Food and beverage industry to lead 2006 growth.

Pharmaceuticals and Biotechnology

Last year was yet another difficult period for the pharmaceutical industry. The performance of companies was varied as some of big pharma as well as specialty and generic drug makers, had another great year. However, problems at several of the world's

largest firms exemplified the industry's heightened struggles with patent expirations, a dearth of new products and price controls, none of which will fade any time soon. Such firms are undergoing major restructurings in order to contain costs and to develop, test and manufacture drugs more efficiently and effectively. The results are expected to be greater outsourcing, emphasis on overseas operations and more licensing deals. IMS Health estimates that in 2006 patents for $23 billion in drugs will expire.

The pharmaceutical market will grow 6%-7% in 2006 to $640-$650 billion, compared to growth of 7%-8% in 2005, according to IMS Health. Double-digit growth is expected in Central and Eastern Europe and China. IMS estimates generics will increase their share of the global market to 18%-19% in 2006 and oncology drugs are expected to remain the top selling therapeutic category.

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Benefiting from pharma's troubles is biotech. According to Burrill & Co., the US biotech industry raised a record $32 billion in 2005: $17 billion through financing and $15 billion through partnerships. Funding from partnerships increased 38%, and pharmceutical companies increased its number of discovery-stage partnerships with biotech. Also, the number of acquisitions of biotech companies by big pharma increased. But venture capital funding for biotech dropped slightly last year to $3.5 billion. In 2005, biotech drugs sales grew 16% and should increase 14%-15% to account for 8% of the world's drug market in 2006, according to IMS Health. Burrill & Co. forecasts biotech mergers and acquisitions to remain strong in 2006 and that between 30 and 40 biotech companies will go public. In 2006, the biotech industry is projected to raise $35 billion: $25 billion from public equity markets and $10 billion from partnering.

Chemicals

For the chemical industry, 2005 was a good year, even though high material costs and hurricanes curtailed growth. Although basic chemical production declined 6.6% in 2005, prices for total chemicals increased 9.5%, according to Chemical & Engineering News. However, high costs kept companies cautious in their spending. The American Chemistry Council (ACC) estimates capital spending by the chemical industry grew 11% in 2005 to $24.1 billion. According to a recent survey, ACC members plan to increase capital spending 10% this year and R&D is forecast to increase 3%, after growing 3.2% to $24.2 billion last year. ACC expects US chemical output to increase 2.7% this year, lead by specialty chemicals, whose output is estimated to grow 3.8%. The European Chemical Industry Council forecasts EU chemical production to increase in 2006, growing 2.6% and 2.3% respectively, compared to 2.5% and 1.3% in 2005. Leading the growth among EU companies in 2006 will be the production of pharmaceuticals, polymers and petrochemicals, whose volumes are expected to increase 3.5%, 3.3% and 3.0%, respectively.

Oil and Gas

In 2005, the price for natural gas nearly doubled, and average oil prices jumped 33%, almost equaling the 34% increase in average 2004 prices. Third quarter 2005 profits for oil companies listed in Standard & Poor's 500 Index increased 62%. First Call analysts expect full-year industry profit growth of 49% for 2005 and project a 13% jump in industry earnings in 2006. According to the International Energy Agency (IEA), global oil product demand suffered in the second half of 2005 because of soaring prices, droppIng 1.4% for the year. The IEA, however, expects a 22% global demand increase in 2006, as China alone is projected to increase its oil consumption to an annual average of 7.5% from 2002 to 2010.

Hydrocarbon Processing projects increases in global hydrocarbon industry spending across the board in 2006. Maintenance expenditures are expected to increase $2.1 billion to $50.1 billion and equipment and materials spending should increase $62 billion to reach $82.6 billion, with $7.8 billion slated for instrumentation. Chevron and Royal Dutch Shell, two of the top five oil companies, will increase capital spending in 2006 to $15 billion and $19 billion, respectively.

Semiconductor

According to Semiconductor Equipment and Materials International (SEMI), 2005 sales of semiconductor equipment is projected to fall 11.2% to $32.95 billion. SEMI anticipates continued capital spending for 300 mm fabs and 65 nm technology will lead to a 9.1% jump in 2006 sales, as well as sequential annual gains until 2008. Garter projects 2006 sales growth of 8.4%, citing growing equipment costs as an important factor in manufacturers' investments in new technology. Garter forecasts capital equipment sales to increase 8.4% to $36.4 billion in 2006, with a 33% increase in wafer fab equipment spending to $26.6 billion. Wafer processing equipment, the largest product segment, is expected to increase 6.8% to $24.5 billion in 2006, after dropping 9.7% in 2005. In Japan, the largest equipment market, sales dropped 2.8% in 2005 to $8.04 billion, but SEMI projects Japan's 2006 sales to grow 6.7% to $8.58 billion, in South Korea, the fastest growing equipment market, sales grew 27.8% to $5.89 billion in 2005. SEMI predicts South Korea's market to expand 7.9% in 2006 to $6.36 billion.