If San Francisco Giants slugger Barry Bonds breaks Henry Aaron's home run record, some say there should be an asterisk next to his name. Pitching was better in Aaron's day, they argue. Ballparks were larger, the ball was less lively, and "Hammerin' Hank" didn't have chemical help.

Similarly, the results of ASSEMBLY magazine's ninth annual capital equipment spending survey need an asterisk. According to our survey, U.S. assembly plants will spend $2.6 billion on new equipment in 2005, or 24 percent more than the $2.1 billion projected to be spent during 2004.

But before technology suppliers start popping corks on bottles of Dom Perignon, they should bear in mind that we changed this year's survey in two significant ways.

For one, we added three equipment categories to our survey's shopping list of assembly technology: motion control equipment, packaging equipment, and computers and software. When these new categories are removed, the results peg total equipment spending at slightly more than $2.2 billion, for a more modest increase of 5 percent.

We also updated our circulation list from the federal government's old Standard Industrial Classification System (SICS) to the new North American Industry Classification System (NAICS). The NAICS reclassified many of the industries covered by the SICS to better reflect today's technology and economy. For example, under the old system, computer manufacturers were listed under Industrial Machinery, SIC 35, along with assemblers of farm tractors and machine tools. Under the NAICS, computer makers are more correctly listed with other manufacturers of electronic products in their own category, NAIC 334.

For the purposes of our survey, switching to the NAICS meant that we had to add another industry to the five that we've traditionally included in the survey pool. That's because the NAICS moved medical device manufacturers from Instruments and Related Products, SIC 38, to Miscellaneous Manufacturing, NAIC 339, which also includes assemblers of pens, toys and sporting goods. For statistical reasons, we excluded such manufacturers from previous surveys. When NAIC 339 is excluded from this year's survey results, overall equipment spending totals $2.3 billion, an increase of 10 percent.

With that said, it's a good bet that manufacturers will increase spending on assembly technology next year, or at least they plan to. Almost a third of respondents (32 percent) will spend more on assembly technology in 2005 than they did in 2004. That's the highest percentage in 4 years. At the same time, only 20 percent plan to spend less on equipment next year than they did this year, which is the smallest percentage since 2001. Almost half (48 percent) will spend just as much in 2005 as they did in 2004.

Some of that optimism was evident at this year's Assembly Technology Expo, which was held Sept. 28 to 30 in Rosemont, IL, just outside of Chicago. "Assembly Technology Expo 2004 was an excellent show," says John Dulchinos, vice president of robot manufacturer Adept Technology Inc. (Livermore, CA). "Our lead count was up from 2003, the quality was better, and we have already received orders as a direct result of the show."

"I can't remember a stronger show in recent years in any industry that we participate in," adds Ray Gottsleben, vice president of sales and marketing for Arlink Workstation Systems (Burlington, Canada).

Another reason to expect an increase in capital spending next year is that companies may have considerable funds leftover from their 2004 equipment budgets. On average, assemblers spent just 62 percent of their equipment budgets for the year-the lowest percentage in the survey's history. In 2003, 50 percent of assemblers spent 90 percent or more of their equipment budgets, and just 11 percent spent less than 40 percent of their budgets. In 2004, those figures are virtually opposite. Only 26 percent of respondents spent at least 90 percent of their 2004 equipment budgets, and 21 percent spent less than 40 percent of their budgets.

Actual budget figures indicate that 2005 spending will be no worse than it was in 2004. The median equipment budget for 2005 is the same as it was in 2004: $50,000. The average budget figure decreased by just 3 percent, from $762,539 per plant in 2004 to $739,175 per plant in 2005.

Seventy-five percent of plants will spend less than $250,000 on assembly technology in 2005-the same percentage as in 2004. Ten percent of plants will spend $250,000 to $500,000 on assembly technology in 2005, more than twice the percentage in 2004. But, only 15 percent of plants will spend more than $500,000, compared with 21 percent in 2004.

Big Companies Are Less Vital

Over the past 2 years, the nation's largest manufacturers have contributed less and less to total equipment spending.

