VDC Research: Industrial Sensing, Networking & Control Market Blog

B&B Electronics Catching PAC Man Fever, Acquires Conel and Quatech

After a hiatus from blogging I thought I would get back into the fray by writing a quick blog about B&B Electronic's recent acquisition of Conel, a Czech based supplier of wireless communications routers, gateways and devices that connect cellular networks to Ethernet, serial and other data networks.

The acquisition further expands B&B’s European footprint, as well as strengthens B&B’s position in the fast-growing wireless market by extending its reach into cellular communications networks.  In Q4 of 2011, B&B acquired Quatech, Inc., an industrial networking company with a complementary product line that included an industrial-grade embedded OEM wireless technology platform sold under the Airborne brand name.

“The Quatech and Conel acquisitions are consistent with our strategy of rapidly growing our market share and deepening our technology solutions,” explained Sean Harrigan, B&B’s president and CEO.  “As our industry continues to consolidate, we plan to remain aggressive in seeking out a wide range of opportunities that will strengthen our position, product breadth and the value we bring to our customers.”

I must admit that B&B Electronics was not on my radar screen of companies that I would have foreseen playing the role of PAC Man. In hindsight, B&B Electronic is a prime example of a company that was realizing that its prospects of longer term success as a small/mid-tier player where to either grow by acquisition or likely be gobbled up by another larger player seeking to reach its growth based MBOs.

In VDC's Wireless Industrial Networking Infrastructure Products market study I made the observation that, for the most part, companies looking to succeed in the longer term would have to decide on, and act on, a strategic course of action that basically boiled down to three options, 1) gain share through both organic and acquisitive growth, 2) remain a niche player serving segments which a strong beachhead exists, or 3) be prepared to be acquired by another company seeking to either fill a gap in their product/technology/service portfolio. In rare instances a supplier may eventually go out of business if they are not serving a defensible niche segment and/or are growing via acquisition.

Following a PAC Man strategy will likely play a very active role in shaping the competitive landscape in the industrial automation space for some time to come.

PAC Man Strikes Again in Level Measurement Markets - MSI Acquires Assets of Cosense

Just having completed the final PowerPoint slides, which includes commentary on M&A activity in the level market segments, in support of the first two of four reports in support of VDC's 2011 Process Level Measurement and Inventory Tank Gauging Market Intelligence program, Measurement Specialties Inc. (MSI) decides to acquires the assets of Cosense, Inc. The purchase price was $11.5 million and the transaction was closed on April 2, 2012.

Cosense is a designer and manufacturer of ultrasonic sensors and systems for highly reliable OEM Fluid measurement and control applications such as liquid level monitoring, air bubble detection, flow sensing, fill verification of liquids and solids for semiconductor, medical, aerospace, and industrial applications. MSI is covered in VDC's level research as a supplier of hydrostatic level measurement devices so the acquisition is a move designed to broaden MSI's reach into the sonic/ultrasonic market segment which represents a >$250 million opportunity worldwide.

Frank Guidone, MSI's CEO commented, "Cosense's ultrasonic sensors are an excellent addition to our current product portfolio and fit nicely within our Piezo product line. Cosense products are used for single-point, multi-point, and continuous liquid level measurement, along with entrained bubble detection. Their innovative solutions are very complementary to our existing product offering, particularly within the high-purity semiconductor, medical infusion pump, and commercial aerospace markets."

MSI did not provide VDC with any advance details on the acquisition but its actions confirm VDC's belief that the market for process level measurement technologies is continuing to consolidate as companies face the omnipresent pressure to achieve their growth objectives through whatever means necessary. Acquisition of new products/technologies is one strategy employed by businesses across all product and/or technology markets across the world and the process level measurement market is no exception.

PAC Man Strikes Again in UPS/Surge Markets, ABB Acquires Thomas & Betts

After a long hiatus I have decided to get back on the blogging trail with albeit a belated blog about ABB's acquisition of T&Bat the end of January. I must admit that the bulk of the deal centers around T&Bs manufacturing of low-voltage and ultra low-voltage electrical products such as connectors, conduits and fittings as well as wiring management products for the construction, industrial and utilities markets. These are products complementary to the offering of ABB’s Low Voltage Products division, which includes products such as breakers and switches.

