Relays and Industrial Controls

SIC 3625

Companies in this industry

Industry report:

This category covers establishments primarily engaged in manufacturing electronic relays and industrial controls used for starting, regulating, stopping, and protecting circuits and electric motors. Mechanical switches and relays are classified elsewhere.

Industry Snapshot

This industry encompasses two major categories: electronic relays and industrial controls. Electronic relays are used in circuitry for computers, communications equipment, and a multitude of other electronic devices. A relay is basically a switch that is used to open or close a circuit. It controls the flow of electricity to create a desired result. Most industrial controls essentially are switches but of a more complex nature. They usually are associated with the control of electric motors and systems. Industrial controls include devices such as motor starters, contactors, control centers, and programmable logic controllers.

A conventional electronic relay contains a solenoid, which is a coil of wire with an enclosed, fixed iron core. When electricity passes through the wire, a magnetic field is created that energizes the core. An armature connected to the core allows it to move and activate, or trip, the relay. Smaller relays used in transistorized equipment work similarly but are much smaller and require a fraction of the power consumed by electromechanical relays. The tiny reed relay, for example, is made with two flat magnetic strips. The separated strips are sealed in a capsule filled with an inert gas (to prevent corrosion), which sits inside a coil. When electricity is applied to the coil, the two magnetic strips are drawn to each other, thus completing a circuit. Finally, miniaturized solid-state relays are not magnetically activated but are instead triggered by electrical pulses.

According to figures from Dun and Bradstreet, 1,940 establishments engaged in the production of relays and industrial controls in the United States in 2010. Together these firms employed 58,619 people and generated revenues of $32.7 billion. The largest categories of products in terms of sales included motor controls and accessories, which accounted for about 42 percent of industry sales, and electric control equipment, which claimed about 33 percent. A variety of other industry products made up the remaining 25 percent. Ohio and New York were the top two states in terms of revenue, whereas California and Texas employed the most workers in the industry, followed by Illinois, New York, North Carolina, and Pennsylvania.

Organization and Structure

Two standards for industrial controls are administered by the International Electrotechnical Commission (IEC) and the National Electrical Manufacturers Association (NEMA). IEC-approved controls conform to standards that have brought them a reputation for compactness and affordability. Controls rated by NEMA, while considered less streamlined, generally are perceived by users to be more reliable and serviceable for heavy industrial uses.

Parts, accessories, and miscellaneous related items make up the remaining share of industry products.

The largest consumer of relays and industrial controls is the computer equipment industry. Most of the remaining output is consumed by various manufacturing industries, particularly those producing electrical and electronic equipment. Examples are machine tool producers and manufacturers of heating and air-conditioning equipment. Other consumers of industrial controls include producers of mining machinery, automobiles, railroad equipment, aircraft, and construction equipment. More than half of all industrial controls are purchased by machine builders and original equipment manufacturers.

Background and Development

One of the first practical applications of electrical relay technology was the telegraph, which was patented by Samuel F.B. Morse in 1844. Relays that were used to operate electronic devices were not developed on a significant scale until late in the nineteenth century, following Thomas Edison's work with the electronic vacuum tube. As the demand for lighting, phonograph, and other electrical devices flourished during the early 1900s, the need for relays surged. Importantly, U.S. investments in electronics research during World War II spawned significant advancements in all types of electronic components.

When integrated circuits were introduced in 1958, many manufacturers of relays and other electromechanical devices feared that the new solid-state components would make some conventional products obsolete. But the development of miniaturized relays served to expand the breadth of the industry and culminated in demand growth for both traditional and new devices during the 1960s and 1970s. Demand for relays boomed as a result of expanding consumer electronics, business machine, computer, and communications markets. Likewise, industrial controls evolved from relatively simple relay and switch devices used to start and control motors into complex, high-tech mechanisms used to regulate speed, pressure, timing, and other mechanical characteristics.

Overall demand for electronic components grew during the 1980s, bolstered by the proliferation of personal computers and peripherals, telecommunications equipment, and the integration of electronics into industrial and consumer products. Worldwide sales of integrated circuits, for example, jumped 464 percent during the decade. Shipments of many conventional relay products stagnated or declined, largely as a result of foreign competition, but the demand for new high-tech industrial controls, as well as some types of relays, thrived. By 1987, the peak of the 1980s economic expansion, industry sales reached $6.1 billion and employment topped 66,000.