In 2003, companies with more than 500 employees accounted for 61 percent of all spending on assembly technology in the United States. In 2005, those companies will represent only 37 percent of equipment spending. That marks the first time in the survey's history that companies with more than 500 employees will not spend more on assembly technology than companies with 100 to 500 employees. In 1999, 68 percent of all respondents with equipment budgets over $1 million were companies with more than 500 employees. In 2005, just 42 percent of plants with million-dollar budgets will be companies with at least 500 employees.

One reason for the decreasing impact of big companies may be that they have no need to spend more. One out of three companies with 500 or more employees will spend less on equipment in 2005 than 2004. That compares with 20 percent of companies with 100 to 249 employees and just 6 percent of companies with 250 to 499 employees.

Another reason that big companies won't be spending as much on assembly technology as smaller manufacturers may be that there are fewer big companies. Since 2001, the average number of employees reported by our respondents has decreased from 333 to 295, while the median number has decreased from 100 to 65.

Despite the smaller contribution from the largest companies, a look at budgets by company size reinforces our prediction that an increase in midrange spending will overcome a slight decrease in the largest budgets.

For example, 40 percent of companies with more than 500 employees will spend at least $1 million on new equipment in 2005, slightly less than the 2004 figure of 42 percent. At the same time, 40 percent of companies with more than 500 employees will spend between $250,000 and $1 million on equipment next year-almost twice the 2004 percentage.

Comparable results can be seen among smaller companies. Among companies with 250 to 499 employees, the number of facilities spending more than $1 million will decrease slightly from 28 percent in 2004 to 22 percent in 2005. At the same time, the number of plants spending $250,000 to $1 million will increase substantially, from 36 percent in 2004 to 55 percent in 2005.

Among companies with 100 to 249 employees, the percentage of plants that will spend more than $1 million on equipment in 2005 is the same as it was in 2004. But, the number of plants spending $250,000 to $1 million will increase dramatically, from 13 percent in 2004 to 23 percent in 2005.

Transportation Equipment

Because of our switch to the NAICS, it will be difficult, if not impossible, to compare this year's data on certain manufacturing industries with that of previous years.

One SIC that remains relatively unchanged under the NAICS is Transportation Equipment Manufacturing, which used to be SIC 37, but is now NAIC 336. Assemblers of cars, trucks, tanks, planes, missiles, boats and bikes will spend $572 million on assembly technology in 2005, more than any industry in our survey. Transportation equipment manufacturers will account for 22 percent of total spending on assembly technology next year, the industry's largest share since 2002.

That's the good news. The bad news is that just 23 percent of plants in NAIC 336 will spend more on assembly technology next year than they did in 2004. That's the lowest percentage of any industry, and it's the lowest percentage for NAIC 336 in the history of the survey.

Moreover, just 26 percent of plants in NAIC 336 will buy equipment next year to increase capacity. That, too, is the lowest percentage of any industry, and it marks the fifth straight year that transportation equipment manufacturers have held that distinction.

Sixteen percent of plants in NAIC 336 have equipment budgets over $1 million, the lowest percentage for this industry since 1997. At the same time, 70 percent of plants will spend less than $250,000 on new equipment next year. In 2004, that percentage was 57 percent. The average budget went from $1,649,946 in 2004 to $526,676 in 2005.

The decrease in spending in NAIC 336 may signal a slowdown in the automotive industry. In the past 3 months, for example, General Motors Corp. (Detroit) announced that it will eliminate the second shift at its Hummer assembly plant in South Bend, IN, and the third shifts at its truck assembly plant in Pontiac, MI, and small-car assembly line at the Saturn plant in Spring Hill, TN. At GM's assembly plant in Moraine, OH, production will be reduced from 7,400 vehicles per week to about 7,000 per week, and the factory will run 5 days a week, instead of 6. The automaker will also temporarily close its assembly plants in Arlington, TX, and Janesville, WI, for 3 weeks in the first quarter of 2005.

Fabricated Metal Products

Another industry that has been unaffected by the switch to the NAICS is Fabricated Metal Products, which used to be SIC 34, but is now NAIC 332.

Manufacturers of cutlery, sauce pans, boilers, cans, valves, faucets, fasteners and handguns will account for 20 percent of total spending on assembly technology in 2005. That's the highest percentage for this industry in the history of the survey.