ABB previously acquired Newave back in December 2011 as a means of broadening its UPS offerings which one of my colleagues blogged about at the end of 2011 based on our Power Protection market intelligence. Of interest to this particular blog is T&Bs line of hard wired surge protection products and industrial UPS solutions and T&Bs  network of more than 6,000 distributor locations and wholesalers in North America which complements ABB's well established distribution channels in Europe and Asia.

Time and again VDC's research, which relies on feedback from extensive web and phone surveys, reveals that most customers are increasingly desiring to partner with suppliers that can provide a complete product portfolio but also best in class service and support. ABB instinctively realizes that in its corporate DNA and has completed a number of acquisitions in different markets in which VDC provides coverage, including process level measurement and HMI solutions.

Through its acquisition of T&B, ABB will be able to provide its customers a more complete selection of UPS and hard wire surge solutions with which to meet their needs and help them to move effectively compete in their respective markets. It also provides ABB a strong beach head from which to gain market share in the hard wired surge protection markets and the industrial UPS segments, both of which T&B has a solid footprint.

The overall market for power protection solutions is quite large but also fragmented on some levels, thus VDC anticipates seeing more PAC Man activity as suppliers continue to seek revenue growth not just through organic new product development initiatives.

Siemens Shakes Up Industrial Networking Market with RuggedCom Acquisition

Having just blogged last Thursday about the recent tactic by RuggedCom management’s to employ a ‘poison bill’ delay in order to search out more attractive suitors who might outbid Belden’s C$280 million (C$22/share) ‘hostile’ bid, little did I know that Siemens would act so quickly by agreeing to acquire RuggedCom for about C$382 million (C$33/share) on Monday.

The offer represents almost a 40% premium to Belden’s initial offer and certainly seemed a little rich to me. However since I did not have privy to RuggedCom’s real financials it is speculation on my part and I would give the folks at Siemens the benefit of the doubt that they can realize a decent ROI over the longer term. The real value of the acquisition is that it likely opens up the opportunity for Siemens to sell their larger portfolio of solutions to RuggedCom’s core markets of electric power (smart grid), transportation and military, markets for which over 90% of revenues are derived and for which Siemens lacks a strong presence.

Siemens was one of the potential suitors I blogged about back on 1/06/12 that may have been considered as an interested party in RuggedCom. However I must admit I did not view them as being on the top of my short list despite Siemens being one of the top 5 industry leaders in both the interconnect product and networking component segments comprising the industrial networking infrastructure products market.

In hindsight the acquisition does seem to fit with the rumors I am hearing during discussions with suppliers in the process level measurement markets who are constantly complaining about the tremendous amount advertising Siemens is spending to support products which these suppliers question are generating sufficient revenues to warrant such spending. Siemens’ Industry Automation Division had 2011 revenues well in excess of $8 billion and has traditionally lacked a really strong beachhead in the Americas and Asia-Pacific, at least in terms of its industrial networking presence.

Personally I see this acquisition creating a real horse race in the $3.7 billion industrial networking (wireline and wireless segment 2012 forecast) infrastructure markets with Cisco, Belden, now Siemens, Phoenix Contact, Moxa, Harting and Schneider Electric all battling it out in different product segments for control of a robustly (>20% CAGR) growing market. I do not expect Siemens to feel the near term need to realize as many "synergies" (i.e. layoffs) from the acquisition as Belden would have and believe that Siemens realizes that sometimes you have to spend money to make money.

2012 is already turning out to be an exciting year with my beloved New England Patriots battling the dreaded NY Giants for the Super Bowl this Sunday, the possibility of the nation electing a new President and the chance to see if my crystal ball on the dynamics impacting the industrial networking market will continue to be right on the mark.

Will RuggedCom's 'Poison Pill' Efforts End Up Costing More Jobs in the End?

As Belden and the rest of the world (or at least relevant interested parties including myself) await the Ontario's Securities Commission (OSC) decision, expected on February 6, 2012, on RuggedCom Board's Shareholder Rights Plan, I started to wonder if RuggedCom's management efforts to avoid a 'hostile takeover' may eventually cause more jobs to be lost should Belden's current offer of C$280 million be outbid by another suitor or by Belden itself during a heated bidding war.

