JimPinto.com - Connections for Growth & Success™
No. 264: 24 April 2009

Keeping an eye on technology futures.
Business commentary - no hidden agendas.
New attitudes, no platitudes.

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Rockwell teeters on the edge

During recent months, Rockwell shares fell to about $20. Suddenly last week, the stock jumped to about $30, fueling speculation that the beleaguered company was being acquired.

Several Internet message boards speculated that an offer of $32 per share had been received from Emerson Electric. Rockwell did not confirm or deny the possibilities. My own view is that Emerson doesn't want to acquire Rockwell, which it considers a dead-horse. Perhaps it's ABB, or someone else. The $32/share number does look practical.

The Rockwell blogs seethed with frustration at continued layoffs of manufacturing people at various locations. Many suggested that the recent actions are indicators that the company is getting ready to be sold. Informed observers agree that CEO Keith Nosbusch is flailing, and trying to exit gracefully.

In early March, Rockwell announced cutbacks in its workforce, and closed its manufacturing facilities in Ontario, Canada. On April 1, Keith Nosbusch asked the company's employees to take 3 unpaid days off per quarter. US retirement account contributions were suspended and employees were told there would be no bonuses this year.

Keith Nosbusch said his own salary would be cut by 20% (from about $ 2M) - small comfort for the many who had lost their jobs. Rockwell bloggers wondered suspiciously whether he'd still receive his bonuses, which apparently totaled several million last year.

Keith Nosbusch reported glumly, "We expect the market environment in 2009 to be very difficult. The global recession has grown deeper and wider than we originally anticipated. Key economic indicators and projections continue to weaken and we are seeing a significant deceleration in customer demand."

By contrast, ABB Q1 revenues are steady, with large order growth, offset by strong decline in base orders - order backlog is up $1.2B vs. Q4 2008. Revenues are up, with net income at $652M. It's not a matter of whether ABB can buy Rockwell - they can. The question is: do they really want it?

So, who will buy Rockwell? Some savvy blogger suggested that, if no one stepped up to the plate, perhaps an intrepid Venture Capitalist would buy the pig-in-the-poke, and carve it up for piecemeal sale. Someone else even suggested that Invensys and Rockwell were discussing a merger. But, that would, in my terminology, be Pig + Pig = Piglets.

Click Rockwell shares climb amid acquisition speculation

Click Read Rockwell's buzzing blogs

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The decline of American Manufacturing

Unlike financial fly-boys whose fancy footwork now flaunts fake returns to profitability, the industrial core of America is becoming marginalized as the country moves towards what seems to be a "post industrial" future.

In his recent articles in Forbes, and New Geography, Joel Kotkin writes that the new administration seems to have contempt for the old economy: manufacturing, agriculture, energy.

Most of the $800B stimulus is being used to bolster banks. What's left is going to green projects, health care and education. So, what is the future role of Manufacturing in America?

Look at GM and Chrysler - their workers are being asked to make huge sacrifices - 1,600 new layoffs announced just this week - while their executives are shunned and demeaned, compared with coddled bankers. Just look at the bizarre choice for the "car-czar" - an investment banker with no hands-on auto experience at all. It's an insult.

The policy ends up eroding America's industrial base. The ballyhooed expansion of "green jobs" to make up for massive manufacturing layoffs is just a fantasy. Windmills and solar panels won't rescue industrial towns, which will only see more devastation. There are lots of places where the American dream is dying rapidly.

If this anti-manufacturing trend continues, more of America will become even more sharply divided between a growing class of low-wage workers and relatively few wealthy - the hollowing out of America; the demise of the middle-class.

Perhaps even worse, by stimulating everything but manufacturing, we risk accelerating the very imbalance between production and consumption that is one key reason for the nation's economic woes.

Padding incomes by handing out money without increasing production may prove a great way to stimulate other countries' economies - industrial exporters like Germany, Japan and China.

Click Joel Kotkin - We Must Remember Manufacturing

Click The Decline of Manufacturing?

Click Understanding manufacturing decline and its challenges

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The "Genome" of your automation system

Consider all the different products and systems and software that work together to operate an entire plant or factory. These include not only DCS and PLC systems, but also the accumulated variations and software patches and custom modifications, control strategies, diagnostics and more. Each product or system has its documentation, but the combinations and adaptations must be tracked; it's like keeping track of a living, changing entity.

Each factory, plant and process is complex and that complexity is described with what Eddie Habibi, of PAS Inc., in Houston, Texas calls the process and control systems "genome". The analogy relates to DNA and the genome that makes each living entity unique.

