life Sciences Solutions, Analytical Instruments,Specialty Diagnostics and Laboratory Products and Services, which account for 25.7%, 22.5%, 15.3% and41.2% of total revenue, respectively. Industry-relevant products manufactured by Thermo Fisher includelaboratory instruments, mass spectrometry and chromatography analytical instruments, chemical analysisinstruments and temperature controls. The company expanded its product lines and market share duringthe current period by acquiring other companies, including two acquisitions in 2015, two in 2016, three in2017 and one in 2018. Most relevant to the Navigation Instrument Manufacturing industry is ThermoFisher's acquisition of FEI Company Inc. for $4.2 billion, which expanded its Analytical Instrumentssegment with the addition of high-end electron microscopes.

Thermo Fisher's industry-relevant revenue is expected to increase over the five years to 2019. During theperiod, the company has experienced rising demand for its products such as mass spectrometryinstruments. Additionally, the company's acquisitions helped boost revenue. In 2019, IBISWorld expectsThermo Fisher to generate $4.7 billion in industry-relevant revenue.

Keysight Technologies Inc.

Market Share: 1.1% Keysight Technologies Inc. (Keysight) was the result of the 2014 split of Agilent Technologies Inc. into two

publicly traded companies. One retains the Agilent name and focuses on life sciences and diagnosticswhile Keysight inherited the electronics measurement business. Headquartered in Santa Rosa, CA,Keysight manufactures electronic test and measurement equipment, mainly for the life sciences,diagnostics and applied chemicals markets. In fiscal 2018 (latest data available), total company revenueamounted to $3.9 billion. In 2017, Keysight acquired Ixia, a global provider of testing, visibility and securitysolutions. The acquisition is expected to further enhance Keysight's presence globally, as well as furtherexpand the company's access to downstream customers. In 2019, Keysight is expected to generate $1.2billion in industry-relevant revenue.





Operating ConditionsCapital Intensity

The level of capital intensity is Low

The Navigational Instrument Manufacturing industry has a low level of capital intensity. Operators typicallyinvest $0.07 in capital for every $1.00 spent on labor in 2019. Wages are expected to account for muchmore of revenue, at 23.1% as skilled labor is costlier than capital in this industry.

Although the industry requires a significant amount of capital investment to manufacture high-qualityproducts, industry employees are required for a range of activities. They perform simple manual tasks andhelp with high tech and automated production lines. The industry uses a high percentage of professionalemployees, such as engineers and technicians; production worker wages only account for a small portionof total industry wages. Highly skilled employees are required to research and develop new products andmay also be used to operate and assemble parts. Demand for skilled labor, especially to develop newproducts, pushes up the average industry wage to $93,563.



Technology &Systems Level Factor Disruption Description

Medium Rate ofInnovation

Potential A ranked measure for the number ofpatents assigned to an industry. Afaster rate of new patent additions tothe industry increases the likelihoodof a disruptive innovation occurring.

VeryLow

InnovationConcentration

VeryUnlikely

A measure for the mix of patentclasses assigned to the industry. Agreater concentration of patents inone area increases the likelihood oftechnological disruption ofincumbent operators.

VeryLow

Ease of Entry VeryUnlikely

A qualitative measure of barriers toentry. Fewer barriers to entryincreases the likelihood that newentrants can disrupt incumbents byputting new technologies to use.

Low Rate of Entry Unlikely Annualized growth in the number ofenterprises in the industry, rankedagainst all other industries. A greaterintensity of companies entering anindustry increases the pool of



potential disruptors.

VeryLow

MarketConcentration

VeryUnlikely

A ranked measure of the largest coremarket for the industry. Concentratedcore markets present a low-endmarket or new market entry point fordisruptive technologies to capturemarket share.

Technology &Systems

The level of technology change is High

There is a high rate of technology change in the NavigationalInstrument Manufacturing industry.

Industry companies generally spend a great amount on research and development (R&D) in the industry.Given the industry's competitive nature and strong dependence on product innovation, R&D is vital to keepup with technological advances.

Companies generally adopt new technology to improve efficiency and reduce costs. For example, virtualinstrumentation has the potential to reduce costs. Virtual instrumentation uses software rather thanhardware components to model instruments and other products. Virtual products can also be easier foroperators to read, increasing the products' convenience.