Although I am no financial expert it appears that the move by RuggedCom's board is just a delay tactic that may be intended to provide it with more time to secure either a more favorable acquisition price or perhaps a more favorable suitor; one that will have less of a need to realize synergies (i.e. layoffs in the mind of RuggedCom management) as a result of an acquisition in the neighborhood of US $300 million or more. Belden, a focused industry leader, is more likely to rationalize (i.e. reduce headcount)  RuggedCom's operations in order to realize greater efficiencies than another firm such as Cisco, ABB or GE, among others, which, in my humble opinion, may be more inclined to rely more on RuggedCom's personnel and their specific expertise and market knowledge.

Although it may seem like paying a $300 million price tag is steep, equates to roughly 3X revenues, RuggedCom's growth has been pretty impressive; and those 55%+ plus gross margins certainly may help the financials of some of the other potential suitors. VDC's own industrial networking research reveals that the growth outlook in the smart grid segment, as well as the overall power generation market, is pretty robust at close to a 20% CAGR through 2015. Although RuggedCom's product portfolio is not able to serve the entire $3.1 billion wireline industrial networking infrastructure products markets, their offerings can serve over 40% and those markets served represent the fastest growing consuming segments.

My original hypothesis is that by trying to extract more value for its shareholders, which is business 101 and strongly encouraged, RuggedCom's management may eventually end up creating a situation in which the acquirer overpays and is forced to reduce (more) headcount in order to recoup their investment.

I wish Marzio Pozzuoli and his team all the best as they have done a great job of serving the needs of the industrial automation community and they and the shareholders should be well compensated for their successful efforts. I am eagerly waiting to learn which company will eventually acquire RuggedCom and how the entire process will play out.

The Time When 'Made In America' Actually Means Something Again is Drawing Near

After reading a short article in the December issue of Control Design (Machinery Could Make U.S. Comeback) I began to think back to another Bloomberg BusinessWeek article written by Andy Grove that I blogged about back on December 20, 2010. I have been developing a hypothesis over the last 6-12 months based on the belief that as the wages of workers in countries such as China, India and Vietnam increase over time, the cost advantages enjoyed by those countries, and the companies outsourcing manufacturing, R&D and even some services (i.e. call centers, etc.) to those countries relative to the U.S. will diminish.

When companies factor in the financial cost of shipping as well as the opportunity lost cost due to delays in shipping, along with ability to gain competitive advantage by advertising “Made in America”, they will begin seeing even more politicians who are receptive to providing tax breaks and other incentives to create jobs in our own country. And as the workers in China, India and other countries continue to experience the benefits of capitalism and increased standards of living, they will continue to demand higher wages, thereby closing the gap which led to the stampede to outsource U.S. jobs to begin with.

In the future it will not only be politically expedient (or PR driven) to begin making more products and providing more services in the U.S., it will also be more economically prudent. The article in Control Design lists seven “tipping point” sectors that are set to return to the U.S. for manufacturing. The other six sectors besides machinery include computers and electronics, fabricated metal products, plastics and rubber, appliances and electrical equipment, furniture and transportation goods, according to a recent study by the Boston Consulting Group (BCG).

I recalled in that 12/20/10 blog asking the question, something to the affect of, ‘who will buy all the vacuum cleaners being made in China if no one is working here in the U.S.?’ Andy Grove was even more intellectual than I when he opined that our country is not only losing out on jobs, but the country was gutting its spirit of innovation and ability to develop an ecosystem which fosters innovation, ingenuity and the real American spirit. If you have not already read Andy’s article, I strongly recommend you do as it expressed the concerns that I had, much more intelligently and coherently than I could ever have.

In the final analysis, I believe that more and more companies in the future (and politicians giving them tax breaks) will begin looking to bring back jobs to America not just because it is the patriotic thing to do, rather because if they do not, then they risk losing market share to those firms that do.

 

Wondering When PAC Man Fever Will Strike Level Measurement & ITG Markets

For those that have been following my blogs over the last year or two you will be quite aware of my references to PAC Man to signify the impact previous mergers and acquisitions (M&A) had on markets such as industrial networking and data acquisition products.

