by Mark Hanley
ust as 2018’s numbers saw declines in the market as measured by vendor sales dollars and units of systems sold, the 2019 calendar year numbers show decline again, though at about half the rate of the 2017 to 2018 year. As always, do not read too much into a single year’s data as the market does not move mostly in annual cycles. Nevertheless, the wide format graphics market is clearly an economically mature supply market.
Within the overall picture, unit sales of eco-solvent/latex (ES/LX) systems grew last year somewhat counter intuitively, which is important as this is still the largest wide format graphics sector by some distance.
Soft signage—counted separately from the rest of the wide format graphics market—benefited from robust growth in unit sales at the low end. Soft signage output is by a combination of its growth and the relatively lesser share growth of other sectors, now somewhere around one quarter of the rest of wide format graphics output.
Topline Numbers Analysis
I.T. Strategies’ 2019 analysis of vendor revenues against 2018 shows a near seven percent decline driven by hardware and ink revenues, both of which are under heavy competitive pressure even as overall output volume increased by 1.61 percent in the analysis.
Units of sales in total declined as well by over eight percent, though this is driven by decline in the relatively less strategic old aqueous (AQ) sectors, as well as the development of more efficient systems in all sectors—more machine and output for less dollars. That measure is in other words not a measure of poor market health. It is going where it should go as markets yield greater benefits to users as a result of supply and demand.
Also projected in this summary is where vendor revenues and square meters of output will go in the overall market by 2024. These numbers are driven by assumptions made at least temporarily for the development of markets under the effects of the coronavirus crisis. Those assumptions are explained in Table A.
Growth Rates Actual 2019 and Projected 2020 to 2024
I.T. Strategies cannot project markets forward in a roughly linear way out to 2024 this year. Assumptions need to made about the negative effects of the coronavirus. But this is problematic as of press time we are at best in the middle of this situation, and maybe even not that far in. So, provisional assumptions will be made subject to revision later in the year should the situation be different from what was assumed.
For all markets, I.T. Strategies assumes a loss of 30 percent of working days in 2020 affecting output, media, and ink revenues. For hardware growth rates in new unit sales year over year, following on the foregoing year for non-AQ markets refer to Table B-1. Looking at Table B-2, AQ markets have a slower climb back.
These growth assumptions vary a little from sector to sector according to the relative strengths of their underlying market growth rates. The overriding model is that markets for hardware go down around 30 percent this year but pick up fast in subsequent years rates, which takes the markets to within five to ten percent of where they were at the end of 2019 in aggregate volume. This is a rough projection and not driven based on historical parameters. All projections offered in this article are driven by provisional assumptions around growth rates.
For all sectors combined, this is where these growth rates take vendor revenues by 2024 for hardware and consumables. This represents a projection of a V-shaped recession with a slow return to growth. Decline rates and shares of 2019 revenues are shown in Tables C and D.
Sectoral Performance Indices
The new provisional projections generate numbers for 2024 that are driven by a sharp decline in 2020 in output and new equipment sales with some early recovery, but later tapering growth curves thereafter, as well as normalized usage rates from 2021 on. We don’t get back to where we should have been without the coronavirus crisis even by 2024 .
Is this the right projection and calculation? We do not know and that is why we plan to review these numbers later in the year and put out corrections if appropriate. However, it is quite a dramatic postulation that seems minimally justified for 2020. Forward from 2020 we do not assume that all sectors—driven above all by consumer markets, but also by events and consumer economy-related functions—will get back to their normalized end-2019 levels within five years.
So far in display graphics markets, we still foresee better usage rate growth, and therefore output growth, than growth in new units of sales of systems. But as with units and the revenue growth driven largely by output, these numbers are affected by the same coronavirus-driven growth assumptions outlined in Table F, which work out above all on the installed base over time.
Table G and H show a graphic representation of the volume of major wide format graphics sectors by hardware and ink revenues in Table G and square meters of output in Table H. Again, this is a result of the new coronavirus-driven projection.
This market continues its gentle decline even as it includes high value and strongly established unique applications from major vendors. These vendors also derive cost advantages from the co-production alongside their graphics products of CAD products still in relatively good, if declining numbers. Product range differentiation gives the appearance of drastic change within the AQ corporate print for use sub-sector, but which more likely at this point reflect the lesser relevance of some legacy sectoral classifications.
ES and LX Markets
ES and LX markets in their mostly low-end format provide functionality to mostly similar applications and as a whole make up by far the largest sector in revenue and output terms of the wide format graphics market. They are successful and remain so because they cost less to buy. The largest aggregate market for display graphics is small local users with retailers in the lead. In other words, they serve a fragmented localized market perfectly with technologies, which are more or less universally functional for internal and external graphics due specifically to the ink chemistry developed for and used in this sector.