Just as living beings mutate, the control system genome keeps changing and adapting with modifications, additions of equipment and controls, and "learned" control strategies. Keeping track of the automation system genome is a unique concept that PAS has pioneered since 1996. This dynamic company has developed a unique niche and is growing fast.

To follow the analogy further, "sequencing" the control system genome involves tracking many different instrumentation, measurement and control systems purchased from several different suppliers - large automation majors as well as smaller independent equipment suppliers and systems integrators.

Because of the multiple sources, automation system genome tracking cannot be provided by just one of the major suppliers (who typically can only optimize their own equipment). It must be provided by an independent company that specializes in tracking the performance and adaptations of multi-vendor systems through genome tracking.

PAS is a pioneer and the leader in this fast-developing market.

Click The "Genome" of Your Automation System

Click PAS website

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The Future of Capitalism

In the throes of an ever deepening recession, or depression, it is worthwhile to stand back and review objectively where Capitalism stands, and where it is headed. The following comments are from a recent "In Depth" segment of the Financial Times.

After centuries of Capitalism, many still misunderstand the real benefits, and the downsides. This has left Capitalism vulnerable to opponents, and to ignorance. Regaining well-functioning Capitalism will require re-education and reform.

Capitalism is NOT just the over-simplistic notion of "free markets". It cannot function without state protection against monopoly, greed and fraud. Without subsidies to stimulate inclusion of the less advantaged, it causes social stresses that inhibits progress.

In essence, capitalist systems are mechanisms by which economies generate growth in knowledge, leading to income growth. In the last century, it was thought that Capitalist economies benefit more than others simply because they are quicker to seize opportunities and thus have higher productivity - the result of creative entrepreneurs and enlightened financing. That's simplistic nonsense.

Capitalism messed up because business, governments and consumers got too greedy. Life was easy in the late 1990s and early 21st century, with a benign interest rate regime, and cheap goods from China keeping inflation at bay. All you had to do was turn up at the office to live a good life. Moderation was out.

Every era of irrational financial exuberance ends with inevitable decline. During the good times, collective, self-reinforcing human psychology convinces us that we are living in a new era, where the old oscillations of boom and bust have been banished. Then comes catastrophe and bankruptcy. Former giants fall and Capitalism seems to require life support.

This too shall pass and things will change. Just by dint of the scale of ongoing fiscal stimulus, there will be a recovery, not this year but perhaps next.

Just as the crash was inevitable, so will be the pendulum swinging the other way. The teeth and claws of capitalism will be blunted, and we will see the return of forms of state corporatism familiar to the 1970s. It may take years to discover whether the actions taken are enough to rescue the world economy from a prolonged recession, perhaps depression. Capital markets, global financial institutions, investors and consumers will have to be convinced that they can start to spend, borrow and lend again.

The BIG difference this time is that the Internet revolution has transformed international communications, the flow of information, financial trading and political awareness. The way has been cleared for new powers to rise - primarily the giant middle-classes of China and India. The ideological obstacles to globalization have been removed, and cross-border migration will surge, causing even greater shifts.

As the postwar baby-boomers of the developed world head rapidly into retirement, the cost of "entitlements" to first-world countries is likely to outstrip even the impact of the current economic decline. And the debts left by recession and bank rescues will take their toll.

Just as the crash was inevitable, so will be the swing the other way - Capitalism will escape from its deathbed, but with a more human face.

Click Financial Times - The Future of Capitalism

Click A wider order comes into view

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The Future of Energy

For two centuries of industrial history, energy technologies have improved much faster than the estimates of supply have receded. New energy sources have always been developed to meet burgeoning demand.

The belief in progress through human ingenuity generates the concept of the "bottomless well". This is the seminal thinking in a book by Peter Huber and Mark Mills: "The Bottomless Well: The Twilight of Fuel, the Virtue of Waste, and Why We Will Never Run Out of Energy". It emphasizes that as humanity advances, more and more energy, not just oil, will come inevitably from the "bottomless well" of technology innovation. Energy supplies will always outpace demand.

The demand for energy can only go up. Why? Because cheaper and better products stimulate demand and increase total energy usage. It signals progress, and energy usage is simply a cheap byproduct.

It is clear that electricity, not oil, defines the fast-expanding center of the energy economy. About 60% of US GDP now comes from industries and services that run on electricity. All the fastest growth sectors of the economy, like info-tech and telecom, depend totally on electricity.

