...while ABB process automation orders slump

Source: ControlGlobal.com

By Andrew Bond, Industrial Automation Insider

Apr 03, 2009

The idea put about by a number of process automation vendors over the past year that the sector would be largely immune from the effects of the economic tsunami currently sweeping through the global economy was finally laid to rest when ABB, according to the Control Top 50, the world’s second largest automation vendor, reported its full year results for 2008 and, more significantly, for the fourth quarter.

ABB reported revenues for 2008 up 20% on 2007 at $34.9 billion, earnings before interest and tax (EBIT) up 13% at a record $4.6 billion and orders up 11% at $38.3 billion. However, the real story of 2008, and what it means for 2009 and beyond, came in the results for the fourth quarter. Revenues were up by a modest 5% on the same period of 2007, and there was no real surprise in the 60% fall in EBIT to $459 million, given that the company had already warned of provisions of some $870 million. However, the real bad news came in the form of a 19% fall in orders that the company attributed primarily to a reduction in orders for large new power infrastructure projects, especially in emerging markets, and reduced investment in new industrial capacity. The reduction was chiefly in large orders which ABB defines as greater than $15 million and which were down 55%, whereas “base orders,” those under $15 million, held steady. The Americas were alone in seeing orders hold up, supported by continued investment in power grid improvements in the face of falling automation activity, whereas Europe, Asia and the Middle East/Africa all saw orders decline.

Delayed Projects

“Orders were down as customers delayed projects or cut capital expenditures,” explained CEO Joe Hogan. “We are taking steps now to ensure that we remain competitive, no matter how the market develops ... we aim to come out of this downturn in a stronger competitive position, and we confirm our 2011 targets.”

In December 2008, ABB announced plans to reduce its costs by $1.3 billion from 2008 levels by the end of 2010. Because of the current market uncertainty, it has also in effect suspended the 2.2-billion Swiss Franc share buyback program it announced in 2008.

The overall picture was reflected, if anything, even more starkly in the results from the Process Automation division, where orders in the fourth quarter were down by no less than 38% compared with the same period in 2007. Nor was any sector or region immune, although minerals and metals, marine, oil and gas, and pulp and paper came in for special mention as being particularly affected. Across all sectors the underlying causes of the reduction were identified as reduced commodity prices, limited access to project finance and the increased unpredictability of future demand levels.

Cash Pile

Despite these problems, however, it’s clear that ABB is in much ruder health than many of its competitors in the process automation sector, having finished the year with the same $5.4 billion of cash with which it started it. Although it says that it has continued to focus on organic growth opportunities, while making small acquisitions to close product or geographic gaps in the portfolio, such as the late 2008 acquisition of Canadian oil and gas automation and field services provider Ber-Mac Electrical and Instrumentation, it’s clearly in a position to move rapidly, should a major opportunity arise in the automation sector as the recession deepens.

New Hires

Of course there are more ways of acquiring competitors’ businesses than splurging your hard-earned cash pile on buying their companies. One is to tempt away their best people. In these difficult times, you may not even have to offer them a huge financial incentive, but simply dangle the carrot of a more secure ― and perhaps more appreciative ― environment. That is perhaps the explanation for the news, on the same day, of ABB’s recruitment of key figures from two of its frequently suggested bid targets ― IPS Triconex product marketing director, Luis Duran, and former Rockwell process industry marketing manager, Rick Dolezal.

Duran’s appointment is particularly intriguing given that, as ABB’s business development manager for safety systems in the Americas region, his primary role, according to the ABB announcement, will be to “expand and develop the safety systems market for ABB’s next generation System 800xA High Integrity safety system offering.” This suggests that he, for one, believes that the arguments deployed against integrated SISs and in favour of TMR as the one true faith are no longer sustainable, a change of opinion which must be given greater credibility by the fact that he holds Functional Safety Engineer certification from TÜV. Nor is there any sign of any doubts about integrated SISs sharing a common hardware platform with the BPCS in his own statement that he is “very pleased to have this opportunity to work with the world-class organization at ABB and share their passion for helping process industry customers improve their operations while maintaining the highest standards of safety” and looking forward to “expanding the market for their leading-edge safety system and demonstrating the tremendous benefits it provides to our customers.”

Meanwhile, Dolezal joins ABB as manager of Channel Sales USA for the process automation group where, presumably, one of his objectives will be to snuff out his previous employer’s attempts to build a credible process automation business. He parted company with Rockwell back in October 2008, prompting industry watchers to question the depth of Rockwell’s commitment to the process sector for which he had been the most prominent public advocate.

Show Comments
Hide Comments

Join the discussion

We welcome your thoughtful comments.
All comments will display your user name.

Want to participate in the discussion?

Register for free

Log in for complete access.


No one has commented on this page yet.

RSS feed for comments on this page | RSS feed for all comments