Eoin Treacy's view -
Industrial end-markets are still at the beginning of their digitalization journey
The Industrial Internet is about optimizing entire manufacturing systems, including products, processes, supply chains and business models. We estimate digitized solutions could generate c.15% annual opex savings in industrial markets by making assets more efficient. This could reduce the addressable market size for traditional manufacturers of big iron machines. However, this should translate in a market opportunity of c.$200bn for IIoT suppliers in areas like predictive maintenance or operation optimization.
IIoT strategies are as much defensive as they are offensive
Industrial companies will have to be good at software to remain successful as an increasing share of the manufacturing value chain could shift to providers of sensors, data analytics and industrial cloud architectures. For example, a key risk for the manufacturers of large pieces of equipment requiring maintenance/retrofit is that software companies specializing in analytics or 3D printing might take a growing share of the lucrative service business pie.
3 building blocks for success: Siemens and Schneider well placed
We believe successful companies in an IIoT world will combine an integrated platform of digital solutions; deep domain know-how to give context to data analytics and automation/control activities to in real-time the insights from data analysis on manufacturing processes. Siemens stands out for its comprehensive portfolio of automation and software tools but, the group faces significant digital disruption risks on servicing of its installed base. We rank Schneider and ABB highly. Both have relatively similar IIoT competencies but in different end-markets. We also estimate Schneider is running 5 years ahead of ABB in implementation of its group-wide digital platform and strategy.
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China’s labour costs have been on an upward trajectory for some time and they have already lost many low cost manufacturing jobs to even cheaper locales. With more than a billion people they have an interest in enhancing productivity to ensure they retain the moniker of “workshop of the world”.
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