While the United States slumped into a recession during the late 1980s and early 1990s, sales of relays and industrial controls continued to climb at a healthy pace until 1991, when sales dipped by about 6 percent. Entering the mid-1990s, sales in 1995 climbed to more than $9.5 billion. In addition to strong demand, manufacturers benefited from industry consolidation and increased efficiency, which had characterized electrical component manufacturers during the 1980s. Indeed, as shipments grew, producers continued to reduce employment through automation and restructuring.

The relays and industrial controls industry began to feel the pinch of recession in the early 1990s. Conventional relay shipments, which had already dropped 2.7 percent in 1991, were hit hardest. Nevertheless, overall sales climbed about 3 percent in both 1992 and 1993, and growth in some segments remained strong.

Three factors contributed to the success of relay and industrial control makers in the mid-1990s: the recovery of industries that purchased their products; increased global competitiveness, which was the result of productivity gains and a devalued U.S. dollar; and technological advances that broadened the market for industrial controls.

Some industry participants looked for long-term growth to come from U.S. exports. While exports accounted for only about 6 percent of sales in the early 1990s, they made up the fastest growing market segment and offered lucrative long-term potential for sales of high-tech industrial controls. Canada and Mexico were the largest foreign consumers of U.S. exports and represented about 30 percent of cross-border revenues. European nations also consumed 30 percent of U.S. exports. However, East Asian markets, which purchased 14 percent of exports in the early 1990s, showed the fastest growth. The United States imported a total of $650 billion worth of relays and controls annually in the early 1990s, more than 40 percent of which came from Japan.

As a whole, despite predictions for growth, the industry saw shipments decline from a high of $12.01 billion in 1998 to $11.65 billion in 1999. Shipments totaled $11.76 billion in 2000. Employment also declined, falling from 67,034 in 1998 to 63,721 in 1999 and to 61,735 in 2000. However, costs associated with payroll increased from $2.41 billion in 1997 to $2.49 billion in 2000.

By 2008, total shipment values in 2008 had reached $11.6 billion, up from just over $10 billion in 2006 but still below the 10-year high of $12.01 billion in 1998. Industrial controls made up the bulk of the industry, with general-purpose industrial controls accounting for approximately 50 percent of production shipments. Specific-purpose industrial controls made up another 37 percent of the market. General-purpose relays and controller accessories and parts accounted for 7 percent and 6 percent, respectively.

During the late 1990s, forecasters had predicted growth for the industry into the 2000s. However, a recessive economy beginning early in 2001 and exacerbated by the terrorist attacks of September 11 stalled consumer spending and, as a result, the relay and industrial controls industry became sluggish during the early years of the first decade of the 2000s. Revenues were down and capital expenditures were sharply reduced.

As the overall economy began to recover--albeit slower than anticipated--during 2003 and 2004, the relay and industrial controls industry began to show signs of new life. For example, during fiscal year 2004, earnings at Rockwell Automation, an industry leader, climbed 45 percent, and the company's stock prices doubled during the year.

Along with an overall improvement in the economy, continuous improvement in technology and product quality, a greater variety of product offerings, and improved customer relations were other factors that were expected to contribute to the growth of the relay and industrial controls market. Another was the growing trend toward consolidation of smaller companies into large conglomerates that are better equipped to offer expanded product lines and make maximum use of improved technology. Although U.S. companies showed little interest in expanding production, increasing efficiency as a means of lowering production costs was on the top of the list as a way to remain competitive within a very competitive market. The U.S. showed a trade deficit in this industry in 2008 with imports totaling $6.3 billion while exports generated $5 billion.

According to the U.S. Census Bureau, total industry shipments in 2009 were worth $8.9 billion, down from $11.3 billion in 2008 and $10.2 billion in 2006. Employment declined steadily each year between 2002 and 2006, falling nearly 25 percent during the five-year period from 47,866 to 33,322. Employment rebounded to 42,873 in 2007 but plummeted again in 2009, reaching 33,980. Production workers numbered 19,017 in 2009; these workers earned an average wage of $21.04 an hour. Modest revenue gains as well as losses in the early years of the first decade of the 2000s were attributed primarily to a recessive economy during that period, and as the overall economy rebounded during the middle years of the decade, the industry began to show positive growth. The global economic recession of 2008, however, impacted earnings for that year as well as 2009.

