VDC Research: Industrial Sensing, Networking & Control Market Blog

Man-Machine Collaboration Webinar Review

On October 30^th, the IAS team conducted a webinar in conjunction with Photonics Magazine on the topic of Man-Machine Collaboration and Safety Sensors. The Webinar content included a comprehensive overview of current machine safety technology as well as anticipated future product developments. The session concluded with an examination of the applications that will provide growth within the segment, followed by a question and answer period.

The concept of 3D bubble safety is an emerging industry demand and has evolved out of the need to have humans and machines working together in synchronous harmony. Automated systems will handle tasks that are repetitive or dangerous, allowing workers to focus on tasks that require dexterity and critical thinking.  Several of the questions were centered on this new development of man-machine collaboration.

One question that stood out in particular was from an engineer involved with a MAG welding application. Most welding is still done by hand and it is a critical step in metal fabrication. Current vision-based automation systems have difficulty with MAG welding because of the intensity of the welding arc. The arc is so bright that it overloads the CMOS sensor in the camera system which creates difficulties for the image processing and pattern recognition algorithms. The industry is actively seeking a solution since moving heavy metal parts into position must be performed by a robot, and the welding must be done by hand. A safety system that could better allow humans and robotics to work in conjunction would have wide market appeal. The concept of 3D bubble safety is explained and explored in detail in the webinar.

A full recording of the Man-Machine Collaboration and Safety Sensors webinar is available from the Photonics Website

 http://www.photonics.com/Webinar.aspx?WID=53

Why the Next Two Weeks are Critical to Level, Pressure, and Temperature Sensor Suppliers

The oil & gas sector is the most important vertical industry for level, pressure, and temperature related automation component manufacturers. This process industry is highly automated and proprietors are continuously looking for new solutions that drive efficiency and production. Refineries and their various operating units such as the crude oil distillation units and fluid catalytic cracker units will soon undergo scheduled maintenance and downtime, commonly referred to as a Turnaround. Turnarounds, or TARs, are scheduled periods of downtime where a processing unit is altered in order to prepare for the process of different materials or chemicals. The industry will enter a new period of downtime in the next few weeks (early October) as refineries switch from producing gasoline products and start to refine heating oil for the winter.

TARs tend to be the only time where a process or automation engineer will install new automation solutions into an existing process unit. These maintenance periods are often scheduled months in advance in order to properly prepare. Suppliers of level, pressure, and temperature sensors should use this time in order pursue new business and to develop existing relationships.  There will be several key features that end users will be looking for during this cycle.

Safety will be a concern as new regulation has forced the industry to comply with updated standards. Suppliers are now offering SIL rated solutions that can replace two parallel transmitters which would commonly be connected in order to provide the needed level of safety. ABB has been leading with their 2600T Series Pressure Transmitters. Innovation within this product category has been strong and the products now offer features such as self calibration and sensor health diagnostic information. These types of advanced features are found amongst newer sensors and are commonly referred to as smart sensors.

Smart sensor solutions will be another focus point as end users seek to streamline their automation processes. Smart or intelligent sensors are umbrella terms used to describe sensors with advanced functionality. These sensors commonly house an application specific integrated circuit (ASIC) which is a microchip that allows for the advanced features. Emerson currently offers a large array of smart sensor solutions including the 3144P Temperature Transmitter which uses the ASIC to average temperature readings from multiple sensors. The 3144P also has a feature, Hot Backup, which automatically switches the transmitter to a backup sensor in order to preserve the operation of the temperature measurement system. Advanced features that can be performed at the sensor and transmitter level have several advantages including the offloading of computing resources from the central processing node to the sensor node. This dramatically increases the efficiency and redundancy of the system while also cutting down on maintenance expenditures by simplifying replacement procedures.

Automation component suppliers should use the next few weeks to reconnect with business contacts in the oil & gas industry. Many changes have occurred within the industry landscape as hydrofracking has led to large supplies of domestic oil and natural gas. End-user engineers will be looking to employ the latest technology in order to modernize existing assets. Suppliers can maximize their results by promoting new features and functionality during this brief and critical time window.

110 Yen: How Japan’s Systematic Currency Devaluation is Affecting Automation Suppliers

The devaluation of the Japanese Yen was one of the biggest global macro-economic themes affecting automation suppliers in 2013. As the picture for 2015 comes into focus, the Bank of Japan (BOJ) looks to continue its role in manipulating global markets.

