Last week, Jim Pinto’s column, “Pinto’s Point,” made some very good points. I think Jim may well be right about some of this.
Pinto said that automation companies were locked into a “mindset” of being “stable, slow-growth, and low-profit.” He notes that it is very difficult to get automation companies, their analysts, and the Wall Streeters who follow this niche to break out of this mindset and think more broadly.
He points out something extremely important, I think, when he says, “Automation businesses typically market higher priced products in low volume.” This is key to understanding why automation is only now seeing the huge tsunami of change that hit the other high technology markets, like computers and telecom, ten or more years ago.
And it is extremely important in understanding why Fieldbus War II has started up again, and why prices continue to be higher for field sensors in automation than in other environments. Companies don’t have enough demand for the kind of build practices that the consumer electronics or even the contractor electrics business has, and so they have to keep margins high. As Pinto points out, (yes, I know it is a terrible, and expected pun, but hey, this is a blog, so what?)”Most people think high volume and low price means low margin, and that is not necessarily true.”
Another key point Pinto made (darn, there it is again!) is that automation businesses spend only 2-3% on R&D (one notable exception being Yokogawa, who spent 9% in each of the last three years). Other high tech businesses spend as much as 10-15% and even 20-25% on R&D. Where this comes back is the ability to make things much less expensively, and to design things faster and smarter.
The automation business is going to grow. It will be forced to. The question is, will this be a happy growth, or an agonized dragging of the entire industry kicking and screaming into the 21st century?
Let me know what YOU think.