If you’ve been a reader of the Control/ARC Top 50 in recent years, you know we report on the previous fiscal year’s revenues. Under normal circumstances, the previous year’s revenues are a good predictor of what will happen in the current year, but this year’s Control/ARC Top 50 seems instead to be a glimpse at a more prosperous recent past as coronavirus 2019 (COVID-19) continues to ravage the global economy, resulting in reduced automation supplier revenues through the first half of 2020.
However, even under the current conditions, there are pockets of growth. Many end users are accelerating their digital transformations to respond more effectively to the pandemic, which is resulting in increased investment in software and services, and corresponding adoption of cloud and edge platforms for industrial applications. Automation suppliers are well positioned to help users manage the many challenges posed by the pandemic, from securing and supporting the massive wave of new remote workers to providing outsourced services.
The last time the process industries went through a major downturn was during the 2008 financial crisis, and we're seeing many of the same things happening today, even if the underlying cause is different. The severe contraction in oil prices, reduced demand for petroleum products, the precipitous drop in air travel, and the slump in automotive production were all experienced during the 2008 recession. If history is any guide, it will take more than a year to overcome the current recession. In 2008, the recession didn’t truly hit automation markets until the third quarter, after which we saw slow but steady growth.
Setting the stage for recession
Even before the pandemic started, automation suppliers and users were facing significant headwinds. Issues like Brexit, economic uncertainty, heightened tensions between the U.S. and China, and other issues were already creating many challenges for suppliers.
Automation suppliers saw revenue intake slow slightly over the course of 2019. The consolidated revenues of automation suppliers stalled significantly in 2019, with process industry supplier revenue gains being offset by stronger declines in the discrete sector. Economic uncertainty, driven largely by trade friction between the U.S. and China, had a chilling effect on investment. While 2019 closed with a hint that a recession might be in the cards, the unfolding events of 2020, particularly the stunning proliferation of COVID-19, made global recession a certainty.
How long will the COVID-19 dip last?
Progression of the COVID-19 recession seems to be following a similar path to what we saw in the 2008 financial crisis. Order backlogs for automation suppliers helped dampen the effect of the pandemic through the first half of the year, but the second half of the year will be more challenging.
ARC Advisory Group believes we're in the trough of this latest recession right now, and we expect industrial markets to begin recovery in 2021. Those businesses most dependent on hardware are suffering the most. The large, integrated oil-and-gas suppliers continue to make deep capital spending and personnel cuts. Automotive demand remains low worldwide. Supply chains are dealing with major disruptions, but the problem has shifted from one of supply chain to one of prolonged and reduced demand.
Top 50 N. American Automation Vendors
2019 N. American revenue (US$ millions)1
Top 50 Global Automation Vendors2019 Worldwide Revenue (US$ millions) |
||
| 1 | Siemens | $13,625 |
| 2 | Emerson | $12,255 |
| 3 | ABB | $11,222 |
| 4 | Schneider Electric | $7,052 |
| 5 | $6,737 | |
| 6 | $4,428 | |
| 7 | $3,979 | |
| 8 | Honeywell |
$3,756 |
| 9 | $3,427 | |
| 10 | Ametek EIG | $3,323 |
| 11 | Omron |
$3,236 |
| 12 | Endress+Hauser | $3,113 |
| 13 | Phoenix Contact | $2,912 |
| 14 | Spectris | $2,085 |
| 15 | $2,013 | |
| 16 | $1,991 | |
| 17 | MKS Instruments | $1,900 |
| 18 | Festo | $1,821 |
| 19 | Advantech | $1,765 |
| 20 | TechnipFMC | $1,634 |
| 21 | Fanuc | $1,561 |
| 22 | $1,550 | |
| 23 | Roper Technologies |
$1,451 |
| 24 | Baker Hughes | $1,447 |
| 25 | Aveva | $1,395 |
| 26 | $1,353 | |
| 27 | Flowserve |
$1,244 |
| 28 | Mettler-Toledo | $1,234 |
| 29 | $1,174 | |
| 30 | Wika | $1,170 |
| 31 | Wago |
$1,120 |
| 32 | Teledyne Instruments | $1,105 |
| 33 | Yaskawa | $1,100 |
| 34 | $1,060 | |
| 35 | $1,050 | |
| 36 | $927 | |
| 37 | $881 | |
| 38 | $880 | |
| 39 | $863 | |
| 40 | $839 | |
| 41 | Hitachi |
$815 |
| 42 | $806 | |
| 43 | $798 | |
| 44 | $782 | |
| 45 | Samson | $777 |
| 46 | Metso | $775 |
| 47 | $775 | |
| 48 | $751 | |
| 49 | $699 | |
| 50 | $685 | |
| Total | $123,343 | |
Restructuring and M&As will intensify
Once again, the rank order of the major automation suppliers remains relatively unchanged despite many reorganizations and structural changes. Many suppliers were already in the midst of major restructuring efforts in 2019 that continue to play out in 2020.