All totaled, plants in NAIC 332 will pay $520 million for new equipment next year. Ten percent of plants in NAIC 332 will spend more than $1 million on assembly technology in 2005, compared with 15 percent in 2004. However, 21 percent of all plants in the country with equipment budgets over $1 million make fabricated metal products. That's the most for this industry since the survey began.

If the drop in plants with budgets over $1 million suggests an overall decrease in spending by this industry, it won't be by much. Twenty-one percent of plants will spend $250,000 to $1 million on equipment next year, compared with 15 percent in 2004. Moreover, there's evidence that facilities that spent less than $250,000 in 2004 are increasing their 2005 budgets. Sixty-nine percent of plants will spend less than $250,000 on equipment in 2005, compared with 71 percent in 2004.

The average budget dropped from $720,972 in 2004 to $350,333 in 2005.

Machinery Manufacturing

Machinery Manufacturing, NAIC 333, consists of most of the industries grouped under SIC 35, Industrial and Commercial Machinery, except for assemblers of computers, monitors, disk drives and other peripherals.

That, in part, explains why NAIC 333 will account for just 17 percent of all spending on assembly technology next year, while SIC 35 represented 25 percent of total spending in 2004. All totaled, manufacturers of farm tractors, printing presses, lathes, forklifts, conveyors, vending machines, commercial freezers and other machinery will spend $442 million on assembly technology in 2005.

Sixteen percent of all plants with equipment budgets over $1 million are in NAIC 333, and the average 2005 equipment budget in this industry is a robust $2,014,993 per plant, the largest figure of any industry.

Just 24 percent of plants in NAIC 333 expect to spend more next year than they did in 2004. That makes some sense. A mere 16 percent of respondents spent 90 percent or more of their equipment budgets for 2004. Assemblers may be disinclined to spend more in 2005 if they didn't spend as much as they thought they would in 2004.

Given the diversity of products covered by NAIC 333, it's difficult to generalize about all manufacturers in this industry. But, a sampling of recent news reports indicates that many machinery manufacturers will have both the money and the motivation to increase spending on assembly technology next year.

For example, in October, GE Energy (Atlanta) announced that it has received more than $1.3 billion in orders for turbines for several wind-generated electricity projects throughout the United States. The news came on the heels of an earlier announcement that GE would also be supplying more than 600 wind turbines for eight projects in Quebec, Canada-enough to keep the company's turbine assembly plant humming through 2012.

Industrial equipment manufacturers are also having a good year. According to AMT-The Association for Manufacturing Technology (McLean, VA), U.S. sales of machine tools totaled $225.5 million in August, a 6 percent increase from July 2004 sales and a 54 percent increase from sales in August 2003. Overall, U.S. machine tool sales totaled nearly $1.8 billion for the first 8 months of 2004, a 38 percent increase from the same period last year.

In addition, the Material Handling Industry of America (Charlotte, NC) reports that sales of material handling equipment are growing at an annual rate of 7 percent to 8 percent.

"We're extremely busy," says Tom Sparrow, president of Rapat Corp. (Hawley, MN), a manufacturer of conveyors and other equipment for handling bulk materials, in an Oct. 24 report from the Duluth News Tribune. "You always take on as much work as you dare, but seasons change and the economy changes. And the economy, from our standpoint right now, is pretty good."

Computers and Electronics

NAIC 334, Computer and Electronic Product Manufacturing, consists of industries pulled from SIC 35, SIC 38 and SIC 36, Electronic and Electrical Equipment and Components. Besides manufacturers of computers and peripherals, NAIC 334 includes electronics manufacturing service providers, as well as assemblers of audio cassettes, telecommunications gear, televisions, electrical connectors, clocks, chromatographs, sonar and other products.

In 2005, this industry will spend $338 million on assembly technology, or approximately 13 percent of total equipment spending in the United States.

Forty-four percent of plants in NAIC 334 plan to spend more on assembly technology in 2005 than they did in 2004. That's 12 percentage points more than the figure for all U.S. plants. However, the average equipment budget for plants in NAIC 334 is a meager $99,836-the lowest of any industry-and none of our respondents in this industry will spend more than $1 million on equipment next year.

