By Jim Pinto
By Jim Pinto
When Manufacturing AUTOMATION was launched in 1986, a quarter century ago, industrial automation was in its heyday. Business was booming and the annual ISA show was a worldwide attraction for the instrumentation, controls and automation industry – with attendance in the tens of thousands. Today, by contrast, industrial automation is relatively stagnant. The annual ISA show has shrunk to a fraction of its former size; this year, it is just a technical conference. After a couple of years of recession, the automation majors have returned to profitability with some growth, but they remain cautious in an uncertain financial environment. Where will the industry be tomorrow? Let’s review and prognosticate.
Automation industry roots
Trace the roots of all significant automation business segments and you’ll find key people and innovations. Industrial instrumentation and controls has always been a hotbed of new products – improved sensors, amplifiers, displays, recorders, control elements, valves, actuators and other widgets and gizmos. But the markets are relatively small, specialized and fragmented, and it’s rare that any significant volume results directly from individual products.
Since automation is such a fragmented business, all of the larger (multibillion-dollar) companies are mostly a conglomeration of products and services; each product segment generates a relatively small volume, but lumped together they form sizeable businesses.
Automation market segments
Today, industrial automation has two large segments – distributed control systems (DCS) and programmable logic controllers (PLC). The rest of the industry is a scattered array of miscellaneous products and systems, sensors and actuators, all selling to the many different types of industries and applications termed “industrial.”
• DCS. Honeywell introduced the original DCS – the TDC 2000 – in 1975. This was considered the fastest growing segment of the automation business – reportedly achieving $100 million in revenues within the first year. Other process controls leaders, like Foxboro, Taylor, Bailey and Yokogawa, quickly followed to make this a sizeable market segment.
The term “distributed” is something of a misnomer, because the system was really large clumps of mini-computers replacing large mainframes in giant central control rooms. Today, DCS has morphed into a variety of different shapes, sizes and form-factors, and this market segment has expanded to several billions of dollars worldwide.
• PLC. The PLC was invented in 1968 by Dick Morley and others working for a consulting company called Bedford Associates, primarily associated with a relatively small Boston-based company called Modicon. From 1977 to the mid-1980s, Gould owned Modicon, and after some shuffling between German AEG and Schneider of France, the company is now owned by Schneider Electric.
The development of the PLC was in response to the needs of U.S. automotive manufacturers. The process for updating production facilities for the yearly model changeover was very time consuming and expensive, because electricians needed to individually rewire the hard-wired backplane. The PLC provided “soft” relay-ladder logic programming, easily understood and accomplished by the average electrician.
Odo Struger was associated with Dick Morley in the development of the PLC, and Allen-Bradey, the company he was with, quickly rose to prominence through the growth of PLCs in the automobile business. Allen-Bradley, still a privately held company, was sold in 1985 for an estimated $1 billion US in cash to Rockwell International, an aerospace conglomerate. In 2001, Rockwell Automation was formed from the automation segments, and this company is still the market-share leader in North America.
Over the past three decades, the PLC has spread throughout the automation industry, and has almost become a commodity. The PLC market segment has grown to several billions of dollars worldwide, and the automotive industry is still one of the largest users.
• Sensors and actuators. The other identifiable segment of industrial automation is sensors and actuators. There are many companies in the segment, each serving specialized niches and a broad array of diversified markets.
Perhaps the largest of the sensor companies is Rosemount, founded in 1956 with a focus on temperature sensors for the aerospace industry. In 1966, the com pany diversified its customer base by targeting the process industries with unique differential pressure flow sensors.
Rosemount’s success captured the attention of the conglomerates and, in August 1976, Emerson Electric acquired the company. Emerson also acquired Fisher Controls to become a process automation industry leader with products and services in all major categories.
• Software. With the growth of PC-based systems to replace mini-computers, starting in the late 1970s and through the ’80s and ’90s, several innovative startups developed HMI software for PLCs and industrial I/O. Wonderware, Intellution and a host of others grew quickly, but were inevitably acquired by the larger conglomerates by the time they approached the $20-$50-million plateau.
Siebe, a British conglomerate that had already acquired DCS and process controls leader Foxboro, acquired publicly held Wonderware in 1998. Emerson acquired Intellution in 1995, and later sold it to General Electric in 2002.
It should be recognized that the 1986 timeframe represented the zenith for several PC software companies; some, like Iconics, with roots in Foxboro, still survive as independents. When growth in PC-based HMI stalled, most software companies moved to broader enterprise systems and sensor-to-boardroom connections.
In the industrial automation business, there are few companies that get beyond $50-$100 million before they are sold to a larger conglomerate. There are less than a handful of companies that started in the past 25 years that still survive as independents, mostly in the $30-50 million range of annual revenues.
Two mid-sized independents are standouts: National Instruments, founded by Dr. Jim Truchard in Austin, Texas, now approaching $600-$700 million in revenues; and OSIsoft, started by Dr. Pat Kennedy in 1980, and now a highly profitable global corporation approaching $0.5 billion in revenues.
It may be useful to end this rearview-mirror appraisal with a glimpse towards what automation will be like in the next quarter century.
Today, automation growth is occurring primarily in international markets where new factories and plants are being built. In a tough, global environment, organic growth will not come easily, and the current crop of Top-10 automation majors will shrink by acquisitions and mergers. As China and India advance, expect one or both countries to make major automation acquisitions to enter the U.S. and European markets.
Today’s factories and process plants are still a mess of conventional wiring, and it’s an easy extrapolation to forecast the continued growth of industrial wireless. The inflection point will arrive when one of the automation majors recognizes that the high gross margins of conventional product pricing are producing only incremental revenues and profit growth. The companies that can yield low-cost industrial wireless will be rewarded with significant growth surges.
Today’s new products and services produce relatively small productivity gains by comparison and, therefore, produce only incremental growth. Substantial productivity increase with resultant revenue growth is overdue in the automation arena – look for it to break through in the next decade and quarter century.
Who knows – the new growth may come from completely new directions, such as complex-adaptive-systems, bio-chemical electronics or tiny nanotechnology sensors.
Happily, there are startups and visionaries who recognize the possibilities – and they will become the new leaders of tomorrow.
Jim Pinto is an industry analyst and commentator, writer, entrepreneur, investor and futurist. Read his predictions, as well as excerpts from his book, Pinto’s Points, at www.jimpinto.com.
This article originally appeared in the September 2011 issue of Manufacturing AUTOMATION.