Baker-Hughes is a new addition to the list this year, as GE spun off this business to include most of the GE’s automation offerings, including the Bently Nevada condition monitoring business and the GE Mark VI process automation system business, while Emerson purchased the GE Intelligent Platforms business. ABB completed the divestiture of its power grid business to Hitachi earlier this year, while Siemens announced its largest ever restructuring effort in 2019 that included the spinoff of its gas and power division.
With a recession usually comes an uptick in merger and acquisition activity among automation suppliers, and this is certainly playing out now with the acquisition of OSIsoft by Aveva. Not to be confused with Aveva’s recent acquisition of OSIsoft for $5 billion, Open Systems International (OSI System) was acquired by Emerson for $1.6 billion in 2020.
Also this year, Schneider Electric announced the completion of the transaction combining Larsen & Toubro’s electrical and automation business and Schneider Electric India’s low-voltage and industrial automation business. Schneider Electric announced its intention to pursue this transaction in 2018. The combined business, Schneider Electric India Private Ltd. (SEIPL), is 65% owned by Schneider Electric, while global investment company Temasek owns the remaining 35%. Schneider also acquired ProLeiT AG in 2020, which provides process control systems (PCS) with integrated manufacturing execution system (MES) functions designed for the consumer packed goods market, including the food and beverage, chemicals and life sciences segments.
End users embrace digital transformation
COVID-19 is also likely to be a tipping point for adopting many operationally focused digital technologies that fall under the scope of the Industrial Internet of Things (IIoT). In addition to needing solutions to remotely monitor and control equipment and processes, it's likely that digital twins, data visualization, and analytics will experience a surge in adoption. Many key subject matter experts are also likely to remain working remotely, perhaps permanently, while companies adjust workforce sizes. Companies with strong innovation backbones, both organizationally and technologically, are separating themselves from the pack. The pandemic is accelerating that gap.
This means companies are not only adopting digital transformation strategies to better respond to the challenges of COVID-19, but they're also viewing digital transformation as key to maintaining a competitive advantage and speeding up the innovation cycle in a post-COVID-19 world. The scope of technologies being deployed under the umbrella of IIoT is broad, and includes both cloud computing and “sensor-to-edge" computing platforms and approaches.
What IT/OT convergence means for automation
Most of these new approaches incorporate technologies from the IoT world. These include both cloud and edge computing, analytics, machine learning, containers, software-defined networking and more. While many process automation suppliers rapidly adapted to these new technologies, we also see new competitors moving into the industrial and critical-infrastructure space from the IT realm. Edge-based systems are already functioning in roles that were once performed by traditional DCSs, PLCs and SCADA systems.
We may be adding some new names to the list in the future as IT and cloud-centric suppliers are introducing edge solutions for industrial applications that incorporate the cloud-native orientation in ways such as hardware/software virtualization, container-based architectures and incorporation of open source content, which lowers the barriers to entry and shifts the revenue base from software to services.
ARC Advisory Group's analysts and Control's editors discover new firms to add to the Top 50 lists each year. If you find one that should be listed but isn't, let us know, so it can be evaluated for potential inclusion. Though companies with increased sales are added and those with decreased sales relative to the others or those that have been acquired are removed, the Top 50's basic analysis methodology hasn't changed for years. If anything, it's scope and focus on revenue generated by process control and automation activities have grown tighter.
