ABB (NYSE:ABB) has slowly built itself into a leader in automation technologies via both in-house product development and shrewd acquisitions. With its latest acquisition of B&R, ABB has transformed itself into an end-to-end provider of automation and robotic technologies. The global trend towards increased automation across all industries is very clear. The largest economy in the world, the U.S., may already be in the midst of a manufacturing renaissance powered by automation and robotics. In a recent article about Rockwell Automation (NYSE:ROK), I had stated that convergence of robotics, industrial automation and enterprise software is very likely. After studying ABB, I am convinced that the convergence is essential to drive productivity gains and to reduce costs in the long run. <\/p>\n
Until January 2016, ABB was comprised of five divisions: <\/p>\n
As of January 1, 2016, ABB streamlined its operations and organized under four divisions: <\/p>\n
o The power grids division, which was formed from the combination of its Power Products and Power Systems divisions, offers electrical and automation products, system, software and service solutions across the electric utility business. <\/p>\n
o This division offers solutions across the full electrical value chain from substation to the point of electricity consumption. <\/p>\n
o The products in this category include modular substation packages, distribution automation products, switchgear, circuit breakers, measuring and sensing devices, control products, etc. <\/p>\n
o This division provides products and solutions that increase industrial productivity and energy efficiency. <\/p>\n
o Products in this division are motors, generators, drives, power electronics and robotics. <\/p>\n
o This division offers integrated control products, systems and service offerings to customers in oil and gas, minerals and mining, metals, pulp and paper, chemicals and pharmaceuticals, food and beverage, power generation and marine industries. <\/p>\n
Discrete and Process Automation divisions accounted for 45% or about $15.3 billion of the revenue in 2016. In fact, automation has consistently accounted for over 40% of the revenue since 2008. <\/p>\n<\/p>\n
Exhibit: ABB Total Revenue and Revenue from Discrete and Process Automation (Source: Company Filings) <\/p>\n<\/p>\n
Exhibit: Discrete and Process Automation As a % of Total Revenue (Source: Company Filings, Author Calculations) <\/p>\n
ABB reports its revenue from the robotics business under Discrete Automation and Motion. Since 2010, the robotics business has seen a turnaround and it grew at a \"double-digit\" pace in 2011. ABB's robotics business continued to show growth in 2012 through 2016. <\/p>\n
Cage-Free Robots or Cobots <\/p>\n
Traditionally, for robots to safely work alongside humans, they needed to be in cages. Keeping robots in cages did help with safety of human workers, but it also made the manufacturing line inflexible and increased cost. But, a new range of cage-free robots or collaborative robots are bringing multiple benefits to the manufacturing line. These include: <\/p>\n
Also, as robots get smarter, faster and cheaper, they're being deployed to more tasks. ABB introduced its collaborative robot called YuMi in 2015. This product is an acknowledgement by ABB that collaborative robots are here to stay and could potentially be used in more tasks across different industries. <\/p>\n<\/p>\n
Exhibit: Number of Robots Sold in the U.S. is Increasing (Source: PWC) <\/p>\n<\/p>\n
Exhibit: Robots Taking on New Jobs in Different Industries. (Source: PWC) <\/p>\n
YuMi - Creating an Automated Future Together. You and Me. (Source: ABB Website) <\/p>\n<\/p>\n
Exhibit: ABB YuMi Collaboration Robot (Source: Company Website) <\/p>\n
According to the International Federation of Robotics, between 2010 and 2015, the average robot sales increase was at 16% per year compounded annual growth rate (CAGR). Between 2005 and 2008, the average annual number of robots sold was about 115,000 units. Between 2010 and 2015, the average annual supply rose to about 183,000 units. <\/p>\n<\/p>\n
Exhibit: Number of Industrial Robots Sold Worldwide (Source: International Federation of Robotics) <\/p>\n
The size of the industrial robotics market in the U.S. and the world as measured by number of units sold might seem less, but as robots become cheaper and more adoptable to tasks in different industries, its use will continue to grow. Even before ABB introduced the YuMi collaborative robot, it was seeing good growth in its robotics business. YuMi might increase the total addressable market for ABB. <\/p>\n
Acquisition of B&R <\/p>\n
ABB acquired B&R Automation in April of 2017. B&R had $600 million in revenue at the time of the acquisition. <\/p>\n<\/p>\n
Exhibit: Snapshot of B&R Automation (Source: Company Filings) <\/p>\n
This acquisition propels ABB into a leadership role in industrial automation and completes the product portfolio in this key segment that is a driver of Industrial Internet of Things (IIoT). <\/p>\n<\/p>\n
Exhibit: ABB Now Has a Complete Portfolio of Products for Industrial Automation (Source: Company Filings) <\/p>\n
The current low oil prices coupled with the low prices for metals and minerals has put a lot of pressure on these heavy industries to improve productivity and lower cost. It seems fairly certain at this time that barring a rise in geopolitical tensions, oil prices will remain low for the foreseeable future. As shown in the charts above, ABB generates substantial revenues from process automation and the use of robots and industrial automation is one way to achieve increased productivity. <\/p>\n
ABB is well positioned to take advantage of convergence of robotics and industrial automation. The B&R acquisition further strengthens ABB in the factory automation space. There might be more consolidation in the robotics space due to the convergence and also due to competitive forces. <\/p>\n
Disclosure: I\/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. <\/p>\n
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. <\/p>\n
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ABB: Dominating Industrial Automation And Robotics - Seeking Alpha<\/a><\/p>\n","protected":false},"excerpt":{"rendered":" ABB (NYSE:ABB) has slowly built itself into a leader in automation technologies via both in-house product development and shrewd acquisitions. Continue reading