Such scanty capital spending is ironic, given the strong market for consumer electronics. According to the Consumer Electronics Association (CEA, Arlington, VA), U.S. sales of consumer electronics exceeded $100 billion in 2003, setting a new record and marking a fourfold increase over the 2002 growth rate. The CEA forecasts 2004 sales to surpass $108 billion.

Almost every product category performed better than anticipated in 2003. Manufacturer-to-dealer sales of computers and digital televisions were the two main categories driving final 2003 figures above the CEA's original forecast of $96.3 billion.

Computers were the largest single product category, with sales exceeding $15 billion, but televisions weren't far behind. "Huge numbers of flat panel and rear projection digital televisions were sold last year," says Sean Wargo, senior industry analyst with the CEA. "In fact, sales of just flat panels topped $2 billion, and the numbers will continue to increase."

Appliances and Electrical Equipment

Those industries from SIC 36 that weren't shifted to NAIC 333 are now classified under NAIC 335, Electrical Equipment, Appliance and Component Manufacturing. Companies that make lamps, fans, refrigerators, vacuum cleaners, switches, batteries, electric motors and other products will spend $442 million on assembly technology next year, accounting for 17 percent of all equipment spending in the United States.

Eleven percent of plants in NAIC 335 will spend more than $1 million on new equipment in 2005, and 16 percent will spend $250,000 to $1 million. The average budget is $324,497 per plant, which ranks fifth among the six industries covered by our survey.

Forty-five percent of factories in NAIC 335 plan to spend more on assembly equipment in 2005 than they did in 2004. That's the most of any industry, and it's 13 percentage points more than the figure for all U.S. plants.

However, recent news reports may portend a less rosy outlook for equipment spending by plants in NAIC 335.

• Citing restructuring costs, higher steel prices and lower sales of Hoover floor care products, Maytag Corp. (Newton, IA) reported in October that its third quarter earnings fell almost 80 percent from a year earlier. Sales dropped 3 percent to $1.19 billion, compared with sales in the third quarter of 2003. In June, the company announced it would cut 20 percent of its salaried workforce, or 1,100 jobs, as it consolidated its Hoover and Maytag divisions. The company also closed its refrigerator assembly plant in Galesburg, IL.
• Whirlpool Corp. (Benton Harbor, MI) also blamed energy and materials costs for small third-quarter earnings growth despite strong sales. The company reported third-quarter 2004 net earnings of $101 million, compared with $105 million in the same period last year. Third-quarter net sales of $3.32 billion increased 6.6 percent from the same period last year. "During the third quarter we had record sales on continued strong consumer demand for our brands around the world," says Jeff Fettig, Whirlpool's chairman, president and CEO. "Our quarterly operating results were negatively impacted by raw material cost increases and record high oil prices. The magnitude of these cost increases could not be offset by our record level of productivity and overall business spending controls."
• Earlier this year, Electrolux AB (Stockholm, Sweden) announced that it is closing its refrigerator assembly plant in Greenville, MI. Greenville Wire Products Co., a supplier to the Electrolux plant, is also closing.

Miscellaneous Manufacturing

Although 17 percent of plants in NAIC 339 will spend at least $1 million on assembly technology in 2005, the industry as a whole will account for only 11 percent of total equipment spending in the United States next year.

All totaled, assemblers of pacemakers, forceps, dental drills, jewelry, fishing reels, pens, brooms, caskets and dolls will spend some $286 million on capital equipment in 2005. The average budget is $891,676.

Spending plans in NAIC 339 are virtually the inverse of those for the nation as a whole. Only 14 percent of plants will spend more on assembly technology next year than they did this year. That's less than half the figure for all U.S. plants. Similarly, 36 percent of respondents in NAIC 339 will spend less on equipment in 2005 than in 2004, compared with 20 percent for the nation as a whole.

If there is any substantial spending on assembly technology in NAIC 339, it will likely come from medical device manufacturers. For example, new product introductions and market share gains helped boost net sales at Medtronic Inc. (Minneapolis) by 19 percent for the 2004 fiscal year. Approximately two-thirds of Medtronic's revenues came from products introduced within the past 2 years, and the company increased its spending on research and development for the 2004 fiscal year by 14 percent, to $851.5 million.

