Rockwell Automation’s diverse business operations enable it to serve a diverse customer base supporting the leading global company to mitigate market volatility in any specific set of conditions
Rockwell Automation is one of the leading global providers of industrial automation power, control and information solutions. The company retains strong foothold in the market with diversified business coupled with domain expertise for its customer base. However, patent infringement suits are cause of concern for the company to look upon. Nevertheless, the company can expand its business operations through strategic acquisitions and key agreements. However, intense competition, changes in technological changes and volatility in commodity prices could hamper the company’s growth prospects, says GlobalData in a strengths, weaknesses, opportunities and threats (SWOT) analysis of the company.
STRENGTHS
Business diversity: Diversity endows the company with a wider customer base, stronger brand presence and growth across emerging markets. Rockwell Automation offers automation products and solutions to a broad range of markets such as food and beverage, automotive, oil and gas, metals, mining, home and personal care, pulp and paper, and life sciences, among others. Its portfolio offerings include connected components, integrated architecture, intelligent motor control, manufacturing intelligence, midrange architecture system, and solutions and services. Its product and services are designed to cater customers’ requirement to reduce total cost of ownership, maximise asset utilisation, improve time to market and reduce manufacturing business risk.
The company derives around 66 per cent of its revenue from products sales, 23 per cent from solutions and 11 per cent from its services. While it generates 50 per cent of revenue from heavy industry, 30 per cent from consumer markets, 15 per cent from transportation industry and remaining 5 per cent from other industries. Rockwell Automation serves customers in more than 80 countries around the world. In FY2014, the company reported approximately 48 per cent of its revenue outside the US. Such diverse business operations enable the company to serve diverse customers base supporting the company to mitigate market volatility in any specific market.
Operational performance: Rockwell Automation recorded marginal growth in revenue, despite sluggish market conditions in FY2014. The company reported 4.3 per cent increase in total revenue in FY2014 as compared to that of FY2013. The revenue growth resulted in increased gross margin, which increased to 41.6 per cent in FY2014 as against 40.5 per cent in FY2013. Revenue growth and increased gross margin was complimented by its controlled costs. The company’s operating cost as percentage of sales declined to 82.9 per cent in FY2014 from 84.6 per cent in FY2013.
Operating margins increased due to sales growth across all geographical regions, excluding Canada and Latin America region. Both, the segments namely, control products and solutions, and architecture and software recorded strong sales with an increase of 3 per cent and 6.1 per cent, respectively, in FY2014. As a result, the company reported improved margins in FY2014. Its operating margin and net profit increased to 17.1 per cent and 12.4 per cent in FY2014 from 15.4 per cent and 11.9 per cent, respectively, in FY2013. Increasing margins due decreased operating cost reflect strong operational efficiency of the company.
Its return on capital employed, assets and fixed assets were 25 per cent, 13.2 per cent and 49.4 per cent in FY2014 as compared to 22.8 per cent, 12.9 per cent and 45.3 per cent, respectively, in FY2013. Increasing profitability ratios indicate the company’s sturdy performance, and its ability to deliver returns expected by its shareholders.
Niche player in automation: Rockwell Automation is a technology leader in industrial automation. Its three platforms integrated architecture, intelligent motor control and solutions and services provide the foundation for long-term sustainable competitive advantage for the company. Its integrated control and information architecture, with Logix at its core, is an important differentiator. The company is the only automation provider that can support discrete, process, batch, safety, motion and power control on the same hardware platform with the same software programming environment.
Its integrated architecture is scalable with standard open communications protocols making it easier for customers to implement more cost effectively. One of its core competencies, intelligent motor control is important aspect of an automation system. It can be integrated seamlessly with the Logix architecture. These products and solutions enhance the availability, efficiency and safe operation of customers’ critical and most energy-intensive plant assets.
WEAKNESSES
Patent infringement suits: Involvement in various lawsuits and legal proceedings could not only have an impact on the company’s brand image in the market, but also need significant commitments on the cost and the management resource front.
In November 2014, MagneMotion filed a complaint with the US District Court for the District of Massachusetts seeking a judicial declaration that it does not infringe certain patents owned by Rockwell Automation and that the patents are invalid.
