Fans of our annual ranking of the Top 50 suppliers by automation and control revenue probably already know that automation supplier revenues missed a curve in fiscal 2015. Both global and North American revenues are down significantly from 2014.
Even now, persistently low oil prices combined with persistently high supply continue to drag down the process side of the business. Though some suppliers have seen favorable exchange rates, currency woes continue to plague the business overall. Power generation is the largest consumer of process automation worldwide, and the push away from coal-fired conventional central station generation to renewables like wind and solar had an adverse impact on the process business. Those suppliers involved in the nuclear business, however, experienced moderate growth.
Oil and gas is a significant portion of the automation market. Large, integrated oil companies worldwide continued to reduce capital spending in the upstream sector by double digits, and we don’t expect this sector to recover in 2016. According to ARC Advisory Group’s market assessment, we don’t expect a major turnaround in the oil and gas sector until mid-2017—barring any major geopolitical upheaval. The oil and gas bubble burst hit some of the state-owned oil and gas companies particularly hard.
Good downstream, hybrid news
The picture isn’t all bleak for process automation, however. Even in 2015, some oil and gas sectors performed well. The midstream sector, particularly gas processing and pipelines, showed some pockets of growth. Even with looming oversupply in the LNG sector, many projects are continuing.
The downstream sector of refining and petrochemical fared much better than the upstream sector. Increased investment in this area was well publicized through some very large projects, such as the Sadara petrochemicals venture between Dow and Saudi Aramco, as well as the Reliance Industries Jamnagar Refinery expansion project in India. Both of these megaprojects established new benchmarks for scope and complexity.
Some industries in the hybrid manufacturing space, which combine process and discrete automation functionality, actually experienced moderate growth in 2015. These include both food/beverages and water/wastewater. Other hybrid industries such as life sciences/pharmaceuticals and fine/specialty chemicals experienced pockets of growth.
The discrete side of the automation business also fared better in 2015. According to ARC’s most recent report on capital expenditures, automotive industry capex has pretty much increased steadily since 2010. After a quick rebound, that growth gradually slowed, but both growth and investment continue—despite a negative exchange rate for many auto manufacturers. The electronics industry suffered in 2014, but started to recover throughout 2015. Increased investment here pushed the automation markets.
Mergers, acquisitions driven by IoT
Adverse market conditions can make good hunting for acquisitions, but we also see many suppliers paying a premium for companies that can add key capabilities for cloud functionality, analytics capabilities, and anything that can provide a path to the Industrial Internet of Things (IIoT). As many automation suppliers also begin to formulate and execute their IIoT strategies, we’ll see more acquisitions in the software business, but also in the automation asset space—the “things” in the IIoT. The GE acquisition of the Alstom turbines business is the biggest example of this to date, with GE paying close to $10 billion for what mostly boils down to access to the valuable annuity of servicing and ostensibly connecting the vast installed base of Alstom turbines to the IIoT through GE’s Predix platform.
Though it’s not represented in the 2015 numbers, Emerson Process Management’s acquisition of Pentair Valves and Controls is another example of an automation supplier expanding its reach into production-related assets that so far haven’t been very intelligent or connected. The Pentair deal was valued at more than $3 billion, and cements Emerson as the largest valve supplier with the potential to connect and provide intelligent diagnostics for a significant number of valves. Emerson has already embedded wireless monitoring and intelligence into its Enardo series of pressure relief valves, and this gives us a good indication of what will probably happen with Pentair.
The 2015 numbers also show the effect of the acquisition of Invensys Operations Management by Schneider Electric, which was completed in January of 2014. Clearly, the big automation suppliers seem to be getting bigger, both through large and small acquisitions. ABB, for example, acquired 100% ownership of control room designer and specialized control room furniture manufacturer CGM in August 2015. The sophisticated ergonomic approach of CGM has already led to some big orders for advanced control rooms from its major end users like Dow.