At Becton, Dickinson and Co. (Franklin Lakes, NJ), 2003 gross revenue increased by 12 percent and net income increased by 14 percent. Cash flow from operations reached $900 million-more than twice that of 1999-and inventory turns have increased for 2 straight years to 3.15, reversing a decline during the previous 4 years. Thanks in part to the implementation of a new enterprise resource planning system, the company has reduced backorders in North America by 70 percent, and inventory accuracy at its distribution centers is at 99 percent or higher.

Rising in the Northeast

For the first time since 2002, the Northeast has increased its share of total U.S. equipment spending. Assemblers in this region encompassing Pennsylvania, New York, Massachusetts and six other states will spend $468 million on new equipment next year, accounting for 18 percent of total spending. That's still less than any other region, but it's significantly better than in 2003 and 2004, when the Northeast contributed just 11 percent to total equipment spending in the United States.

The average budget decreased from $519,555 in 2004 to $370,653 in 2005.

Only 6 percent of plants will allocate more than $1 million to assembly technology in 2005-half the percentage of 2004. However, 14 percent of plants will spend between $250,000 and $1 million, which is four times as many plants that spent that much in 2004.

Our survey results dovetail with the most recent data from the Federal Reserve Bank of Philadelphia's Business Outlook Survey, at least for the region encompassing Delaware, eastern Pennsylvania and southern New Jersey. Some 40 percent of the region's manufacturers reported increases in overall activity, new orders and shipments in October. Employment indexes were positive, and manufacturers reported a rise in prices for inputs and finished goods.

The "diffusion index of current activity," the survey's measure of overall manufacturing conditions, increased from 13.4 in September to 28.5 in October. The percentage of firms reporting increased activity (40 percent) exceeded the percentage reporting decreases (11 percent) for the 17th consecutive month. Some 40 percent of companies said new orders were higher, and more firms reported declines in unfilled orders (24 percent) than reported increases (18 percent).

The overall improvement in manufacturing is evident in responses regarding employment. The percentage of companies reporting increased employment (22 percent) was higher than the percentage reporting decreased employment (8 percent).

Conflict in the West

Will capital equipment spending increase or decrease in the West? It depends on who you ask. Nearly one out of every three assembly plants in the West will spend more on equipment in 2005 than in 2004, which is the most of any region in the country. At the same time, 32 percent of Western plants will spend less next year than this year-that's also a nationwide high and the most for this region in the survey's history.

Actual budget figures indicate that companies spending less will hold sway over spending in this 13-state region, which includes California, Colorado and Washington. The average budget went from $591,655 in 2004 to $285,000 in 2005.

Nine percent of plants in the West will spend more than $1 million on assembly technology in 2005, which is slightly less than the 12 percent that spent that much in 2004. On the other hand, 21 percent of plants will spend between $250,000 and $1 million on equipment in 2005, which is the same percentage as in 2004. Seventy percent of plants will spend less than $250,000 in 2005, compared with 67 percent in 2004.

All totaled, assembly plants in the West will dedicate $650 million to new equipment next year. That represents one-fourth of total capital spending in the United States, or about what the region contributed in 2004.

Some of that money will likely be spent in Long Beach, CA, where Hino Motor Manufacturing has opened a new assembly plant for trucks in Classes 4 through 7. Hino Motor expects to assemble 2,000 trucks by March 2005 and 10,000 trucks per year by 2006. Half of the components for each truck will be imported from Japan, while the other half will be made in the United States.

The Midwest Stays Ahead

In October, tractor manufacturer Caterpillar Inc. (Peoria, IL) reported record sales and earnings for the third straight quarter. "This is the strongest recovery we've ever seen across the broad spectrum of markets we serve," says Jim Owens, Cat's chairman and CEO.

In fact, Owens says the unprecedented demand for heavy equipment has actually stifled profits, because the cost of labor and material has increased to meet a nearly 40 percent increase in production.

