SAN JOSE, Calif. Ė It's been a difficult year so far for makers of VME single-board computers and the outlook is mixed at best, according to a report from the Vita trade group. With military, industrial and telecom markets all underperforming, activity in corporate acquisitions is expected to be muted despite a trend to consolidation in the sector.
"The first quarter was slower than anticipated for our industry, but we did see an increase in RFQs and sales activity in early to mid second quarter," said Ray Alderman, executive director of Vita in a twice yearly report on the VME market.
In the core military and aerospace markets for VME "the first quarter of 2010 was very slow," said Alderman. "One of my primary concerns is the recent reduction in the NASA budget for future space missions," he said.
Other issues include military vehicle programs that have been cancelled or are performing poorly. In addition, "more uncertainty appeared in early August when Defense Secretary Gates proposed closing the Joint Forces Command as part of his budgetary goals to reduce military spending by $100 billion over the next five years," he said.
Prospects are not brighter in other VME markets.
"After a tough 2009, demand for industrial control boards declined further in 1H10, especially in Europe," said Alderman. As for telecom, "At the wireless service provider level, both AT&T and Verizon expect to conduct more layoffs in 2010, so conditions remain very depressed and unstable in this segment," he added.
Alderman also had harsh words for initiatives to build a smart electric grid. "The [smart grid] standards process is a mess, there doesnít seem to be any central management, and there donít seem to be any guiding principles to pull the entire initiative together," he said.
Despite the bad news, Alderman quoted a Venture Development Corp report that estimated the 2009 market for VME boards was $376.5 million and projected it to grow to $515.7 million in 2012. "Most of that growth will be with VME 2eSST, the highest performance traditional VMEbus, and with VPX, the newest technology," he said.
The slow market conditions may create opportunities to acquire small, struggling board makers "at bargain prices," Alderman said.
He noted that in the military and aerospace markets for VME boards "more than 60 percent of total market share is held by just ten companies [and] six companies probably control more than 60 percent of that market," he said. The "numbers indicate a move toward market maturity," he said.
"I believe we will see more consolidation in this industry in the future, but present economic conditions preclude any significant M&A activity until the financial environment improves significantly," he added.