Is Rockwell in ABB’s sites?

Sept. 16, 2008
Joseph Hogan joins ABB

ABB has turned to GE to fill the vacancy created by the precipitate departure of Fred Kindle back in February of this year. Fifty-one-year-old Joseph Hogan, past CEO of GE Healthcare and a member of the GE Senior Executive Council, joined ABB’s new CEO on September 1 when Michel Demaré, who has kept the seat warm in the interim, will revert to his earlier position of CFO.

Hogan, a U.S. citizen, brings to an end a succession of Europeans at the ABB helm. HE has automation industry experience, having served as president and CEO of GE Fanuc Automation North America. During his 23 years with GE, he also served in a number of key sales, marketing and product development roles at GE Plastics and, before becoming CEO of GE Healthcare in November 2000, was head of GE Medical Systems.

Hogan is joining ABB at a time when the company, unlike some other automation vendors, is on a roll, having just reported second quarter income up 34% on the same period in 2007 at $975m. Earnings before income and tax (EBIT) were up 42%, and the EBIT margin was up from 14.4 to 16.1%. Orders were up 31% to a record for a single quarter of $11.3bn in what was the first quarter ever in which orders from emerging markets exceeded those from the mature economies.

Process automation saw revenues grow 30% from $1.59bn to $2.06bn and EBIT from $167m to $243m while EBIT margin grew from 10.5% to 11.8%, suggesting that, in that area at least, ABB still has some way to go to catch up with the sector leaders.

Acquisition strategy

Fred Kindle’s departure was widely attributed to a disagreement with ABB chairman Hubertus von Grünberg over acquisition strategy. ABB has a substantial and still- growing war chest and has been widely expected to make a major acquisition in the automation sector for some time. The arrival of the new CEO has again increased speculation that it will make an early move, with Rockwell Automation back in the frame as the most likely target.

Rockwell, which had been forced to issue “third quarter guidance” in June, reported third quarter revenues up 15% at $1.48bn, but fiscal income from continuing operations down nearly 9% at $152.6m, and segment operating earnings down 2% at $258.3m. Chairman and CEO Keith Nosbusch again attributed the disappointing performance to “continued slower growth in our higher margin product businesses” and weakening macro-economic conditions in Europe and the U.S. “We have begun to see a change in buying behavior by some of our customers in consumer-related industries, including project delays and curtailed capital spending,” he added.

Back in February of this year, when temporarily taking over the reins at ABB, Michel Demaré had explained the company’s failure to make a major acquisition during 2007 to then overpricing of target companies. “Last year we would have over paid by 25% . . . a challenge today can quickly become an opportunity tomorrow.”

That Rockwell share price

Just how quickly can be seen from the Rockwell share price, which has now fallen by 44% in the past 12 months. That would not necessarily make it Hogan’s first target, however. He presumably comes with inside knowledge of just how committed GE is to the automation sector in general and GE Fanuc Intelligent Platforms in particular and might see that as a neater option for filling the discrete automation shaped hole in the ABB portfolio.

Some readers may remember a few years ago when first Honeywell and then ABB introduced their “new” DCSs, Experion PKS and―the longest system name in history―IndustrialT Extended Automation System 800xA. They may recall how those launches were followed by seemingly endless claims and counterclaims between the various vendors as to how many of the new systems actually had been sold.

Underlying the arguments was the deceptively simple question of what actually constitutes a system sale and, indeed, what constitutes a new system. One particularly fine example was a conversation with ABB’s Mark Taft and Nick Laming at the U.K. launch of System 800xA HI almost exactly 12 months after the original launch of System 800xA itself, when the claim was that it had sold 600 systems in the first 12 months. At issue was whether it was necessary to sell an AC800M controller into an existing ABB site for the upgrade of the legacy system to count as a System 800xA system sale. Laming and Taft seemed unable to agree between themselves on that point and, when the discussion ended, “we seemed to have established that ABB had indeed sold 600 of something, but not precisely what that something might or might not be.”

Similar thoughts seem to have occurred to Control’s Walt Boyes last month when he, like us, received ABB’s latest news release announcing that it has sold System 800xA to more than 4,000 new and existing ABB customers. ABB says this figure “includes new system installations, as well as existing ABB system evolutions to 800xA,” by which it meant, presumably, upgrades of everything from ASEA Master to Taylor MOD300. Boyes wanted to know “how many of those systems were new sales, either greenfield or complete rip-and-replace; how many were upgrades to existing installations of various ABB marques like Bailey, F&P, etc.; and how many were upgrades to competitive systems. I understand why ABB might be reluctant to divulge that level of detail,” he added, “but it sure would help end users to decide how other end users feel about the System 800xA.”

As he says, even with those caveats, 4,000 installations since January 2004 is a pretty remarkable achievement, although I make that four-and-a-half years, not three- and-a-half, Walt, and given that they claimed 600 in the first twelve months, we’re looking at an average of just under a 1,000 systems over the past three and a half years.

Electrical integration

One factor underlying this success, according to ARC’s Larry O’Brien, is ABB’s increasing focus on the integration of process and electrical automation on the common 800xA platform. “The integration of power management and automation … delivers on the value proposition of sustainable manufacturing in terms of operational improvement, efficiency and cost savings,” says O’Brien. “The combination of System 800xA with ABB’s other automation and power offerings makes ABB a leading supplier for electrical integration for customers in a wide variety of industries.”

Recent successes based on this capability include a fully integrated automation and electrical power system for Drake Cement’s new plant in Arizona, integrated automation for SQM’s new fertilizer processing plant in Chile and mine hoist control for LKAB’s iron mine in northern Sweden. The company has also recently signed an exclusive $61m frame agreement with Petrobras for the supply of System 800xA process automation systems and related services to eight oil refineries in Brazil over the next five years.