Automation Supplier Revenue Intake Slows in Q4 2018

Overview

Automation supplier revenue intake slowed significantly during Q4, 2018, posting an increase of only 2.4 percent overall, a stark contrast to the beginning of the year, which opened with strong double-digit growth.  Stronger order activity earlier in the year has also cooled to low single-digit levels.  Process-centric suppliers saw about 4 percent growth during the quarter, while discrete suppliers could not muster even half a percentage point increase in revenues.  For the entire year, supplier revenues grew by 7.3 percent.

Growth Halved in Q4

Compared to the fourth quarter of 2017, the total combined revenues of automation suppliers to both the process and discrete manufacturing industries grew by 2.4 percent (see Figure 2).  Process industry suppliers saw their combined revenues grow by about 4 percent; while suppliers to the discrete industries saw a scant 0.6 percent increase in combined revenues.  GE Power, due to its large size but relatively small automation component, has an outsized effect on the overall market (revenues fell by 25 percent), so we have removed it from the overall analysis, though we will continue to cover it in the writeup that follows.

Among suppliers that report order intake, many saw large increases in activity but, on average, orders grew by 1.5 percent during the quarter (Figure 3).  As with revenues, we have excluded GE Power (which saw a 19 percent drop in orders) from our analysis.

Currency Exchange Rates

In this Insight, ARC Advisory Group includes the most recent quarterly results for major automation suppliers that publicly report their results.  To convert the revenues of non-US suppliers to US dollars, we average exchange rates for foreign currencies used for the entire fourth quarter of 2018.  The euro slipped by 3.5 percent relative to the dollar from Q4 2017, while the yen grew by 2.5 percent over the same period.

Automation Supplier Revenue

ABB

ABB Robotics & Motion reported a 7 percent increase in both revenues and orders during the quarter; order growth was strong across all regions, boosted by large orders in the automotive and rail sectors and continued demand from process industry customers.  ABB Industrial Automation saw orders rise by 4 percent, while revenues slipped by 4 percent.  Order activity in the marine, mining, and paper sectors was strong.  Currency translation reduced ABB’s revenues and orders in dollar terms by a further few percentage points during the quarter.

AspenTech

Aspen’s revenues increased by about 33 percent during the quarter, largely due to the company’s adoption of accounting standard (ASC Topic 606), which impacts the timing and method of revenue recognition for term license contracts.  License revenues, which nearly doubled from the prior period, were affected most by the new practice.  Maintenance revenue was essentially flat, while revenues from other services slipped by about 23 percent.  Aspen also attributed strong revenue growth to good performance in its APM business segment.  Annual spend, the company’s measure of the annualized value of all term license and maintenance contracts, which it believes to be a more accurate measurement of its business performance, reached $513 million during the quarter, an increase of over 9 percent.

Azbil

Azbil saw revenues increase by about half a percent, while order activity fell by about the same amount during the quarter.  Over the first three quarters of the fiscal year, the company’s Building Automation business slipped by 2.3 percent, while orders grew by about 3 percent. The Advanced Automation business saw sales increase by over 4 percent; orders fell by 2.6 percent during the period.  Azbil’s Life Automation business grew by nearly 5 percent, but order activity fell by over 16 percent versus the same period in 2017.

Emerson Automation Solutions

Emerson Automation Solutions reported sales growth of nearly 9 percent during the quarter.  Underlying sales increased by 7 percent, with unfavorable currency exchange rates sapping 2 percent and acquisitions adding 4 percent.  Emerson attributed growth to increased MRO activity and an increase in projects to expand and optimize its customers’ existing production facilities.  Sales in the Americas grew by 8 percent on strong MRO activity.  Similar sales increases were seen in Asia, the Middle East and Africa, where infrastructure build-out in China and India, mining investment in Australia, and upstream brownfield projects in the Middle East drove activity.   Europe posted 3 percent growth, largely due to investments in chemicals, along with investments in upstream and midstream oil & gas in Russia and Eastern Europe.

FANUC

FANUC saw revenues fall by over 13 percent during the quarter; order activity dropped off by over 25 percent.  FANUC’s Factory Automation Division revenue fell by 15 percent, while the Robot Division saw sales slip by 8 percent during the quarter.  The FA division maintained sales levels in Japan, Europe, and India, but saw a slowdown in key markets such as China, Taiwan, and South Korea.  The robotic business saw a slowdown in investment in the Americas and weakening sales in China, partially offset by good performance in Europe and the domestic Japanese market.   

Flowserve

Flowserve reported a 4.6 percent drop in revenue; orders increased by nearly 7 percent during the quarter on strong aftermarket activity and an uptick in oil & gas sector business. The company’s Engineered Products Division saw revenues slip by nearly 3 percent, while orders grew by over 12 percent.  Industrial Product Division revenues fell by nearly 9 percent; bookings slipped by more than 1 percent.  Flowserve’s Flow Control Division saw revenues fall by over 5 percent; bookings grew by about 1 percent.

Fortive

Fortive saw revenues grow by over 11 percent during the quarter. The company’s Professional Instrumentation business sales increased by 14 percent (5 percent organic growth, boosted significantly by acquisitions, with currency translation sapping 1.4 percent), while the Industrial Technologies division saw revenues grow by 8 percent (10.3 percent organic growth, with 0.1 percent from acquisitions and minus 2.3 percent from unfavorable currency exchange). 

General Electric

GE Power saw revenues fall by 25 percent during the quarter; order activity dropped by 19 percent. The modest segment profit in the prior year period became a loss of nearly $900 million in Q4.  Operational issues on equipment projects impacted revenues and profits.  To improve performance of the division going forward, GE plans to focus on increased commercial discipline, better project management, factory optimization, and a more customer-centric focus in its services organization.

Honeywell

Honeywell’s PMT group saw revenues slip by 1.8 percent versus Q4 of 2017.  Within PMT, Honeywell Process Solutions sales remained essentially flat at $2.2 billion during the quarter.  The company reported strong increases in projects and maintenance and migration services, but a drop in the advanced materials business.

Metso Flow Control

Metso’s Flow Control division saw revenues rise by over 18 percent during the quarter; order activity increased by about 19 percent.  Revenues grew on timely backlog execution, particularly in the valves business, during the quarter.  Orders for valves grew strongly during the quarter, particularly in India and the Asia-Pacific region, as did orders for pumps in the US.

Mitsubishi

Mitsubishi Electric’s Industrial Automation group reported a 6 percent drop in sales during the quarter.  The company’s factory automation business declined somewhat due to a slowdown in capital expenditures in the OLED and smartphone industries. Mitsubishi’s automotive equipment business saw increased demand in Japan, other parts of Asia, and Europe, along with increased activity in sales of electric-vehicle related equipment.

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