The Japanese economy has been mired in stagnation since the early 90s due to a confluence of factors including aging demographics, poor oversight, a high level of debt to GDP, and the emergence of China as an electronics manufacturing powerhouse. The currency had appreciated during this period rising to about 80 USD/JPY in the 2011 timeframe. Since then, Prime Minister Shinzo Abe was elected and with him brought a host of policy changes in an effort to jumpstart the Japanese economy. Japan’s “Abenomics” program is similar to the Quantitative Easing program that the US has undergone in recent years; however the program was about 3 times larger in relative comparison. This effort to unwind the strength of the Yen has worked to some degree but the policy’s effect on the economy still remains to be seen. I have compiled a chart below, courtesy of Yahoo Finance, which illustrates the drastic change in USD/JPY over the last 2 years. 

As is evidenced from the data, the change is extremely significant with an almost 40% change in just two years. This foreign exchange rate change greatly improves the pricing power of Japanese exporters. Companies such as Yokogawa, Keyence, and Panasonic now have a large advantage over both American and European firms. The impact of this change affects all automation component suppliers since Japanese firms are able to offer an additional 10, 20, and even 30 percent or higher discount on their products with little material effect to their bottom line after accounting for FX.  European manufacturers who have a heavy presence selling into US markets have been hurt the most and profitability amongst these firms remains a key issue. Manufacturers need to start developing effective strategies to counteract these trends.

The BOJ has signaled that it will take additional measures in order to support the Japanese economy which hints at further easing and devaluation of the Yen. In preparation of this reality, both American and European manufacturers must develop sales strategies that focus on selling value. Customers also respond well to suppliers who can offer the full solution. Japanese suppliers of sensors and automation components tend to be a relative black box. The components typically do not integrate well with technologies and products from other vendors that may use different protocols or wiring methods. Japanese products also are generally off the shelf and the firms tend to avoid developing custom engineered products for their customers. PNP versus NPN is one example, however Japanese products generally have a limited amount of communication protocols that can be used.

As automation systems begin to encompass more of the manufacturing landscape, end users will be looking for flexible products that they can easily integrate into existing topology. New trends such as the Internet of Things, as well as the proliferation of Manufacturing Execution Systems (MES), will change the practice of suppliers locking in their customers. American and European firms can differentiate from their Japanese competitors by offering customizable solutions that can integrate easily with other systems.

The success of the Abenomics program within the Japanese economy is still uncertain; however the effects within the global macro-economic picture are apparent and unmistakable. As the yen continues to depreciate, American and especially European firms need to take this into account. The currency will touch 110 USD/JPY, and eventually could trade to even 120, or 130 within a few more years. Automation suppliers across all disciplines, whether selling sensors, PLCs, or even software, must develop new sales strategies in order to preserve revenue and margin against their formidable and artificially advantaged Japanese competition.

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 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.

Security vs. Efficiency? I Could Not Have Said it Better Myself

Recently I read an excellent article in Automation.com written by Eric Byres, CTO and VP of Engineering at Byres Security, Inc. which was acquired by Belden earlier this year, which discussed the ongoing dilemma between industrial automation companies' concern over security (and for good reason in most cases) versus the need and desire to connect the factory floor/plant operations to the rest of the enterprise so as to maximize ROA and to improve corporate competitiveness.

I am a firm proponent in encouraging companies to invest, wisely of course, in products and technologies that will enable greater productivity, increased operational visibility, greater agility and increased profitability. Traditionally industrial automation operations have operated as walled off silos from other parts of an organization and have not been connected into the larger corporate enterprise; historically this was done in many cases for good reason as the potential impact of a security breach or communications error may have had dire consequences for the company itself as well as perhaps the surrounding public.

What I really liked about this article was it touched on several different markets such as industrial networking - both wireline and wireless, functional safety and data acquisition, as after all one needs to acquire data before it can be actionable and tied into the enterprise, on which VDC has been covering for decades and it imparted a sound rationale for achieving both greater security and operational efficiency.

I strongly encourage anyone interested in, or concerned over, security and efficiency as it relates to industrial automation operations to read this article and think about how it may relate to your own organizational and/or operational issues and how you may put some of the information imparted to good use.

Happy New Year wishes to you and yours