March 5, 2010    Volume 17, No. 4

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U.S. Precision Machine Tool Industry Is No Longer A Global Competetitive Force

By Richard A. McCormack

U.S. producers of some of the most technologically advanced machine tools are in trouble, according to an assessment by the Department of Commerce. Sales of high-precision five-axis machine tools are declining. U.S. share of global exports is in a freefall. Foreign companies in China and Taiwan have caught up with U.S. technical capabilities, rendering stringent U.S. export controls moot. U.S. companies are being purchased by foreign rivals. A lack of training programs has created a shortage of skilled workers able to use the complex machinery. Commercial and U.S. government customers prefer foreign machine tools. Export controls are hampering foreign sales. The entire U.S. machine tool industry spends only $1 million a year on research on five-axis machine tools.

These are some of the findings from a "Critical Technology Assessment" conducted by the Commerce Department's Bureau of Industry and Security.

U.S. producers of five-axis machine tools had sales of $253 million in 2008, down 11 percent from 2005 sales of $284 million. That was before the U.S. machine tool industry suffered a meltdown in 2009, when domestic consumption tumbled by 60.4 percent, according to the Association of Manufacturing Technology.

Sales of five-axis machines to domestic customers from U.S. producers declined by 19 percent from 2005 to 2008, from $242 million in 2005 to only $195 million in 2008. There are six American companies dedicated to producing five-axis machine tools, and at least 20 in China. Five-axis tools are used for the production of precision components in the aerospace industry, in making gas and diesel engines, automobile parts, and throughout the medical, textile, oil, glass, heavy industrial equipment and tool industries. "Many other industries are discovering the advantages of these machines," says the Bureau of Industry and Security (BIS).

Yet "only a handful of U.S. producers actually manufacture five-axis machine tools in high volume and most generate less than 10 percent of their annual net finished machine tools sales from five-axis machine tool business lines," according to the market and technology research report from BIS.

U.S. producers of five-axis machine tools exported only $58 million worth of equipment in 2008. In a tally of global exports of all machine tools, the United States -- with exports of $740 million -- accounted for only 4.3 percent of global exports in 2007.

In its survey of 61 American end-users that purchased 502 five-axis machine tools worth a combined $900 million, imports accounted for 70 percent of purchases. "Across model types, the number of imported models greatly surpasses the number of domestic models for grinders, mill/turns [and] machining centers," says BIS. "However, domestic-produced mills slightly outnumbered imported mills." The average purchase price for a five-axis machine tool was $330,000.

BIS also surveyed 109 U.S. machine tool distributors. It found that 80 percent of the five-axis machine tools they sold in the United States between 2005 and 2008 were imported, with Japanese and German machines making up the majority of models. "Five-axis machine tool distributors, most of which are selling only non-U.S. five-axis machine tool models, have clearly positioned themselves more effectively in the domestic market," says BIS. "The growth rate of distributor domestic five-axis simultaneous control machine tool sales in 2005-2008 was 3 percent," says the study. "This compares to a precipitous decline of 20 percent in domestic sales among U.S. producers over the same 2005-2008 period."

There are not many U.S. producers of five-axis machine tools. Only six of the 109 U.S. machine tool companies surveyed devote 25 percent or more of their current production capacity to these high-end machines. The remaining producers of machine tools have either shifted production to other machine tool lines, or have moved production offshore. Other producers say U.S. export restrictions have forced them out of the business.

Companies making five-axis machine tools in the United States take a lot longer to build them than foreign rivals. BIS gathered information on 477 five-axis models, 96 of which were produced in the United States and 381 of which were imported. "BIS found that U.S. producers take almost twice as long as foreign producers to manufacture custom-built models, on average," says the study. "However, U.S. producers were able to manufacture standard models 25 percent faster than their foreign competitors."

Custom-built American models contain 84 percent U.S. content (with eight models reporting 100 percent U.S. content). "In contrast, 87 percent of reported imported machine tool models contained an average level of only 3 percent U.S. content," says the study.