Current Conditions

Although production in the relay and industrial control manufacturing industry in the United States slowed during the economic recession of the late 2000s, by 2010 some were seeing signs of a recovery. For example, regarding the future of industry leader Rockwell Automation, Matthew Christy of Standard & Poor�s told Newsmax in May 2011, "Recent gains in (U.S.) capacity utilization and industrial production indicate increased spending on automation products. In addition, we believe that pent-up demand following the 2008-2009 recession is just starting to be realized, which we think will benefit ROK's future results." Rockwell's profits in the first quarter of 2011 reached $166.4 million, up from $137 million a year earlier.

An IBISWorld report in September 2011 was more cautiously optimistic about the future of the industry, noting that imports would continue to present a challenge. In addition, according to the report, "Energy-related issues like the consumption of fossil fuels and the world's changing climate will drive demand for solutions that provide secure and energy-efficient electrical equipment along with the growing demand for electricity, higher electricity prices and aging electrical infrastructure."

Imports continued to outpace exports in the industry in the early 2010s. According to Supplier Relations U.S. LLC, in 2010 imports in the relay and industrial control manufacturing industry equaled $6.5 billion, shipped from 114 countries, whereas exports to 191 countries were worth $5.3 billion.

Industry Leaders

Despite steady consolidation in electronics components industries during the 1980s and 1990s, the relay and industrial controls industry remained relatively fragmented in the first decade of the twenty-first century with almost 2,000 competitors. Most companies built industrial controls and specialized in a specific industry niche. However, in 2010, the largest establishments--those employing more than 250 workers--accounted for 75 percent of industry revenues.

The leaders in the industry in the early 2010s included Rockwell Automation, of Milwaukee, Wisconsin, and Siemens Energy and Automation, of Alpharetta, Georgia. With sales of $4.8 billion and 19,000 employees in 2010, Rockwell was the only publicly traded corporation that focused primarily on industrial controls. Siemens Energy and Automation, of Seatac, Washington, was a subsidiary of New York- based Siemens Corp., which specialized in industrial controls, switchgear, and switchboards. In 2010 Siemens Corp. had overall revenues of $21.3 billion and 64,000 employees. Danaher Industrial Sensors and Controls of Gurnee, Illinois, was a subsidiary of Washington, D.C.-based Danaher Corp., which reported revenues of $13.2 billion in 2010 with 48,200 employees.

Workforce

Despite a generally positive outlook for most companies in this industry, long-term job prospects were less pleasant in the early twenty-first century. The industry employed 33,980 in 2009, according to the U.S. Census Bureau, down from 47,866 in 2002. As U.S. manufacturers battled to compete with increasing numbers of imported relays and controls, companies continually looked to cut costs to improve profit margins and maintain competitiveness in the marketplace. Increased automation, industry consolidation, and a narrower focus on productive sectors led to a reduction in the workforce, especially among production workers. Production-based jobs, including assemblers and fabricators, accounted for about 56 percent of the U.S. relay and industrial control workforce, down considerably since the turn of the century and earlier. According to the Bureau of Labor Statistics, production jobs will continue to decrease into the second decade of the twenty-first century. Positions for white collar managers and top executives were expected to be cut by about 10 percent.

Research and Technology

In 2004 the Danaher Industrial Controls Group undertook a customer survey to identify trends in the relay and industrial controls market that are expected to drive innovation and technology. The survey discovered that the leading consumer desire was for advancements in remote data collection, which allows end users to trace and diagnose problems from a remote location, to send alarms, and cut costly service calls. Other trends include the increasing use of Ethernet to provide complete integration between processes and plant software control systems and the development of controls that are more reliable, faster, and more cost-effective.

In order to meet the rising demand for more precise and efficient products, relay and controls makers continually introduced products that featured improved technology in the early 2010s. In this ever-changing industry, experts predict that those companies that can continue to explore advanced technologies and expand their product lines will be the survivors of the future.

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