Material development has led to new products and applications. Applications include informationmanagement systems and patient-care instrumentation. For example, developments in fiber optics haveenabled the design and development of a range of new instruments. New products resulting from thesedevelopments include atomic absorption spectroscopy and "Lite-slice" equipment that is used to measurerail wear. Significant system developments include increasing joint ventures and subcontracting to saveon capital equipment expenditure.

More navigational instrument manufacturers are focusing on machines designed to automate complexand precise operations. This automated equipment can perform a variety of applications includinginstrument assembly and dispensing, lab automation, machine tending, material handling, packaging andelectronics assembly. This technological change has led the manufacturing industry to manufactureautomated devices that are capable of processing multiple pieces of work simultaneously.

Revenue Volatility The level of volatility is Low

This industry has a low to moderate level of revenue volatility, with revenue increasing as much as 1.5% in2016 and decreasing as much as 3.7% in 2015. While the industry is driven by product innovation, itmanufactures a wide range of instruments and devices, which supplies equally diverse downstreamcustomer segments. Product and customer diversification has saved the industry from dramatic jumps ordips in revenue despite very volatile downstream demand in certain markets, such as demand fromGeophysical Services.

Some industry products are affected by changes in general economic conditions, such as inflation andinterest rates. One of the industry's largest companies, Thermo Fisher Scientific, has noted that revenueearned in the fourth quarter tends to be higher than earning in the other quarters, due to the capitalspending patterns of industrial, pharmaceutical and government customers. These spending patternstypically affect the industry as a whole, as well. Additionally, the industry has a high degree ofglobalization, which could increase volatility in the future.



Regulation & Policy The level of regulation is Heavy and the trend is Steady

The Navigational Instrument Manufacturing industry is subject to regulation by numerous governmentagencies and international groups. Federal, state, local and international laws and regulations concerningthe environment include the Clean Air Act, the Clean Water Act, the Resource Conservation and RecoveryAct, the Comprehensive Environmental Response, Compensation and Liability Act, the Occupational Safetyand Health Act, the National Environmental Policy Act and the Toxic Substances Control Act. The industryis subject to any regulations promulgated under these acts and various other federal, state and local lawsand regulations that govern environmental matters.

The Federal Trade Commission (FTC) has stipulated rules concerning energy consumption and the wateruse of certain appliances (Appliance Labeling Rule). Under this rule, manufacturers must submit an annualreport that contains information for all appliance models currently being produced. Before a manufacturerdistributes a new model, they must report the energy consumption or efficiency to the FTC. In March 2013,the FTC gathered comments on proposed changes to the rule. After gathering the comments, the FTCamended the rule. Under the amendments, manufacturers can submit data via the Department of Energy's(DOE) Internet-based reporting system rather than submitting data to the FTC.

There are at least three types of standards that internationally regulate the industry to reduce conformityassessment costs, decrease regulatory burden, reduce manufacturing and distribution costs and getinnovations to the market quicker. The standards include: safety and environmental standards used forconformity assessment to safety or environmental requirements; energy-efficiency standards for minimumefficiency requirements, often prescribed in government regulations; and test procedures, involvingstandards that prescribe a test method for determining performance characteristics and the energyefficiency of products.

Government contracts are heavily regulated, and manufacturers deal with numerous US governmentagencies and entities, including all branches of the US military and Homeland Security. Similar governmentauthorities exist in international markets. Government contracts are subject to oversight audits bygovernment representatives and contain provisions that permit termination, in whole or in part, at thegovernment's convenience or for default. If a contract is terminated at the convenience of the USgovernment, a contractor is entitled to receive payments for its allowable costs and the proportional shareof fees or earnings for the work done. Contracts terminated for default generally provide that thegovernment only pays for the work it has accepted and may require the contractor to pay other costs anddamages. Government business is also subject to specific procurement regulations. Failure to complywith these regulations and requirements can lead to suspension from government contracting orsubcontracting.

Three different federal government departments govern regulations for the sale of manufactured militaryproducts. The US Department of State (Office of Defense Trade Controls) controls defense articles,services and related technical data, including most space-related articles, and it is the regulator of theArms Export Control Act together with the International Traffic in Arms Regulations and US Munitions List.The Bureau of Industry and Security under the US Department of Commerce controls goods andtechnologies that have civilian and military strategic use through the Export Administration Act. Finally, theUS Department of Treasury oversees US Trade sanctions under the Office of Assets Control and enforcesall three export-licensing programs at US borders through US customs.