Moreover, the plaintiff seeks a judicial declaration that Rockwell Automation has forfeited its right to assert its patents against the company. Earlier in August 2014, Rockwell Automation settled its patent infringement litigation with Beckhoff Automation regarding linear motor patents. These matters could have an adverse effect on the company’s growth prospects as they exert additional financial burden on it in terms of fines, penalties, and legal consultancy fees.
OPPORTUNITIES
Key agreements: Strategic agreements contribute to the overall growth of the company. In January 2015, Rockwell Automation added nine new Encompass Product Partners to its PartnerNetwork programme, consisting of collaborative team with leading suppliers, system integrators, and machine and equipment builders to help solve manufacturing and automation challenges by simplifying the supply chain, advancing innovations in project design, and improving collaboration among suppliers.
In November 2014, Rockwell Automation and AT&T agreed to collaborate to improve remote asset utilisation and connected machine management. The companies plan to deliver cellular solutions that help manufacturing and process industries to securely collect, manage and take action on data from industrial equipment located in plants and remote sites around the globe. In September 2014, the company entered into collaboration with Fanuc Corporation to provide customers a more seamless and integrated manufacturing solution. Integrating Fanuc CNC, robot and Robomachine portfolios with Rockwell Automation’s integrated control and information solutions could provide better manufacturing agility, to help customers achieve a secure connected enterprise.
Strategic acquisitions: Rockwell Automation could augment i.ts internal growth with complementary and strategic acquisitions. In October 2014, Rockwell Automation acquired ESC Services, a global hazardous energy control provider of lockout-tagout services and solutions. The acquisition will expand the company’s safety services capabilities, complementing its safety products portfolio. In January 2014, the company acquired Jacobs Automation, a leader in intelligent track motion control technology. This technology improves performance across a wide range of packaging, material handling, and other applications for the global machine builder market. Such acquisition enables it to expand market position thereby enhancing its revenue stream and growth prospects.
Global industrial automation market: The growing pace of industrial automation and networking across industrial control systems presents Rockwell Automation with ample opportunities. The global market for industrial automation is expected to reach $190 billion by 2015, due to part recovery of the global manufacturing. The global manufacturing industry is witnessing a positive growth in demand in US and the various emerging economics. In the Eurozone, the manufacturing Purchase Managers Index (PMI) has remained above 53 for the past few months, depicting recovery. In Germany, the domestic market is strong, while France, Ireland, Italy and Spain have also reported better growth. The key thrust of manufacturing organisations is on improving operational efficiency. Rockwell Automation provides industrial automation power, control and information solutions to manufacturers that help them to reduce total cost of ownership, maximise asset utilisation, improve time to market and reduce manufacturing business risk.
THREATS
Rise in raw material prices: The company relies on third-party suppliers, contract manufacturing and commodity markets to secure raw materials, parts and components used in its products. The prices of these raw materials account for a significant share of the company›s total cost of goods sold. Due to increase in the commodity price, the cost of raw materials may also increase drastically. The company may witness loss in sales volume if the price increases are taken into account.
In addition, the continuous supply of the raw materials could be affected by weather conditions, national emergencies, strikes, governmental controls, natural disasters, supply shortages or other events. Thus, the price fluctuations and non availability of these raw materials may have an adverse effect on the product cost and further operations of the company.
Technological changes in end use markets: Rockwell Automation operates in various markets, which undergo rapid and significant changes due to the introduction of innovative technologies. The company must continuously design new products, and update existing products and services and develop new technologies in order to meet needs the requirements of the market. It is one of the largest engineering companies operating mainly in the power and automation technology areas. The company designs, develops, produces and provides support for its innovative products that incorporate advanced technologies. Its technical expertise led to a number of breakthrough technologies in its area of operations. But, Rockwell Automation has to upgrade these technologies, which requires a significant commitment to research and development, and financial resources. Upon investing in these new technologies, the company’s sales and profits could suffer if they are not accepted in the marketplace as anticipated.
Intense competition: The automation power, control and information solutions industry is highly competitive, which could reduce the sales volume of the company. The company competes with a wide range of global companies with greater sales, assets and financial resources.