Perhaps that's why, for the ninth straight year, the Midwest will spend more on assembly technology than any other region. Illinois, Michigan, Ohio and the rest of the Midwest will spend $936 million on assembly technology in 2005, amounting to 36 percent of total equipment spending nationwide.

The average budget decreased from $605,335 per plant in 2004 to $327,521 per plant in 2005. Nine percent of Midwestern plants will spend more than $1 million on equipment next year, a 9-year low for this region. However, 14 percent of facilities will spend between $250,000 and $1 million, compared with 9 percent in 2004.

The South Holds Fast

At press time, Arkansas residents were poised to vote on a referendum that would enable the state's legislature to issue bonds to develop the infrastructure for large manufacturing plants. In 2003, Arkansas lost a bid to bring Toyota Motor Co.'s new truck assembly plant to the state. Instead, Toyota chose to locate the plant near San Antonio.

The referendum-and a similar ballot measure in Alabama-exemplify the growing importance of manufacturing to the South. According to our survey, the 16 states that make up the South will account for 21 percent of equipment spending next year, a bit less than the 28 percent that this region contributed in 2004. In all, plants in Alabama, Texas, Virginia and the rest of the South will spend $546 million on assembly technology in 2005, a 7 percent decrease from the region's 2004 total.

The average budget figure decreased from $579,660 in 2004 to $327,521 per plant in 2005.

Although the number of plants with very large budgets decreased substantially, the loss will be offset somewhat by an increase in spending by small and midsized plants in the region. Nine percent of plants will spend at least $1 million on assembly technology in 2005, compared with 14 percent in 2004. However, 20 percent of plants will spend between $250,000 and $1 million in 2005, compared with just 7 percent this year. In addition, 72 percent will spend less than $250,000 in 2005, which is slightly less than the 79 percent figure in 2004.

Further evidence for a less substantial decrease in spending in this region can be found in manufacturers' spending plans. Just 8 percent of plants expect to spend less next year than they did this year-a nationwide low-and 62 percent will spend just as much in 2005 as they did in 2004.

Survey Method and Demographics

ASSEMBLY magazine would like to thank all the respondents who participated in its ninth annual capital equipment spending survey.

ASSEMBLY magazine is sent to 60,240 assembly professionals in more than 35,600 locations. Questionnaires were mailed June 28 to manufacturing managers and other professionals in similar positions, who hold the highest degree of equipment purchasing influence in a representative group of 2,500 plants. Fifty-two percent of respondents were corporate management, 37 percent were manufacturing management, and 11 percent were design management.

The cutoff date for returning the surveys was Aug 23. Some 269 surveys were returned for a response rate of 11 percent.

For statistical reliability, the survey was only sent to manufacturers in NAIC 339 and 332 through 336, which represent 94 percent of ASSEMBLY's readership. Manufacturers of wood products, plastic and rubber products, and furniture were excluded. By industry, 17 percent of respondents were in NAIC 332, 27 percent were in NAIC 333, 22 percent were in NAIC 334, 14 percent were in NAIC 335, 15 percent were in NAIC 336, and 5 percent were in NAIC 339.

Geographically, 22 percent of respondents were located in the Northeast, 40 percent were in the Midwest, 22 percent were in the South, and 16 percent were in the West.

Thirty-one percent of respondents had 25 employees or less, which is slightly higher than historical norms for the survey. In addition, 14 percent had 26 to 50 employees, 17 percent had 51 to 100 employees, 22 percent had 101 to 250 employees, 7 percent had 251 to 500 employees, and 9 percent had more than 500 employees.

Thirty-one percent of respondents assemble products that can fit inside a 12-inch cube, 21 percent make products that can fit inside a 24-inch cube, 13 percent make products that fit inside a 36-inch cube, 19 percent make products that fit inside a 6-foot cube, and 16 percent make products that are larger than a 6-foot cube.

Some 19 percent of respondents were high-volume manufacturers, 46 percent were mid-volume manufacturers, and 35 percent were low-volume manufacturers. Thirty-two percent of respondents were high-variety manufacturers, 42 percent were mid-variety manufacturers, and 26 percent were low-variety manufacturers.

Overall, the survey results have a sampling error of ±6 percent.