Industry Assistance The level of industry assistance is Medium and the trend is Steady



The industry receives a moderate level of assistance. Defense departments provide guidance andsponsoring to the development of navigational instruments used for military purposes, such as those usedin missiles and submarine warfare. The industry has few tariffs, although tariffs vary depending on theproduct and the material used to make the product. For example, wall mounted thermostats for airconditioning, refrigeration or heating systems have a 1.7% tariff; however, parts and accessories ofspeedometers and tachometers have no tariff.

One of the associations in the industry is the Aerospace Industries Association (AIA). The associationhelps member companies protect and grow their businesses by promoting strong US economic policy,enhancing safety and security and improving US aerospace infrastructure. Furthermore, the AIA works toprevent the government from creating unnecessary barriers to commercial technology and services.



Key StatisticsIndustry Data

Revenue

($m)IVA

($m)Establishments

(Units)Enterprises

(Units)Employment

(Units)Exports

($m)Imports

($m)Wages

($m)

DomesticDemand

($m)


expenditure ($b)2010 119,323 39,028 4,320 3,751 303,112 29,529 26,253 27,495 116,047 291

2011 124,112 40,656 4,278 3,717 306,618 32,592 29,445 28,136 120,965 296

2012 119,902 38,252 4,423 3,868 303,449 33,791 32,579 27,558 118,690 303

2013 114,539 36,032 4,379 3,817 291,748 33,637 32,485 26,261 113,387 317

2014 113,173 36,343 4,359 3,789 282,043 31,266 34,853 25,811 116,761 329

2015 109,013 35,185 4,304 3,749 281,970 29,392 35,185 26,416 114,806 340

2016 110,638 34,257 4,203 3,666 278,406 27,829 33,285 25,960 116,094 354

2017 110,397 34,233 4,184 3,650 277,155 27,965 33,027 25,855 115,459 364

2018 111,734 34,866 4,193 3,656 278,593 29,086 33,917 26,025 116,565 376

2019 113,458 35,367 4,212 3,670 280,677 29,293 34,570 26,261 118,736 381

2020 115,898 36,062 4,231 3,682 283,934 29,806 34,942 26,618 121,034 391

2021 117,225 36,435 4,238 3,686 285,766 30,288 34,704 26,816 121,642 401

2022 118,052 36,717 4,240 3,686 287,109 30,291 34,992 26,955 122,753 411

2023 118,775 37,013 4,245 3,689 288,384 30,529 34,628 27,084 122,875 421

2024 119,462 37,277 4,259 3,700 289,860 30,572 34,995 27,226 123,885 431

Annual Change

Revenue

(%)IVA(%)

Establishments(%)

Enterprises(%)

Employment(%)

Exports(%)

Imports(%)

Wages(%)

DomesticDemand

(%)


expenditure (%)2010 4.99 9.97 -1.55 -1.03 0.32 14.5 15.0 4.37 4.84 -2.29

2011 4.01 4.17 -0.98 -0.91 1.15 10.4 12.2 2.33 4.24 1.78

2012 -3.40 -5.92 3.38 4.06 -1.04 3.67 10.6 -2.06 -1.88 2.36

2013 -4.48 -5.81 -1.00 -1.32 -3.86 -0.46 -0.29 -4.71 -4.47 4.68

2014 -1.20 0.86 -0.46 -0.74 -3.33 -7.05 7.28 -1.72 2.98 3.69

2015 -3.68 -3.19 -1.27 -1.06 -0.03 -6.00 0.95 2.34 -1.67 3.31

2016 1.49 -2.64 -2.35 -2.22 -1.27 -5.32 -5.40 -1.73 1.12 4.15

2017 -0.22 -0.07 -0.46 -0.44 -0.45 0.49 -0.78 -0.41 -0.55 2.94

2018 1.21 1.84 0.21 0.16 0.51 4.00 2.69 0.65 0.96 3.32

2019 1.54 1.43 0.45 0.38 0.74 0.71 1.92 0.90 1.86 1.27

2020 2.15 1.96 0.45 0.32 1.16 1.75 1.07 1.35 1.93 2.57

2021 1.14 1.03 0.16 0.10 0.64 1.61 -0.68 0.74 0.50 2.55

2022 0.70 0.77 0.04 0.00 0.46 0.01 0.83 0.51 0.91 2.49

2023 0.61 0.80 0.11 0.08 0.44 0.78 -1.05 0.47 0.10 2.40

2024 0.57 0.71 0.32 0.29 0.51 0.14 1.05 0.52 0.82 2.47

Key Ratios

IVA/Revenue

(%)

