Automation Market Growth Slows                              Dramatically in Q3 2001                   BY LARRY O’BRIEN    ...
ARC Insights, Page 2process industries are beginning to cross over into the discrete industriesand vice versa.PAS supplier...
ARC Insights, Page 3Control Valve Business Benefits from Shifting Focus toManufacturingThe control valve business, which w...
ARC Insights, Page 4Supplier                           Nine Months       Nine Months      CAGR 00-01                      ...
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Automation market growth slows dramatically in q3 2001

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Automation market growth slows dramatically in q3 2001

  1. 1. Automation Market Growth Slows Dramatically in Q3 2001 BY LARRY O’BRIEN DECEMBER 20, 2001 ARC INSIGHTS 2001-056M Keywords Automation, Recession, Capital Spending Summary The worldwide automation market continues to suffer in the wake of reces- sion, continued clampdowns in capital spending, and the specter of global terrorism. While automation market growth continued to slow through the third quarter of 2001, what do the next twelve months hold? Analysis Automation market growth has slowed to its lowest point in years. While the continued threat of global terrorism has not helped matters, the slide began long before the events of September 11 and is likely to continue into at least the next couple of quarters. Many suppliers have already reported that the events of September 11 have had a direct ef- Automation market growth has fect on the postponement of many projects in plants slowed to its lowest point in years. worldwide because of heightened security concerns. The slide began long before theevents of September 11 and is likely The news is not all bad, however. While automation to continue into at least the next couple of quarters. suppliers continue to downsize at an accelerated pace and revenue growth is down, the industry as a whole, based on the cross section of the major automation suppliers that we track for this update, is not in recession. Revenue growth overall has slowed down to the rate of three percent compared to the same period last year. While total year end results will not be available until a few months from now, we anticipate the overall automation market growth will continue to slow down, but will likely remain positive. PAS Business Suffers from Reduced Capital Investments Process automation system (PAS) suppliers are probably suffering the most right now. The definition of a “PAS” supplier, however, is becoming in- creasingly amorphous as suppliers that traditionally competed in either the ENTERPRISE & AUTOMATION STRATEGIES FOR INDUSTRY EXECUTIVES
  2. 2. ARC Insights, Page 2process industries are beginning to cross over into the discrete industriesand vice versa.PAS suppliers are reporting a slowdown in the business particularly in Eu-rope and Asia, with the obvious additional pressures of recession andterrorism in the US. Some companies reported double-digit decrease inorders for key process industry segments such as pulp & paper and metals,while order growth continues to be strong for hybrid industry segmentssuch as chemicals, pharmaceuticals, and food & beverage. Growth inpower generation and oil & gas also remains stable to stronger than aver-age.While the market for large capital projects continues to remain depressed,some companies have reported growth in their business units dedicated tothe development of collaborative partnerships. Honeywell, for example,reported significant growth in their ManageAbility business, which it sayscontributed significantly to double-digit growth in its new Industrial Solu-tions business unit.Discrete Suppliers Face Mixed ResultsThere are significantly more bright spots among the primarily discreteplayers. Siemens, for example, reported double-digit increases in earnings,sales, and orders for its Automation & Drives business, driven primarily bygood performance in the company’s Industrial Automation Systems (com-prised largely of PLCs), Low Voltage Controls & Distribution, and MotionControl Systems. Sales of traditional PLCs were down significantly inNorth America due to the overall weaker manufacturing environment,while major PLC suppliers continue to experience growth in Asia and LatinAmerica.As in the PAS segment, services and collaborative partnerships remain akey area of growth. Rockwell Automation, for example, reported signifi-cant growth in its maintenance, repair and operations (MRO) business,signing several multi-year agreements with major manufacturers for MROservices valued at $450 million.© 2001 • ARC • 3 Allied Drive • Dedham, MA 02026 USA • 781-471-1000 • ARCweb.com
  3. 3. ARC Insights, Page 3Control Valve Business Benefits from Shifting Focus toManufacturingThe control valve business, which was doing very well at the beginning ofthe year, is also feeling the impact of adverse market conditions. Valvecompanies, however, are reporting continued strong activity in the petro-leum, power generation, and water & waste industries, and some valvesuppliers are doing well despite the challenging market conditions. Plantstoday are focusing more on operations and maintenance budgets, whichhas contributed to increases in MRO-related control valve sales.What Does the Next Quarter Hold?Unfortunately, the business environment has worsened through the fourthquarter and it looks like things will not change much into the first quarterof 2002. Most of the larger supplier companies are continuing to downsizeto improve profitability. Industry consolidation will also continue, andARC feels there is still room for consolidation even among the top automa-tion suppliers.From a technology perspective, the automation market is at a crossroadsand is waiting for the next innovation that will provide it with the signifi-cant impetus needed to sustain the significant growth experienced duringthe advent of digital control systems. In many ways, ARC feels that impe-tus already exists, but users cannot be convinced without a compellingmessage. Real-time performance monitoring, profitable to promise analy-sis, and plant asset management are all fertile application areas that canspur automation growth through the next several years, as are technologiessuch as fieldbus and wireless. Users just have to catch on and realize thevalue that today’s automation solutions can bring. Similarly, suppliersmust effectively communicate their value proposition and message to po-tential clients.Most of the growth in the automation market today is coming from ser-vices, and many of these services are directly related to the formation ofcollaborative partnerships between suppliers and users. Users continue tooutsource more and more maintenance and automation functions to auto-mation suppliers. Suppliers will continue to develop their services andsolutions capabilities for the foreseeable future.© 2001 • ARC • 3 Allied Drive • Dedham, MA 02026 USA • 781-471-1000 • ARCweb.com
  4. 4. ARC Insights, Page 4Supplier Nine Months Nine Months CAGR 00-01 2000 2001ABB Automation 3,796.0 3,959.0 4.3%Alstom Contracting (H1) 251.1 297.0 18.3%AspenTech (Q1) 69.5 61.2 -11.9%Danaher 2,745.4 2,863.5 4.3%Emerson Process Control (FY) 3,099.9 3,347.7 8.0%Flowserve 206.7 209.6 1.4%GE Industrial Systems 8,443.0 8,605.0 1.9%Gensym 19.9 15.4 -22.6%GSE Systems 42.1 38.1 -9.5%Honeywell IC 5,441.0 5,309.0 -2.4%Invensys IA (H1) 915.0 981.7 7.3%Metso 401.4 449.1 11.9%Parker-Hannifin (Q1) 1,078.2 947.1 -12.2%Rockwell (FY) 3,677.0 3,359.0 -8.6%Schneider 7,235.0 7,400.0 2.3%Siemens A&D (FY) 7,148.7 8,052.3 12.6%Total 44,569.9 45,894.7 3.0% Results of Publicly Traded Automation Suppliers for First Nine Months of 2001 Unless Otherwise Noted Recommendations • Suppliers must find more effective ways of communicating their value proposition to clients. Suppliers must have demonstrable proof that their solutions provide an excellent return on investments and assets. • Most end users do not have a sufficient grasp of the value and return n investment that automation can bring to them. Users typically look at automation as a necessary expense, but not one that can increase their profitability much more than it already has. Users have to change their mindset and look at automation as a profitability enhancer, not a neces- sary evil. For further information, please contact your account manager or the author at lobrien@arcweb.com. Recommended circulation: All MAS clients. © 2001 • ARC • 3 Allied Drive • Dedham, MA 02026 USA • 781-471-1000 • ARCweb.com

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