Automation giant ABB today outlined its growth initiatives through 2011, predicting strong worldwide demand for power systems and infrastructure, and a surge in manufacturers' investments in technology to improve productivity and energy efficiency in plants.
During a press conference today at the World Trade Center in Zurich-Oerlikon, Switzerland, ABB officials confidently predicted that the company will increase revenue organically at almost twice the rate of global gross domestic product (GDP). World GDP will grow 3.4% through 2011, according to economic forecasting company Global Insight. Meanwhile, ABB is on a trajectory to grow revenue by 6% in the global market, and hopes to increase that rate to 8% to 11% on a compound annual basis between now and 2011.
The company has positioned itself for continued growth by divesting non-core businesses — most recently with the sale of Lummus Global to Chicago Bridge & Iron — and reporting consistently strong earnings. Since 2004, ABB has delivered 17 consecutive quarters of performance improvement, showing a compound annual growth rate of 9%.
The divestitures have left ABB focused on power and automation offerings, with core businesses that include Power Products ($7.4 billion in revenue); Power Systems ($4.5 billion); Automation Products ($6.8 billion); Process Automation ($5.4 billion); and Robotics ($1.3 billion). All of the groups, while run separately, have interconnecting technology.
"We are not a conglomerate; we are a focused engineering company," said Fred Kindle, ABB's president and CEO during the press conference. "This focus is a sound basis for the next five years. There's no need to dramatically change anything."
Moving forward, the company said it will leverage its existing portfolio — with a few minor technology acquisitions likely thrown in — and its engineering prowess to capitalize on the opportunities in both mature and emerging markets. ABB's power businesses will fuel much of the company's growth activity, as the need for reliable electricity supplies and infrastructure buildup grows in emerging economies. The Automation and Process Systems divisions are also expected to benefit from manufacturing build-out in the oil & gas, pulp & paper, chemicals, metals, and marine segments.
ABB plans to grow revenue in its Automation Products division, which consists of drives, power electronics, and low-voltage systems, by 8% through 2011, with an EBIT margin ranging from 14% to 19%. The Process Automation group, which is responsible for the System 800xA, ABB's distributed control system (DCS), is forecast to grow revenue by 8% and maintain an EBIT margin of 9% to 14%.
ABB's predictions for its process business fall in line with ARC Advisory Group's forecast for the overall DCS market, which the analyst group says should grow at a compound annual rate of 9.9% through 2011.
ABB is the top DCS supplier in the world, according to ARC Analyst Larry O'Brien, followed by Honeywell and Invensys. O'Brien told Managing Automation that while it's difficult to differentiate technologies these days, ABB's biggest competitive strength is its installed base, which covers more than a dozen different platforms. He also singled out ABB's vertical industry expertise "and a strong solutions and services capability."
ABB's growth prospects dovetail with those of the other automation vendors, all of which will benefit from strong market conditions in the next five years, O'Brien said. "It's a good time for everybody to be in the automation business. Everybody is growing right now and there's room for everyone," he said. "The real question is, what will happen when the market slows down? That's when things get interesting."
There's no slowdown in sight through 2011 for ABB. It is seeking strategic acquisitions to help strengthen its product portfolio and has screened more than 100 companies as possible targets, officials said. Pricing has so far been the hindrance.
"It takes two to tango, and while we've found quite a few dance partners, the ticket price to dance was too high," Kindle said. ABB is targeting companies assessed at $500 million or greater in mature economies, and $200 million or above in emerging countries, he said.