The Joe and Peter show...Joe Hogan and Peter Terwiesch on the state of ABB

March 24, 2009

“Our intention is to get through the cycle.” New ABB Ltd. CEO Joe Hogan repeated this refrain several times as he led the automation press through a tour of ABB in the new tough economy.

“Our intention is to get through the cycle.” New ABB Ltd. CEO Joe Hogan repeated this refrain several times as he led the automation press through a tour of ABB in the new tough economy.

“We’re a $35 billion company, headquartered in Zurich,” he began. He ran through some financials, although he said that they were in the reporting window, and he couldn’t make any “forward looking statements” until after first quarter results were reported. “I can lean one way or the other,” he said, “but I can’t give any results.”
He broke down ABB’s business units: Power Products, responsible for $12 billion; Power Systems, another $7 billion; Automation Products (that’s motors and drives) $10.3 billion; Process Automation $7.8 billion and Robotics $1.6 billion.

Hogan said that Automation Products and Robotics are pretty hard pressed, since Automation Products has a short ship cycle and Robotics is still quite heavily tied into the automotive sector.
“2008 seems like it was a decade ago,” he said, as he reported results for last year. “Our EBIT was $4.6 billion after adjustments, we have about $4 billion in cash on hand, and our ROCE was 31%,” he continued, reporting excellent numbers. “Our $24 billion backlog will convert in 2009 and 2010,” he said, “so we should be able to ride out the cycle.”

He noted that the dividend would remain unchanged in 2009.

Hogan went through the acquisitions ABB made in 2008, and then went back to talking numbers. In Q4, he said, revenues exceeded orders—which means that ABB began working down its backlog.

He showed the remarkable improvement in debt to equity ratio since 2001. In 2001, ABB had an 82% d-to-e, while by 2008, it had reduced to 17%.

He reported on what he called “phase one” of ABB’s strategy to get through the economic downturn cycle. $1.3 billion in cost reductions will come from sourcing changes (moving to lower cost countries), improved footprint and consolidations, operational excellence activities and reductions in G&A resulting from what he called “One Simple ABB.”

Hogan said that there was a “phase two” which would be implemented if the economic downturn was longer lasting than currently predicted, but did not elaborate.

Hogan went through ABB’s market position with respect to the various stimulus packages being implemented by governments throughout the world. He noted that ABB was well placed to participate in the stimulus-funded electric grid infrastructure rebuilding projects ($20 billion in the USA and $132 billion in China, for example) and he noted that North America would remain ABB’s largest market for the foreseeable future.

The outlook for 2009, he said, was “maximum flexibility.” He said that ABB would work with those “external factors beyond our control” using cost competitiveness, operational excellence, financial strength, by being alert to growth opportunities, focusing on energy efficiency, leveraging global/local opportunities, and leading market share and technology.

Hogan noted that ABB is a very large company, and that is both good news and bad news. His ABB, he said, is always going to be tuned to the voice of the customer.
The long term market outlook remains very positive as we get past this cycle, Hogan said, with power infrastructure and energy efficiency the right markets for future profitable growth. “ABB aims to emerge from the downturn in a stronger position,” he said.

Peter Terwiesch, ABB Chief Technology Officer, briefed the press after Hogan. “The Smart Grid is making headlines faster than new technologies,” he said. “Let’s cut through the buzz a little.”

There will be fundamental changes in electricity supply, he said, brought on by multiple factors including increasing demand, more sources of supply, more emphasis on renewable sources, energy efficiency and changing reliability of the infrastructure and operators. But it will be an evolution, not a revolution, he said. “The grid of the future will be different from those of the past,” Terwiesch said. “It will be open for all types and sizes of generation technologies, and it will be integrating the demand side in system operation.”

Power electronics and Information and Computer Technology will be the key enablers, but base technologies like insulation, current interruption and others will also advance.

Terwiesch went through a detailed briefing on ABB technologies for Wind, High Voltage DC transmission (HVDC), and HVDC Light, FACTS (Flexible AC Transmission Systems) and ultra low noise transformer technology.

Terweisch moved on to the automation part of ABB’s business, saying that the same drivers he talked about at last year’s Automation World in Houston were current, with one additional driver. “There’s a difficult global economy,” he noted wryly. The aging infrastructure, globalization, aging workforce, rising demand for energy and an uncertain future CO2 price make it imperative for automation to increase productivity without compromising safety, extend asset life, optimize energy use, and support decisions, by making best use of scarce experts.

ABB’s focus will be, he said, on integration, new functionality, more flexible infrastructure, and open standards.
He discussed ABB’s SIL3 rated embedded safety system. “I believe that the separate and the combined systems will coexist,” he said, and ABB can provide both.

The integration he was talking about, however, was that of power and automation integration.

“We can use HART and ProfibusDP on the field instrument side,” he said, “and IEC61850, which is taking off like a house afire, on the power side.”

“Edison said, ‘Vision without execution is hallucination,’” Terwiesch said, “and we’re executing. We are working with Petrobras on a five year project to boost capacity and reduce internal energy consumption. We expect to increase production by 40%.” The integration will use IEC61850 devices for power integration and the new System 800xA control systems will integrate process control, electrical distribution and safety systems.

Terwiesch discussed the state of wireless in both process and discrete manufacturing. He announced “summer” delivery for ABB’s WirelessHART adaptor, and noted that Festo is now a second supplier for the newly opened WISA discrete wireless sensor architecture that ABB created almost a decade ago. “We are making WISA a standard,” he said.

Finally, Terwiesch introduced the IRB4600 robot, which he called the fourth generation of robotic technology. He discussed the smaller footprint the robot has, and the simpler safety systems needed. He said it was easier to show than tell how dextrous the robot can be, especially in food and beverage applications so he showed a video of dancing robots.

Terwiesch closed by noting that R&D investment rose 5.9% in 2008 to $1.242 billion, with about half of that focused on energy efficiency and breakthrough technology. The R&D budget will remain the same for 2009, Terwiesch and Hogan said in answer to a question.

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