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Overview
Smart city technology businesses are having a tough calendar year in 2020 but seem to be poised for a strong recovery as many cities and communities see digital transformation as the key to responding more effectively to the COVID-19 pandemic and building more resilient communities in the future.
ARC Advisory Group has compiled the results of publicly traded companies that do business in smart cities and critical infrastructure to get some idea of the performance of the overall market. We included a wide range of suppliers with a focus on technology, system, and soft-ware suppliers. The scope of applications ranges from power transmission, distribution, and electrification to smart city platforms, intelligent lighting systems, e-mobility companies, building automation companies, and rail signaling and systems suppliers.
Most suppliers reported decreased revenues in the third quarter of 2020 compared to the same period in 2019, but many are now experiencing growth once again and most expect a recovery by this same period next year. ARC expects an early recovery for the smart cities sector, even in the face of significantly reduced tax revenue for many cities and communities around the world. Places like China, India, Japan, the Middle East, and parts of Western Europe continue to invest significantly in smart city projects and technologies.
Smart City-focused Businesses Outperforming Industrial-focused Businesses
This year has been tough for all industrial, smart city, and critical infrastructure technology, software, and service providers. Overall, however, the smart city- and critical-infrastructure focused businesses seem to be outperforming their counterparts in industrial automation, engineering, and services.
Even within the same company, for example, Honeywell Building Technologies sales for the third quarter were down 8 percent on an organic basis, while Honeywell Performance Materials and Technologies sales for the third quarter were down 16 percent on an organic basis. Automation projects have longer lead times than smart city and infrastructure projects overall and the market will take somewhat longer to recover. Softness in the oil & gas sector will also come into play, as investments in green energy projects in the smart cities and infrastructure segments will accelerate.
Why We Included the Companies We Did
ARC included a broad scope of smart city and critical infrastructure product, system, application, and service providers in our compilation. We limited this to companies that both publicly report their results and report results for business segments that derive either all or most of their revenues from the sale of smart city technologies, including hardware, software, and services. We omitted companies that did not meet these criteria. For example, while Huawei is one of the largest smart city platform and technology providers, its results are not granular enough to reflect the smart city business. This is also true for other large IT and telecom providers such as IBM, Oracle, Google, AT&T, Ericsson, and others. We also excluded heavy equipment suppliers and business segments such as rolling stock, elevators, and other providers of mechanical or electromechanical equipment.
ARC believes the resulting list represents a good cross section of smart city technology and service providers spanning a wide range of technologies. These include relevant mobility-related technologies, smart city platforms, building automation systems, sensors and devices, lighting systems, power solutions, smart meters, engineering software and digital twin technology, and more. Combined, these companies produced over $70 billion of revenue.
Key Trends by Company
ABB’s Electrification business segment reports continued buoyancy in the utilities, wind, and transport segments. The sale of the ABB Power Grid business to Hitachi was also a major factor in this quarter’s report. ABB Hitachi Power Grids now operates as a separate business under Hitachi Energy, which created an unusually good quarter for Hitachi Energy and boosted the overall business performance of its consolidated reporting companies by several percentage points. Without the addition of ABB Hitachi Power Grids to the list, the overall market declined by close to 8 percent versus the reported decline of under 5 percent.
Services continue to outperform hardware and even software in the smart cities segment. End users and owner/operators continue to face a dearth of human capital as experienced workers are almost impossible to find and many more workers are being let go as cities face budgetary crises and commercial real estate continues to suffer. This means that fewer people will be left and will have a wider range of responsibilities than their predecessors, which will force many end users to look to outsourced services to keep things running. Accenture Health and Public Service, for example, reported an increase in its fourth fiscal quarter revenues over the same period last year of over 11 percent.
Acuity Brands lighting reported a decrease in revenues for its fourth fiscal quarter versus the same period last year. The company cited continued weakness in the residential buildings sector.
Alstom Signaling and Systems segments were also included in this analysis, although we excluded rolling stock business because we wanted to focus on technologies, systems, and sensors versus heavy equipment. The Alstom Signaling and Systems business collectively reported a decrease in revenues for its first fiscal quarter of close to 31 percent compared to the same period in 2019.
French IT giant Atos reported an over 13 percent gain in its Public sector and Defense business, driven by accelerated digital transformation programs and increasing cybersecurity concerns.
Autodesk’s architecture, engineering, and construction (AEC) business, which provides a significant amount of engineering software to the smart city sector, experienced an increase in its quarterly revenues of over 13 percent compared to the same period last year, driven by increased adoption of its BIM 360 software.
The AVEVA Utilities, Infrastructure, and Buildings segment reported decreased revenues of just over 15 percent for the quarter.
The Building Automation and Life Automation segments of Japanese supplier azbil experienced a consolidated decline of close to 6 percent in first half revenues compared to the same period last year. The company reports that domestic business is still strong, citing urban redevelopment projects in the metro Tokyo area, but its international business remains soft, mostly due to COVID-19 related project delays and US-China trade friction.
US supplier Badger Meter provides flowmeters and other measurement devices and sensors to the infrastructure and smart cities markets, as well as commercial and industrial markets. The company experienced an increase in revenues for the third quarter of close to 5 percent, citing the continued resiliency of the US municipal water market.
Engineering and digital twin software supplier Bentley Systems is a leading supplier of Building Information Modeling (BIM) systems. The company experienced revenue growth of over 8 percent in the third quarter. Earlier in November, Bentley Systems announced the establishment of Bentley iTwin Ventures to invest in promising technology companies addressing the emerging opportunity for digital twin solutions for roadways, railways, waterways, bridges, utilities, industrial facilities, and other infrastructure assets.
Cisco is the largest smart city platform provider, and that business resides in the company’s Application business segment, which experienced a decline of 8 percent in the company’s first quarter 2021 revenues compared to the same period last year.
Eaton’s eMobility segment revenues were flat for the quarter. The company cited that government incentives and new model launches boosted sales of battery electric vehicle (BEV) and hybrid vehicles.
Emerson has a large presence in smart cities through its Commercial and Residential business. Its September trailing three-month underlying orders were up 6 percent. This reflected strong residential and big-box retail demand and stabilizing cold chain markets.
Fuji Electric Power Generation suffered decreased revenues of close to 38 percent in its second quarter compared to the same period last year.
Equipment and electrical supplier Graybar experienced a decline of just over 5 percent in its second quarter compared to Q2 2019. This reflected reduced MRO spending, which remains endemic in the marketplace and will probably continue to remain so through at least the first quarter next year.
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Keywords: Smart City Suppliers, Quarterly Financials, COVID-19, ARC Advisory Group.