BIS asked end users to assess U.S. and non-U.S. producers on 21 purchasing factors, including such things as spindle speed, machine durability and precision and repeatability. "The United States has a competitive advantage in only one -- service/support," says BIS. "These findings are consistent with U.S. customers' high demand for non-U.S. produced five-axis simultaneous control machine tools. A majority of purchasers do not have any domestic produced machine tools of this type in their capital stock. Several end-users claimed that they were not aware of any domestic producers capable of meeting their purchase needs. One commercial end-user responded in the survey that, 'The overall precision, accuracy, machine tool features and control capability is not available in the United States with reasonable delivery or cost."

BIS found that half of the commercial five-axis machine tools are purchased for government contracts. The majority of these purchases are used solely for the purpose of government work. "Non-U.S. produced models made up 64 percent of five-axis simultaneous control machine tool models in the inventory of U.S. government contractors," says BIS.

BIS also assessed foreign producers of five-axis machines. It found that not one of the 45 companies that are indigenous to Brazil, China, India, Russia and Taiwan use U.S. technology, parts, components or materials. China has 20 indigenous five-axis machine tool companies; Taiwan has 22. None of these companies have to deal with the types of export restrictions facing American firms. As a result, these companies are able to produce all the machine tools that are in demand in China and Taiwan, plus they are "able to produce in sufficient quantity to export to other LRCs," says BIS.

One of China's five-axis machine tool makers has 24 distinct models. China now has 28 companies capable of building more than 1,000 CNC machine tools. There are 130 Chinese companies with annual capacity of more than 100 machine tools. The country is now supplying most all of its own demand, with only 10 percent of the market being supplied through imports. "In 2005, approximately 59,600 units of CNC machine tools were produced in China," according to the BIS report. In 2007, the combined amount of CNC metal-cutting and forming tools produced in China was 126,268, more than double the amount produced in 2005. China is now supplying its own demand for five-axis machine tools used throughout its military.

The BIS quotes the Export Compliance Working Group of the American Chamber of Commerce in the People's Republic of China as saying: "Given the existing domestic and joint venture development and the foreign availability of high-level machine tools, U.S. companies could not make a material contribution to China's military development. China's military demands are already satisfied by domestic and foreign supply."

The United States exported 515 five-axis machine tools between 2005-2007, and only 12 of these went to China. DMTG, China's largest producer of machine tools, exports products to more than 100 countries.

The Bureau of Industry and Security is in charge of licensing the sale of five-axis machine tools for export. From 2004 to 2007, it issued licenses for the sale of 148 machines, but only 34 of them were sold and delivered. BIS asked the U.S. producers and distributors who applied for the export licenses why so few of the orders were fulfilled. "Many respondents indicated that the customer cancelled the sale after the export license was obtained or bought a competitor's product," says BIS. "One Chinese customer cancelled a sale because it took the U.S. company seven months to obtain an export license, and in the end, the license conditions were too extreme in the customer's view."

The number of licenses issued for export of five-axis machine tools to China dropped from nine in 2006 to only three in 2007. "As one exporter noted, 'the costs associated with the uncertainty of obtaining a license [and] the protracted process and impact on customer relations offset the financial rewards of pursuing the [five-axis] business.' "

The few remaining U.S. producers all said that export controls are impacting their ability to remain competitive globally. Foreign customers can obtain the comparable systems much faster from European and Japanese companies. European and Japanese governments process export licenses twice as fast as U.S. export control agencies. One U.S. five-axis machine tool producer told the BIS analysts: "Foreign entities with knowledge of the multi-axis simultaneous control machine tool industry view the U.S. export control policies and requirements as an additional burden to consider when dealing with U.S. multi-axis machine tool manufactures." As a result, they no longer even consider U.S. producers when shopping for five-axis machine tools.

The report is located at defenseindustrialbaseprograms/osies/defmarket researchrpts/final_machine_ tool_report.pdf.

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