After years of fiscal frustration, automation and control vendors are finally on the rebound, reporting solid sales and ascending net incomes in the final months of 2005.
Most of the major suppliers, including ABB Group, Emerson Electric Co., Invensys plc, Rockwell Automation, Schneider Electric, and Siemens AG, had strong quarters, traced directly to growth within process automation and control groups.
For instance, ABB and Schneider reported a 13% and 14.3% surge in sales in Q3, respectively, over the prior like periods. Emerson and Rockwell Automation flourished at the finish of their fiscal years; Rockwell even hit a record $5 billion in sales. And while more diversified companies like Invensys and Siemens showed some areas of weakness, that was offset by sturdy sales in their respective process and automation businesses.
All automation vendors point to the build-out of facilities in China and India as a major contributing factor to growth, as well as worldwide demand for upgrades in the oil and gas industry. But the real reversal of fate for these companies came from within. New executive leadership, internal reorganization, cost-cutting across the board, and IT investments are beginning to pay off.
"During the lean years these companies have become more efficient and they practiced what they preach," says Craig Resnick, an analyst with ARC Advisory Group. "Siemens, Rockwell, and ABB are just as much manufacturers as they are automation suppliers. So they've automated further, put in principals of lean and Six Sigma, and lowered costs for themselves."
Emerson, for example, attributed its 18% increase in Q4 net earnings directly to ongoing restructuring-related cost-cutting. Meanwhile, Rockwell invested $124 million in IT systems over the past year in an effort to streamline processes globally.
The result of such internal efforts is newfound profitability. It's not huge at this point, but it's healthy. "It's not like these companies are growing 20% to 30% per year," Resnick says. "It's high single digits, low double digits. But during the last few years they've cut so much fixed cost out of their businesses across the board, the fulcrum point has moved and now they don't have to sell a whole heck of a lot to become profitable."
This article originally appeared in the January 2006 issue of Managing Automation magazine.