Imports/Demand

(%)

Exports/Revenue

(%)

Revenue perEmployee

($'000)

Wages/Revenue

(%)

Employees perestab.(units) Average Wage ($)

2010 32.7 22.6 24.7 394 23.0 70.2 90,709

2011 32.8 24.3 26.3 405 22.7 71.7 91,762

2012 31.9 27.4 28.2 395 23.0 68.6 90,818

2013 31.5 28.6 29.4 393 22.9 66.6 90,011

2014 32.1 29.9 27.6 401 22.8 64.7 91,513

2015 32.3 30.6 27.0 387 24.2 65.5 93,683

2016 31.0 28.7 25.2 397 23.5 66.2 93,245

2017 31.0 28.6 25.3 398 23.4 66.2 93,288

2018 31.2 29.1 26.0 401 23.3 66.4 93,417

2019 31.2 29.1 25.8 404 23.1 66.6 93,563

2020 31.1 28.9 25.7 408 23.0 67.1 93,747

2021 31.1 28.5 25.8 410 22.9 67.4 93,840

2022 31.1 28.5 25.7 411 22.8 67.7 93,884

2023 31.2 28.2 25.7 412 22.8 67.9 93,915

2024 31.2 28.2 25.6 412 22.8 68.1 93,928



Industry Financial Ratios

Liquidity RatiosApr 15 -Mar 16

Apr 16 -Mar 17

Apr 17 -Mar 18

Apr 18 -Mar 19

Small(<$10m)

Medium($10-$50m)

Large(>$50m)

Current Ratio 2.1 2.2 2.3 2.3 3.1 2.1 2.2Quick Ratio 1.1 1.2 1.2 1.4 1.5 1.2 1.4Sales / Receivables (Trade ReceivablesTurnover) 7.8 7.3 7.2 7.1 8.6 6.9 6.6

Days' Receivables 46.8 50.0 50.7 N/A N/A N/A N/ACost of Sales / Inventory (InventoryTurnover) 3.9 3.8 3.9 4.0 3.8 3.7 4.1

Days' Inventory 93.6 96.1 93.6 N/A N/A N/A N/ACost of Sales / Payables (PayablesTurnover) 12.4 12.9 12.2 12.1 13.7 11.3 11.6

Days' Payables 29.4 28.3 29.9 N/A N/A N/A N/ASales / Working Capital 5.3 5.1 4.8 4.7 4.4 4.7 4.8

Coverage RatiosApr 15 -Mar 16

Apr 16 -Mar 17

Apr 17 -Mar 18

Apr 18 -Mar 19

Small(<$10m)

Medium($10-$50m)

Large(>$50m)

Earnings Before Interest & Taxes (EBIT)/ Interest 8.2 6.3 6.6 5.8 5.9 6.9 4.4

Net Profit + Dep., Depletion, Amort. /Current Maturities LT Debt 2.7 3.3 3.8 4.3 3.5 4.3 4.3

Leverage RatiosApr 15 -Mar 16

Apr 16 -Mar 17

Apr 17 -Mar 18

Apr 18 -Mar 19

Small(<$10m)

Medium($10-$50m)

Large(>$50m)

Fixed Assets / Net Worth 0.3 0.3 0.3 0.3 0.2 0.3 0.5Debt / Net Worth 1.1 1.0 1.0 1.0 0.8 1.0 1.1Tangible Net Worth 36.8 38.4 39.1 41.8 41.7 44.8 36.5

Operating RatiosApr 15 -Mar 16

Apr 16 -Mar 17

Apr 17 -Mar 18

Apr 18 -Mar 19

Small(<$10m)

Medium($10-$50m)

Large(>$50m)

Profit before Taxes / Net Worth, % 20.1 13.7 17.3 20.0 17.4 21.9 17.2Profit before Taxes / Total Assets, % 7.8 5.9 7.3 8.0 8.0 9.1 6.1Sales / Net Fixed Assets 17.1 14.3 16.3 15.7 23.7 19.0 9.9Sales / Total Assets (Asset Turnover) 1.8 1.6 1.7 1.6 1.8 1.8 1.3