After taking over the market intelligence activities in support of VDC’s ongoing 2011 Process Level Measurement and Inventory Tank Gauging Market Intelligence Program combined with just having completed eleven market studies covering data acquisition solutions, and having had several in-depth discussions with suppliers, it became quickly evident that ABB’s acquisition of K-TEK back in the summer of 2010 would likely not be an isolated event.

Most of the smaller to mid size suppliers I spoke with noted an increasing trend involving larger industry players such as Emerson, Endress + Hauser, Invensys and Honeywell deciding to move away from private labeling agreements. This trend does not favor some of these smaller players, since larger players are either developing a new product or technology in-house and/or considering acquiring a company that can help fill a gap in that supplier’s product or technology portfolio. Conversely it seems a few of the suppliers that are based in Europe or Asia-Pacific that to until now been supplying these larger (or even smaller) suppliers are starting to desire making inroads by marketing their products under their own brand.

It makes sound business sense, given that our research indicates that more level measurements customers are seeking out partnerships with suppliers that can not only provide “one-stop shopping” but also best in class and world-wide technical and application level support. Suppliers naturally have a vested interest to not create a situation in which a customer has to look somewhere else to meet their needs, since an overall market opportunity likely totaling over $2 billion in 2011 shipments is not chicken feed.

EtherNet/IP Leads the Way in Industrial Automation Connectivity

I hate giving any attribution to ARC Advisory Group, a well respected and worthy competitor of VDC's Industrial Automation Group (legend has it that founder Andy Chatha worked at VDC in 1985), but I must concur with their recent findings that EtherNet/IP usage is growing and that it is likely the leader of Industrial Ethernet application layer network protocols in the industrial automation space.

Based on VDC's recently published Global Wireline Industrial Networking Products market intelligence, the largest share by far and away of the ~$2.6 billion in wireline networking product (i.e. connectors, cables & cordsets, device servers, gateways, routers, switches, etc.) shipments by type of network were shipped with standard Ethernet (TCP/IP, etc.).

However among networking products shipped with industrial Ethernet application layer network protocols by type, EtherNet/IP edged out ProfiNet on the worldwide basis. However ProfiNet dominated usage among networking products shipped in EMEA and, not surprisingly, EtherNet/IP dominated usage in the Americas. EtherNet/IP networking product usage edged out ProfiNet in the Asia-Pacific region based on extensive discussions with 55 of the leading wireline networking product suppliers.

I am not going to discuss or debate the technical aspects of each industrial Ethernet application layer network protocol in this blog and which one provides greater performance over another, rather I am going to simply state that our end user data collected from over 600 respondents did not provide any information that would not support our supply-side findings. Perception is reality and it appears that Rockwell Automation's dominance in providing industrial automation solutions in the Americas slightly outweighs Siemens' similar dominance in EMEA on a global scale. Both companies offer high quality and industry setting standard products and solutions. Both companies are clients of VDC Research Group, I almost wish the data showed a dead even tie, and I am pretty confident that both companies are clients of ARC.

To show that I am completely unbiased, our data shows that Cisco is the industry leader in wireline networking products followed by Belden in 2nd, Harting in 3rd place with Siemens close on their heels in 4th and Phoenix Contact rounds out the top 5 in worldwide shipments.

 

Study Shows Most Companies Not Equipped to Use Data Effectively; Is an Effective Data Acquisition Platform the Solution?

After reading a recent article in Sensors magazine in which the results of a study conducted by EMC Corporation indicated that almost two-third of companies surveyed were ill-prepared to take advantage of the explosion of digital data created by mobile sensors, social media, surveillance, medical imaging and smart grids. Although the article was not directly related to data acquisition as VDC defines it, I imagine that a larger number of companies are better prepared to deal with different types of analog data being collected from any one or more of a plethora of sensors that act as the "tip of the spear" in industrial automation and process automation applications across the world.

I imagine that a larger number of companies are better prepared to deal with the analog data being collected from any one or more of a plethora of sensors that are the "tip of the spear" in industrial automation and process automation applications. This blog will focus not just on the actual process and platforms used to acquire analog data so as to make actionable decisions based on digital information but the greater importance of what to do with the data once it has been collected.

Based on VDC’s recently published 2011 Data Acquisition Solutions Market Intelligence program, the global market for data acquisition solutions will likely exceed $1.5 billion in 2012. It appears on the surface that companies are investing in platforms such as paperless recorders, data loggers and plug-in cPCI data acquisition analog I/O boards designed to convert analog data into digital information which can then be, theoretically, used to make actionable decisions and effective action.