Technologies included in the Top 50 definition:
- Process automation systems and related hardware software and services;
- PLC and related hardware, software, services, I/O and bundled HMI;
- Other control hardware components, such as third-party I/O, signal conditioners, intrinsic safety barriers, networking hardware, unit controllers, and single- and multi-loop controllers;
- Process safety systems;
- SCADA systems for oil and gas, water and wastewater, and power distribution;
- AC drives;
- Motion control systems;
- Computer numerical control (CNC) systems;
- Process field instrumentation, such as temperature and pressure transmitters, flowmeters, level transmitters and associated switches;
- Analytical equipment, including process electrochemical, all types of infrared technology, gas chromatographs for industrial manufacturing and related products;
- Control valves, actuators and positioners;
- Discrete sensors and actuators;
- All kinds of automation-related software from advanced process control, simulation and optimization to third-party HMI, plant asset management, production management (MES), ERP integration packages from the major automation suppliers and similar software, and other automation-related services provided by automation suppliers;
- Condition-monitoring equipment and systems; and
- Ancillary systems, such as burner management systems, quality control systems for pulp and paper, etc.
Technologies not included in the Top 50 definition:
- Pumps and motors
- Robotics
- Material-handling systems
- Supply chain management software
- Building automation systems
- Fire and security systems
- Processing equipment such as mixers, vessels, heaters, as well as process design licenses from suppliers that have engineering divisions
- Electrical equipment, such as low-voltage switchgear, etc.
Open Process Automation users launch prototypes
The Open Process Automation Forum (OPAF) and its associated member suppliers and end users continue to push forward with a vision for open systems that relieves end users of burdensome migration costs, and provides a path to seamless adoption of new technologies. The Open Process Automation Standard (O-PAS) effort is occurring in harmonization with other similar industry efforts such as the NAMUR’s Open Architecture and Module Type Package (MTP) efforts, which provide more of a focus on modularization of automation. OPAF was formed as an industry organization under the Open Group, which is a standards development organization that has done extensive work in the defense, avionics and IT sectors. The standard they're developing is divided into seven parts, so far, and these parts are being worked on by several OPAF teams that meet on an almost daily basis. There are now 93 members in OPAF, and these include end users such as ExxonMobil and BASF.
ExxonMobil completed its first prototype system in 2020 on a pilot unit, and also launched an OPA test bed in Spring, Texas. The prototype system is operating a hydrocarbon test unit, and is a fully functional OPA process control system that's been migrated from a proprietary DCS to OPA. The system includes components from 10 suppliers. The ExxonMobil test bed will support continued testing of components and standards, and will demonstrate supplier capabilities to produce components aligned with O-PAS. These test results will support future field trials. Industry field trials are expected to commence in late 2020 and last through 2023.
From remote operations to remote control
It's quite normal practice in manufacturing for certain types of operations to be performed remotely. However, past practice has limited this to a highly restricted set of operations and analyses. COVID-19 has greatly expanded the need for knowledge workers to work remotely now and in the future.
This new demand for remote access and remote work is unlikely to disappear anytime soon. So rather than think of additional information infrastructure as a temporary solution addressing the global pandemic, manufacturers need to create new information infrastructures that will enable their knowledge workers to be productive in the future regardless of where they work.
Regardless of whether they choose cloud-based or hosted applications, manufacturers also need to think about these new information infrastructures as permanent rather than as temporary. Supporting a much larger set of remote knowledge workers will be critical for success in the next one to two years, and will probably become an expected part of “the new, new normal.”
The push to autonomous operations
In recent years, thanks to further advances in digitalization, the ongoing convergence of OT and IT, and the overall digital transformation of industry and infrastructure, the process industries are gradually moving from “automated” to “autonomous” operations in selected areas. This may also be referred to as "autonomation." This move presents the opportunity to further advance safe operations and improve overall business value. Furthermore, in addition to minimizing the inevitable human errors, autonomous operations could go a long way toward helping solve the growing issue of finding qualified personnel to run these facilities—many that operate continuously and 24/7. With artificial intelligence (AI)-driven autonomous systems making decisions related to both normal and abnormal operations, this burden could potentially be removed from humans.
Larry O'Brien, vice president of research, and Allen Avery, automation research analyst, are both of ARC Advisory Group, and can be reached via Larry at [email protected].
