World news: August 2012
Global automation market is growing twice as fast as industrial production
The global factory automation market is growing more than twice as quickly as industrial production as a whole, and has one of highest operating margins of any sector of industry, a new analysis by the Swiss bank Credit Suisse has revealed. In a detailed report on the global automation market, the bank values the discrete factory automation market at $72bn and the process automation market at $83bn.
The analysis, running to 110 pages, shows that the factory automation market has grown by an average of 7.6% per year since 2003 – or 2.1 times the rate for global industrial production. Credit Suisse sees scope for it to grow even faster in future. This is partly because the efficacy of discrete automation is “becoming increasingly important, yet penetration remains low in many markets, offering scope for increased penetration to drive growth”.
Another factor is that wages in China have now risen to the point that will trigger a surge in automation investments, the bank believes. Although it expects the growth rate of most industrial end-markets in China to slow down, it thinks that industrial automation will be an exception and predicts that sales of discrete automation could grow at a CAGR of 15–40% over the coming four years.
The biggest end-user market for discrete automation – the automotive sector, which accounts for about 35% of global sales – is predicted to boost its spending in the next few years, driven by stronger OEM balance sheets and by increasing competition based on new models and technologies, rather than price.
Credit Suisse predicts that the coming years will also see accelerated convergence in the automation sector, both on a vertical basis (with automation vendors offering a broader range of products) and on a horizontal basis (with a gradual merging of the discrete and process automation markets).
Mergers and acquisitions will play a key role in this convergence, with Credit Suisse suggesting that Emerson Electric is the company most likely to make large strategic moves. It says that Invensys is the major player most likely to be acquired.
In terms of technologies, the bank’s analysts expect 3D “printing” to become an increasingly important manufacturing method.
Companies operating in the automation sector enjoy above-average operating margins and Credit Suisse expects this to continue. It points out that industrial automation vendors enjoy some key advantages, such as: a lack of significant penetration (so far) by Chinese competitors; a diverse customer base; a high degree of market consolidation; limited competition from new entrants; good price discipline; and a variety of routes to market.
The report, which a team of eight Credit Suisse analysts has produced for its clients, profiles 36 automation vendors. It recommends several automation companies as promising investments. In addition to major players such as Rockwell Automation, Siemens, Mitsubishi Electric and Fanuc, these include Keyence of Japan, and two Taiwanese suppliers, Teco and Delta Electronics.
The bank describes Keyence as “a highly profitable, cash-rich company capable of sustaining organic profit growth” with “extremely high growth potential”. At a time when other Japanese automation suppliers have been reporting declines in revenue, Keyence has achieved a 4% year-on-year growth rate and has an operating margin of more than 40%.
Credit Suisse says that Teco, which has about 10% of the global motors market, is expanding its activities into areas such as system automation and windpower. The bank forecasts that Teco’s motor revenues will expand at a CAGR of 8% from 2011–2014 and that system automation, which accounted for 13% of its sales in 2011, will be its next growth driver.
Finally, although industrial automation accounts for just 8% of Delta Electronics total revenue, it represents about 20–25% of the Taiwanese company’s operating profits. Credit Suisse believes that Delta is in a good position to boost its share of the booming Chinese market, which will drive its business in the coming years.