In my humble opinion, based on a quick 'back of the envelope' analysis, I estimate that probably less than 60% of the total available application opportunity for data acquisition solutions is likely being served by one or more of the product platforms under study; that still leaves a great deal of need, and opportunity, for data acquisition solutions which can more effectively enable users to acquire data and also process it into actionable information and action.

People seem to want more convenience, comfort and information about the world around them. The digitization of data through a growing number of platforms is providing that. As I have always said, be careful for what you wish for since you just may get it and the price we pay to get it may not be what we bargained for. 

Predictions for Wireless Networking Product Markets in 2012

As a follow on to last week's blog on wireline networking product market predictions I am making my 2012 predictions for noteworthy things to look for in the smaller, but faster growing wireless networking products markets.

1.  By the end of 2012 the global market for wireless networking infrastructure products, including standalone network management software, will exceed $600 million. Shipments of access points and wireless modems will account for almost 72% of total on a dollar volume basis but will account for only 38.5% of unit shipments.

2.  The reasons for robust growth of wireless connectivity are many and well known but I can highlight a few key ones fueling the robust growth in adoption over the forecast period. Among some of the many benefits of wireless connectivity include: improved efficiency; cost reductions; ability for install where wired solutions impractical or impossible; reduces the majority of the cabling required, thus the associated costs, which is can be more expensive to install in certain locations;  wireless networking allows easier add-ons, changes and removal of functions and is perceived by many users as being more scalable, where this is most valuable where changes or expansions are frequent and expensive; greater flexibility in operations enables companies to run leaner and meaner and maintain responsiveness to changing customer and/or market requirements; increasing trust in wireless networking and technological enhancements made to overcome previous concerns over reliability, latency and security; perceived ease of implementation and lower implementation costs as well as perceived lower maintenance and installation costs; and to obtain greater mobility in industrial facilities which provide benefits of real-time response to machine problems, real-time optimization of machine performance, reduce personnel required and increase productivity, and reducing downtime of both equipment and time to repair.

3.  The fastest growth in demand will come from wireless network switches which currently represent a small niche market which will grow to over 4% of the total wireless networking components segment (excluding standalone network management software) by 2015. Companies such as Motorola are developing increasing traction as companies operating in industrial facilities are both increasing their reliance on wireless connectivity and also increasing the number of devices connected to the network wirelessly.

4.  Laird Technologies will remain the dominant player in antennas, representing the 3rd largest product segment under study, with almost 4x the market share of its nearest competitors in PCTEL, Nearson and Cisco. Antennas segment is forecast for above average market growth as users are expected to increasingly integrate antennas onto existing devices.

5.   Cisco will remain the dominant player in overall wireless networking components shipments but that is a result of their 800 pound gorilla position in the access points segment.

6.  Several other suppliers enjoy leadership positions in the other wireless networking components product segments, among them include GE, ELRPO Technologies, Prosoft Technology, Landis & Gyr, Motorola and Apprion.

7.  Although there is always the chance that an acquisition might take place within the wireless industrial networking infrastructure products market, I am at still trying to think about which companies and/or product segments make the most sense for future PAC Man activity.  I guess Cisco could always decide to acquire someone that will help fill a gap in their product portfolio or Belden could decide to make a quicker entrance into the wireless segment by buying rather than building their own solution(s).

8.  There will be no clear dominant winners among future wireless networks supported but the largest shipment shares of wireless networking components by type of networks in 2015 reveal that 802.11g, b and n networks will be in strong demand and there will still be a sizable share of shipments with the proprietary narrow band networks for applications requiring longer distances and greater security concerns in play.

9.  The five largest consuming markets of oil & gas, power generation, automotive/motor vehicle, water/waste water, and petrochemical and oil refining combined on a global basis for over 58% total 2012 shipments.

Now I am trying to think about what other predictions we can make on other industrial automation markets of interest. I welcome the opportunity to learn about any predictions you may think might come true in 2012 or beyond. I am always intrigued to learn about any rumors on which companies may be on the prowl for a new target to acquire or which supplier may be seeking out their own "white knight".