Cash Flow & Debt Service Ratios(% of sales)

Apr 15 -Mar 16

Apr 16 -Mar 17

Apr 17 -Mar 18

Apr 18 -Mar 19

Small(<$10m)

Medium($10-$50m)

Large(>$50m)

Cash from Trading 41.7 42.2 40.8 42.3 45.6 40.0 37.2Cash after Operations 7.0 6.1 6.2 6.4 5.9 6.3 6.8Net Cash after Operations 5.9 5.6 5.6 6.5 6.7 6.7 5.6Cash after Debt Amortization 2.0 1.4 1.6 2.4 1.3 2.3 3.0Debt Service P&I Coverage 3.2 2.3 2.2 2.2 1.9 2.2 2.4Interest Coverage (Operating Cash) 10.3 6.2 5.1 6.8 6.1 6.8 9.0

Assets, %Apr 15 -Mar 16

Apr 16 -Mar 17

Apr 17 -Mar 18

Apr 18 -Mar 19

Small(<$10m)

Medium($10-$50m)

Large(>$50m)

Cash & Equivalents 14.3 14.1 14.6 15.1 15.8 14.9 14.7Trade Receivables (net) 25.8 24.7 25.5 24.5 23.5 26.5 22.0Inventory 26.0 25.5 25.4 25.6 27.9 27.6 19.2All Other Current Assets 4.0 4.1 3.7 4.2 4.8 3.7 4.4Total Current Assets 70.1 68.4 69.3 69.4 72.0 72.7 60.3Fixed Assets (net) 15.2 15.3 14.8 14.5 11.9 15.2 16.5Intangibles (net) 8.2 9.7 10.1 10.0 9.5 6.9 16.1All Other Non-Current Assets 6.4 6.6 5.8 6.1 6.6 5.2 7.1Total Assets 100.0 100.0 100.0 100.0 100.0 100.0 100.0Total Assets ($m) 15,737.8 12,621.8 13,157.2 14,047,843,000.0 571,424,000.0 3,089,208,000.0 10,387,211,000.0

Liabilities, %Apr 15 -Mar 16

Apr 16 -Mar 17

Apr 17 -Mar 18

Apr 18 -Mar 19

Small(<$10m)

Medium($10-$50m)

Large(>$50m)

Notes Payable-Short Term 7.4 6.7 7.1 6.8 9.5 7.1 3.1Current Maturities L/T/D 2.2 2.3 2.3 1.8 1.8 1.8 1.9Trade Payables 11.0 10.1 10.6 10.5 9.3 12.3 8.4Income Taxes Payable 0.4 0.3 0.3 0.2 0.1 0.2 0.3All Other Current Liabilities 15.0 14.0 13.6 14.2 12.3 15.5 14.2Total Current Liabilities 36.0 33.4 33.9 33.5 32.9 36.9 28.0Long Term Debt 10.2 10.5 10.0 9.6 10.2 7.0 13.5Deferred Taxes 0.6 0.6 0.3 0.3 0.1 0.2 0.8All Other Non-Current Liabilities 8.2 7.4 6.6 4.8 5.5 4.1 5.1Net Worth 45.0 48.1 49.2 51.8 51.2 51.7 52.6Total Liabilities & Net Worth ($m) 15,737.8 12,621.8 13,157.2 14,047,843,000.0 571,424,000.0 3,089,208,000.0 10,387,211,000.0

Maximum No. of Statements Used 541.0 452.0 427.0 430.0 129.0 193.0 108.0

Source: RMA Annual Statement Studies, rmahq.org.RMA data for all industries is derived directly from more than 260,000 statements of member financial institution's borrowers and

prospects



Additional Resources Bureau of Labor Statisticshttp://www.bls.gov

US International Trade Commissionhttp://www.usitc.gov

The Scientific Equipment and Furniture Associationhttp://www.sefalabs.com

Industry Jargon AVIONICSElectronics used on aircraft, artificial satellites and spacecraft.

MICROFLUIDICSThe design and manufacture of very small devices that deal with volumes of fluid on the order ofnanoliters or picoliters.

RESEARCH AND DEVELOPMENT (R&D)Creative work undertaken by a company to increase the stock of knowledge, which can then be applied todeveloping a new product or improving an existing one.