Frankly, we keep thinking this market should be more mature than it regularly shows itself to be. Units sales were up just over two percent and output in aggregate was just above flat. This is partly a result of a relatively high replacement rate in this sector as well as the large range of ES product offerings. Competition not just among vendors but among print service providers (PSPs) may be making the ES/LX market less attractive. There is some evidence for thinking that the PSPs in question are taking more interest in specialist products like textile apparel print, soft signage using dye-sublimation (dye-sub), and industrial systems. This takes the edge of ES/LX growth in the future.
Aggressive Solvent (AS) Market
What we said last year still applies to AS. This market remains of little significance in Europe and the U.S. even as an installed base still persists. Outside of Europe and the U.S., AS still plays a significant role, as most clearly reflected in Chinese market statistics.
Three out of four UV sub-sectors grew 2018 through 2019. In contrast, low-end UV flatbed systems declined by over 12 percent. That could be a one year blip, at least in its severity, but it could also be a competitive effect of the continued popularity of low-end roll-to-roll (R2R) systems.
Be aware that distinctions between R2R and flatbed systems are less clear. Most systems today—even if they are sold as R2R or flatbed—often have dual or hybrid functionality.
Hybrids used to be sold as if a separate kind of offering, but sectors have in fact melded together in functionality a lot more than meets the eye. It is also important mention again, as we did last year, that cutting functionality among UV R2R systems is now a significant factor in competition.
In general, the UV overall is driven by a PSP channel mostly separate from the much larger population of low-end PSPs buying AQ, LX, and ES low-end systems. There is a lot of overlap in technology from the lower to the upper channel, but not so much in the other direction. Seen in this light most UV sectors are not mature and from an output perspective the growth is better than the unit sales.
What drives these markets are the same kind of applications as in the low-end channel. The difference is that UV accounts tend to be larger if not regional or national. Furthermore, the larger the customer, the more pronounced the swings in seasonal demand with extreme holiday peaks. This is another fundamental reason for the need for a production technology sector—namely speed of output as opposed to aggregate volumes.
Speaking of very high output systems driven by extreme demand peaks for display graphics, there is the super high end (SHE) sub-sector of UV, which I.T. Strategies started tracking in 2012. That sector seemed promising at the time and remained so until about 2016. Since then numbers have declined and some products were de-emphasized or left the market.
The market remained rather flat in 2019 and we anticipate that like a lot of other markets it will near-halve in 2020. It does not seem very likely that thereafter it will enjoy a strong rebound. We suspect this has to do with competition in other UV sectors, with prices that undercut SHE systems.
With a loss of around $13B in 2020, the retail of digital display graphics is projected to return only to around $32B by 2024. It is one projection, but it still illustrates the high value users set on the functionality of display graphics, especially in retail. It also illustrates the extreme fragmentation of the market that allows values to remain relatively high. That is actually a strength of the market both in value terms as well as in the broad base from which a depressed market can regenerate.
Soft Signage measured by output represents a quarter of the rest of the digitally printed display graphics market. It has pushed to this point partly as a result of a 14 percent increase in sale of systems at the low-end of dye-sub systems. That number is not included in the wide format graphics forecast since it gives rise to an installed base of systems, which splits its printed output between apparel and soft signage.
I.T. Strategies treats dye-sub sales as a separate forecast, presented here in terms for output of soft signage only for comparison to the rest of the wide format graphics market. That output is split between low-and high-end systems. Only high-end systems are substantially exclusively dedicated to soft signage.
In the end soft signage as a true display graphics format is entirely bucking the trend of the rest of the display graphics market. That is because soft signage is easy, brilliant in color, and popular as well as easy to install. It is also because most of the inks are open market and therefore relatively low cost.
It is also a popular market because the low-end systems allow wide format graphics PSPs to enter apparel markets as a diversified source of profit leveraging its existing customers as markets verticalize and broaden the range of product demand. Table J is the coronavirus projection of soft signage markets comparing the 2018 forecast to the new 2019 projection. The 2020 decline is going to be as bad as for any other wide format graphics sector. It is said anecdotally that a particular threat to dye-sub markets is the collapse of the events and trade show economy. D
I.T. Strategies is a well-respected analyst group that we have worked with for years. We value its analysis greatly. It reveals the pain and suffering of what the industry is currently going through post-COVID-19 and projects challenges into the future. However, the analysis is one of many and depending on the segment of the industry we discuss, some projections may be more positive. We of course invite commentary on this in the following months. Contact firstname.lastname@example.org to share your insights.
To view charts/tables referenced in this article, visit the digital edition.
Aug2020, Digital Output