Frost and Sullivan forecast: PXI to disrupt automated test
Frequent readers of the Test Cafe blog know that I am bullish on modular instruments, such as PXI or AXIe. This column has pointed out the many benefits modular instrumentation brings- higher speed, smaller size, flexibility, all leading to a lower cost of test. Combine that with industry dynamics that couple Porter’s 5 forces with Nobel Laureate John Forbes Nash’s game theory mathematics, and you have the making of a disruptive change in the marketplace. PXI, in particular, is destined to grow big. But how big?
Along comes Frost & Sullivan with their PXI market forecast. And it is stunning. They predict PXI to achieve $1.75B in annual sales by 2020, up from $563M in 2013. That’s an aggregate growth rate of over 17%. Not bad for an industry that has an overall secular growth rate of 3 percent.
I recently spoke with Jessy Cavazos, the author of the study. My first question was regarding the methodology of the study. After all, forecasts are difficult, especially those about the future!
Jessy described a process that is based on primary research, including interviews with major vendors. These interviews identify factors that drive or restrain adoption. These are entered into a proprietary forecast model that assigns impact from each factor. Combine all of this with accurate historical data, and the model generates a revenue forecast. The results are analyzed to see if they pass the sniff test, which may lead to more iterations. Forecasts are reviewed years later to test the reliability of the methodology. For example, the 2010 prediction of the 2013 PXI market proved to be remarkably accurate.
Fair enough. My own special process aligns well with the Frost and Sullivan results, so lets go with them. The top five growth drivers identified by Frost & Sullivan should be of interest to Test Cafe readers:
1. 5G wireless communications. “The success of PXI in 2013 was mainly the result of greater penetration of the platform into the RF wireless market”, Jessy told me. While we don’t know what 5G will be, it’s a good bet that massive MIMO (Multiple Input Multiple Output) will be part of it. Modular is a direct hit, since it is a fundamental match to multiple transmitters and receivers simply by adding more modules. “With products being designed, validated, and tested becoming increasingly multichannel”, Jessy said, “the transition from traditional instruments to modular instruments is expected to continue.” My summary: Where test and measurement is concerned, MIMO should be redefined as Modular Instruments Meet Opportunity. 5G has the capabilities of scrambling the winners and losers.
2. Non-wireless communications: Mil/aero and semiconductor. Test Cafe readers are familiar with PXI addressing mil/aero applications, and the recent microwave introductions will accelerate this trend. Jessy added that PXI is “starting to make some inroads in the semiconductor ATE market”, and particularly noted NI’s recent introduction of a PXI-based semiconductor tester. A number of forces are allowing key semiconductor segments to be effectively addressed with PXI. Jessy claimed that the report was conservative in forecasting the impact due to semiconductor, “However, if these trends continue, this driver could have a greater impact on the market over the forecast period than currently forecasted.”
3. Wireless technology proliferating to industrial and consumer devices. Here’s a great example of addressing an adjacent segment. Take a game console, for example. Wi-Fi and Bluetooth abound, already addressed by PXI due to the focus on wireless communications. Add some digital I/O and choose from the thousands of PXI modules available, and you can test any part of a gaming system.
4. Increased penetration in R&D applications. Many people think of PXI as a manufacturing test platform. True, that is its major segment due to the speed benefits it provides. But R&D applications are on the rise too. Many R&D applications are automated, such as design validation. Indeed, we should expect all the 5G applications in the forecast period to be research and development, not manufacturing. An interesting generational point Jessy makes is that “while many engineers were brought up to use box testers and interact with a box and written procedures, the new generation of engineers is used to interacting with computers and would rather interact with a software environment or write a software to perform a test than complete the task manually.”
5. PXI product innovation. PXI blows away the standard architectures well known in traditional rack and stack ATE. This enables new architectures that deliver increased speed and flexibility. This column has covered many of the architectural choices adopted by vendors. Programmable FPGAs, DSP co-processing, driver based instrument control, and measurement science all play a role. It is a rich environment for architectural innovation. Big investments are further accelerating the adoption rate, as each generation of products become more compelling.
With these big gains, what is the balance between traditional instrumentation and modular? Jessy forecasts PXI capturing over 29% market share by 2018, but that includes a significant amount of bench-only products in the total market. The growth trend implies a third of the entire market by 2020, and conceivably majority share of the automated portion in the early 2020s.
Indeed, take a look at chart of PXI revenue by year, below.
PXI grows at a very steep ramp, even in the out years. Let’s do a little arithmetic. If the growth rate of automated test equipment is in low single digits, and PXI grows at double digits while exceeding 30% market share, all the growth is occurring in PXI. That’s the math. Some categories, such as power supplies, may be minimally affected, but that just means the remaining categories are affected even more. Bottom line: traditional instruments stutter, while PXI soars.
The consequences of this are multi-dimensional. All of Porter’s 5 forces will be bringing economies of scale to modular platforms. PXI won’t be a mystery to users; it will be mainstream. Higher volumes will drive down costs even further. Big revenues will attract even bigger investments, and more innovation. A virtuous cycle will be developed that increases all of these advantages. The next decade promises to be one where PXI and its modular brethren will be the mainstream architecture.
And that is the essence of the modular disruption. Prepare for it.
To find out more about the Frost and Sullivan report, you may contact Jessy Cavazos at Jessy_Cavazos@frost.com