Glossary BARRIERS TO ENTRYHigh barriers to entry mean that new companies struggle to enter an industry, while low barriers mean it iseasy for new companies to enter an industry.

CAPITAL INTENSITYCompares the amount of money spent on capital (plant, machinery and equipment) with that spent onlabor. IBISWorld uses the ratio of depreciation to wages as a proxy for capital intensity. High capitalintensity is more than $0.333 of capital to $1 of labor; medium is $0.125 to $0.333 of capital to $1 of labor;low is less than $0.125 of capital for every $1 of labor.

CONSTANT PRICESThe dollar figures in the Key Statistics table, including forecasts, are adjusted for inflation using the currentyear (i.e. year published) as the base year. This removes the impact of changes in the purchasing power ofthe dollar, leaving only the "real" growth or decline in industry metrics. The inflation adjustments inIBISWorld’s reports are made using the US Bureau of Economic Analysis’ implicit GDP price deflator.

DOMESTIC DEMANDSpending on industry goods and services within the United States, regardless of their country of origin. It isderived by adding imports to industry revenue, and then subtracting exports.

EMPLOYMENTThe number of permanent, part-time, temporary and seasonal employees, working proprietors, partners,managers and executives within the industry.

ENTERPRISEA division that is separately managed and keeps management accounts. Each enterprise consists of oneor more establishments that are under common ownership or control.

ESTABLISHMENTThe smallest type of accounting unit within an enterprise, an establishment is a single physical locationwhere business is conducted or where services or industrial operations are performed. Multipleestablishments under common control make up an enterprise.

EXPORTSTotal value of industry goods and services sold by US companies to customers abroad.

IMPORTSTotal value of industry goods and services brought in from foreign countries to be sold in the UnitedStates.

INDUSTRY CONCENTRATIONAn indicator of the dominance of the top four players in an industry. Concentration is considered high if thetop players account for more than 70% of industry revenue. Medium is 40% to 70% of industry revenue.Low is less than 40%.

INDUSTRY REVENUEThe total sales of industry goods and services (exclusive of excise and sales tax); subsidies on production;



all other operating income from outside the firm (such as commission income, repair and service income,and rent, leasing and hiring income); and capital work done by rental or lease. Receipts from interestroyalties, dividends and the sale of fixed tangible assets are excluded.

INDUSTRY VALUE ADDED (IVA)The market value of goods and services produced by the industry minus the cost of goods and servicesused in production. IVA is also described as the industry's contribution to GDP, or profit plus wages anddepreciation.

INTERNATIONAL TRADEThe level of international trade is determined by ratios of exports to revenue and imports to domesticdemand. For exports/revenue: low is less than 5%, medium is 5% to 20%, and high is more than 20%.Imports/domestic demand: low is less than 5%, medium is 5% to 35%, and high is more than 35%.

LIFE CYCLEAll industries go through periods of growth, maturity and decline. IBISWorld determines an industry's lifecycle by considering its growth rate (measured by IVA) compared with GDP; the growth rate of the numberof establishments; the amount of change the industry's products are undergoing; the rate of technologicalchange; and the level of customer acceptance of industry products and services.

NONEMPLOYING ESTABLISHMENTBusinesses with no paid employment or payroll, also known as nonemployers. These are mostly set up byself-employed individuals.

PROFITIBISWorld uses earnings before interest and tax (EBIT) as an indicator of a company’s profitability. It iscalculated as revenue minus expenses, excluding interest and tax.

REGIONSWest | CA, NV, OR, WA, HI, AK Great Lakes | OH, IN, IL, WI, MI Mid-Atlantic | NY, NJ, PA, DE,MD New England | ME, NH, VT, MA, CT, RI Plains | MN, IA, MO, KS, NE, SD, ND RockyMountains | CO, UT, WY, ID, MT Southeast | VA, WV, KY, TN, AR, LA, MS, AL, GA, FL, SC,NC Southwest | OK, TX, NM, AZ

VOLATILITYThe level of volatility is determined by averaging the absolute change in revenue in each of the past fiveyears. Volatility levels: very high is more than ±20%; high volatility is ±10% to ±20%; moderate volatility is±3% to ±10%; and low volatility is less than ±3%.

WAGESThe gross total wages and salaries of all employees in the industry. The cost of benefits is also included inthis figure.

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€INDUSTRY REPORT 33451A Navigational Instrument