Figure 1. Total large scale UPS systems market: unit shipment and revenue forecasts, Europe, 1997-2007
The market for uninterruptible power supply (UPS) systems in Europe is experiencing a boom that has caught it unawares. Suppliers of UPS systems are struggling to meet customer orders and are expanding their manufacturing capabilities in moves similar to those of the gas turbine manufacturers trying to keep up with demand in North America.
The need for high quality and highly reliable power supplies – six nines and above – from ‘new economy’ activities led to unprecedented levels of growth in this already mature market last year. According to a new report from market consultants Frost & Sullivan, the UPS market in Europe grew by over 18 per cent in 2000 and will see growth of 17 per cent in 2001.
Frost & Sullivan has examined the market for large scale stationary and rotary UPS systems across western Europe, projecting trends to 2007. Over the next few years, the market is expected to grow, although at reducing levels, and by the end of 2007 is projected to be worth over $635 million.
The growth in Europe’s UPS market has been driven by a combination of new economy activity and the increased importance of reliable power supplies for certain sectors of the economy. Many companies are beginning to realise the advantages of UPS systems, particularly when their cost can be recouped after just one power loss event.
- Internet popularity: The internet is rising in importance, and has driven the installation of networking links, datacentres and other purpose-built facilities that serve as the backbone of the new economy. This first phase of infrastructure development involves the expansion of fibre optic networks to link major European cities as the demand for bandwidth rises.
- Telecommunications: An increased demand for high-speed links on a national and international scale has helped to drive demand for back-up UPS in the past few years.
- Financial sector: Financial services companies are finding it increasingly important to secure reliable power supplies around the clock. Power outages can lead to millions in lost revenues, and the popularity of on-line transactions and e-commerce based services has made back-up power systems indispensable.
- Internet ‘hotels’: Goldman Sachs has estimated that the European market for web hosting will be worth $16 billion by 2005. Secure internet installations, known as ‘internet hotels’ require large amounts of power and internet service providers (ISPs) are sceptical as to the ability of utilities to provide power of the quality and reliability needed.
- Third generation mobile networks: The next generation of mobile telecommunications technology will require the installation of UPS systems.
- New construction: It is becoming increasingly common for new buildings to incorporate UPS systems as standard.
- Industrial sector: There is an increased awareness in Europe of the impact on operations from power failures. As more advanced technologies are employed by industrial companies, back-up power systems become indispensable to prevent damage to equipment and lost production.
A mature market
According to Frost & Sullivan, these drivers have taken the UPS market by surprise: many companies did not forecast the increase in demand and are now having to make adjustments to keep up with the high level of orders. Order books are still full and companies are having to be selective with projects based on revenue generation, component supply and project commissioning dates.
Most manufacturers have implemented double-shifting and are increasing their manufacturing capacities. The lead time for UPS units has increased to around 6-9 months from 3-5 months, and is likely to remain at this level until mid-2001.
Figure 2. Total large scale UPS systems market: market share analysis of major market participants, Europe, 2000
The inability of manufacturers to service demand has been highlighted by the willingness of customers to pay higher rates for units to ensure completion to schedule, and also to pay in advance to secure key system components.
Although a mature market, the European large scale UPS market grew rapidly between 1997 and 2000, with further growth forecast until at least 2007. During 1997, the market generated revenues of $317 million based on unit sales of just under 4800. By the end of 2000, this had risen to just over $433 million from shipments of around 7500. Revenue growth in 2000 alone was calculated by Frost & Sullivan to be 18.8 per cent. In 2007, unit shipments is forecast to have increased to 12 863, generating revenues of $635 million.
Static units constitute the majority of all units sold and most market participants compete in this sector. These units accounted for around 97 per cent of units sold in 2000, with rotary units accounting for the remaining three per cent.
The proportion of static to rotary units shipped is not expected to change much between 2000 and 2007. Static systems are a more popular choice with end-users due to their price, reliability and availability.
Geographically, the UK, France, Italy and Germany are generating the most revenues for UPS companies. In 2000, the UK was by far the largest market in Europe, accounting for over 24 per cent of unit shipments, including a significant proportion of rotary units. Demand here was driven primarily by internet-related installations.
France was the second largest market in 2000 with 16 per cent of unit shipments, followed by Italy and Germany.
According to Ian French, industry analyst at Frost & Sullivan, the impact of the internet and telecoms boom has been more prevalent in the UK than elsewhere in Europe. Many ISP and telecom companies are choosing to base themselves in the UK, and are more aware of the merits of UPS and back-up power systems for their businesses, largely due to US experience filtering across the Atlantic.
But in spite of the growth forecast for the European UPS market, Frost & Sullivan believes that several factors will restrain the market.
- The inability of manufacturers to service demand will have a high impact over the short term (1-2 years) and a medium impact over the medium and long term (3-6 years). The current levels of demand have taken the industry by surprise and companies have been forced to expand their manufacturing capabilities by up to 200 per cent. This inability to service demand led to a large amount of lost revenue in 2000, but the backlog could be cleared in 2001.
- Improved power quality: deregulation across Europe has forced utilities to pay more attention to the needs of their customers. Power supplies have therefore improved and for some companies power quality is not an issue.
- UPS is a mature market: Market buoyancy is expected to be strong only in the short to medium term as the UPS market is already mature in Europe: Once the initial demand from the ‘new economy’ end users has tailed off, growth levels will decline.
- Long unit life: The use of good quality components in UPS systems will impact the replacement market in the long term.
During 2000, up to 30 companies were competing in the European UPS market. Competition was strong, leading to a high level of consolidation in the industry. Leading players within Europe include MGE, Socomec, Piller, Chloride and Liebert.
Figure 3. Total large scale UPS systems market: pricing trends, Europe, 1997-2007
As demand grew in 2000, competitive levels fell off and consolidation ceased. However, as market growth slows, Frost & Sullivan expects competitive pressures to re-emerge and for the leading market participants to consolidate their positions.
A strong determining factor in the competitive environment is the level of service provided to the customer. Suppliers are now providing quality service and maintenance contracts backed with guarantees linked to performance, as well as complete installation packages.
Some companies have suggested that the market for quality power supplies may develop to include UPS manufacturers acting as ‘independent power providers’s. This type of service is currently rare, although Frost & Sullivan believes that more companies will start to offer this option among their products and services.