Push to IIoT changing product portfolios
IIoT is also leading to major changes in supplier product portfolios, both organically and through acquisitions. Siemens and Honeywell Process Solutions both announced new industrial cloud platforms in the past year—Siemens with its MindSphere industrial cloud powered by SAP Hana, and Honeywell with its Sentience cloud platform. Honeywell and Siemens also began to introduce new apps for the cloud in the past year (although again, these are not reflected in the 2015 numbers). So far, GE’s Predix has probably received the most press for industrial cloud platforms and, even as we write this article, it just announced its new Predix-enabled Industrial Internet Control System.
Honeywell Sentience is the new cloud-based infrastructure it introduced at this year’s Honeywell User Group (HUG) meeting in San Antonio. Other company divisions are also leveraging Honeywell Sentience, including building automation and aerospace. Siemens continues to leverage its Comos digital engineering portfolio to create a common digital footprint for plants in the process and other industries, creating a dynamically changing digital model, not just for design but also for advanced 3-D simulation and plant optimization.
Yokogawa made some interesting investments in acquisitions in the past year, which also boost its capabilities in IIoT and its new “data as a service” model for IIoT in industrial plants. Yokogawa acquired software supplier Industrial Evolution in January 2016, and created its Industrial Knowledge business unit, which is focused on providing data as a service to end users in the process industries. This year, Yokogawa also invested in FogHorn Systems, a fog-computing startup in Silicon Valley.
But the push to IoT doesn’t just involve software. As we’ve seen with the Pentair and Alstom acquisitions, there’s a drive to end devices and “edge” devices. Honeywell introduced a new IIoT-ready ControlEdge PLC at HUG this year. Also, ABB released a Bluetooth-enabled smart sensor for motors. Emerson is increasingly adding wireless diagnostic capabilities to formerly “dumb” sensors like pressure relief valves and steam traps.
Likewise, Rockwell Automation is pushing into smart sensor technologies for discrete industries, and its Connected Enterprise strategy heavily leverages its connections to end devices in manufacturing from motor control centers and drives to process field devices through its alliance with Endress+Hauser. Rockwell Automation has made many announcements related to its Connected Enterprise in the past year, but one lesser publicized endeavor is its mobility collaboration project with Microsoft for industrial environments, where wireless network connections aren’t always reliable. This is driven by industrial workers, who are increasingly turning to mobile devices to help improve productivity and collaboration, but need interfaces tailored to specific devices. Dubbed Project Stanton, the toolkit emerging from this collaboration enables Rockwell Automation offerings with a consistent web-based user interface for a specific device, such as tablet, smartphone or desktop PC, and now includes a prototype app. The two companies demonstrated the product toolkit and the app prototype at the most recent Automation Fair.
What to expect next year
ARC expects that next year’s analysis will see a lot more applications moving to the cloud. This is the natural evolution after the adoption of overall cloud platforms by the major suppliers. Most of these applications will reside in the Level 3 space, targeting applications like alarm management, asset management, intelligent device management, and other MES/production management applications. Cloud-based historians are also going to be required, and we’re already seeing movement towards them by suppliers like OSIsoft, Schneider Electric/Wonderware, Iconics, GE and others. The move to IIoT and the cloud is creating a new wave of mobile apps as well, from monitoring alarms to condition monitoring of automation assets to business-level KPI analysis. Just about every major automation supplier has released mobile apps over the past year.
We’re also going to see more changes in automation systems, especially as ExxonMobil, the Open Group and Lockheed Martin forge ahead with their new standard for open automation systems. Offerings for configurable and modular I/O will also increase in scope, with suppliers like Schneider Electric introducing new solutions at this year’s user group meeting and other suppliers not far behind with their own offerings. It will be interesting to see what impact the Next Generation Open Automation System initiative will have on supplier development plans, since the group has a pretty ambitious goal of commercial product availability by 2020.
These are all part of the shrinking product lifecycles and rapid development efforts that increasingly favor open, modular and standard hardware with a big focus on creating value in software and services. This combination of new product innovations and rapid adoption of new technologies should leave suppliers well positioned for a turnaround in the market. In ARC’s view, however, we have to wait another year before that turnaround becomes a reality.
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