Bob Metcalfe, Ethernet co-inventor and founder of 3Com, doesn't like the label "green". To him, this conjures up anti-capitalism, anti-technology, anti-Americanism. Why not call it blue tech? Blue for power coming from the sun, or the oceans.

Bob Metcalfe thinks the real goal in the next six or seven decades should be to produce "squanderably abundant, cheap and clean energy". How can we do that?

It's like the Internet; no one could have foreseen where it would end up or all it would be used for. There were innovations no one saw coming - semiconductors, the PC, packet-switching, Ethernet, TCP/IP protocol. There will be similar surprises with energy too.

Ultra-cheap energy will come from new sciences. Perhaps we'll create abundant biofuels out of algae; Craig Venter, who first sequenced the human genome a decade ago, is focused on doing just that.

Oil is a biofuel which has developed in the ground over millions of years; what if we could synthesize bacteria to produce oil from waste products in months? Who will want old-fashioned Oil then?

Or perhaps we can use the sun to turn water into high-energy fuel. We might develop nuclear schemes that don't require huge power plants, or produce dangerous waste.

Human ingenuity and technology will inevitably achieve these dreams of the energy future.

Click Energy - The Bottomless Well

Click Book, The Bottomless Well - Review and buy on Amazon.com

Click Craig Venter: Genomics vs. Oil Economics

Click Looking ahead with tech icon Bob Metcalfe

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Rick Lamb [relamb@midtechv.com] discusses the characteristics of some people who are available after big-company layoffs:
    "Speaking of lack of flexibility, boy am I glad I left GM a year after graduating from college. With all the economic downturn for them and their suppliers, there are hundreds of middle-aged engineers hitting the streets.

    "Delphi Automotive had a recent layoff of about 600 salaried people. I hired a few of their engineers on some system integration projects, but talk about stuck in a mindset. None worked out. They've had their blinders on for so many years, plodding along, doing the same things the same way, that they just can't adapt to the 'outside' world.

    "They work very slowly, they don't have current or diverse technical skills. They think they need a committee meeting to decide anything. You've got to feel sorry for them, the picture doesn't look very bright."

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Rich Merritt [rmerritt@cedar-rapids.net] tells about his own experiences with "empty titles":

    "When I worked in the advertising agency business, CMF&Z had 150+ employees, and 55 of them were vice presidents or above, including 3 presidents.

    "The vice president titles were mostly ceremonial, with no fiscal or policy-making authority, and were given out like candy in lieu of salary increases.

    "I was the only white male over the age of 40 who was not a vice president. Therefore, I took great glee in finding an article in Advertising Age that said vice presidents were, indeed, ceremonial. It seems that somebody sued a big agency, and named all the vice presidents in the lawsuit. The agency explained to the judge that the VPs should not be held accountable because they had no real responsibilities and the VP titles were mostly honorary.

    "It's like giving people who are members of a Board of Directors the title, 'Director' when, in fact, they are non-directors whose only purpose in life is to rubber-stamp the CEO and vote big raises for themselves and executives.

    "By the bye, CMF&Z - the best agency in the Midwest, one that once enjoyed $100 million in bookings and was ranked in the Top 100 by Ad Age - is now defunct. Empty suit managers and the 50 honorary vice presidents destroyed a once-magnificent PR and advertising machine. You can't blame me, because I never made it to VP."

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Joanne Harris [punkinmark@mindspring.com] on Stupidity vs. Greed:

    "I live in South Florida, where more people were greedily flipping houses every 6 months to make a quick buck. I do not feel sorry for anyone who recklessly buys what they know they can't afford. No excuses, so stop sobbing about it. We aren't talking hard-working Americans losing their homes over lost jobs, we're talking greedy people who want it all - NOW.

    "Case in point: several years ago, when interest-only loans were thriving, the Palm Beach Post newspaper ran a story and interviewed some of these 'poor hapless people' . One guy, who worked pressure-cleaning homes and driveways - what are we talking, $40-50k a year - bragged that he bought a home for $800,000 and HOPED to sell it before the payment came due. And if not? 'Well, I'll let the bank take it back. It won't be the first time.' This man is so naive, so helpless? No. He should never be given another loan.

    "I'm a single woman, and I've bought 3 homes all on my own. I bought what I could afford, and even then, I stayed under budget a little, in case I'd ever be out of work. I worked my way up from a little cottage on a lake to my current home near the Intracoastal. Do I want a mansion? Sure, why not? But I'm willing to work for it, and to work up to it.

    "Are the mortgage brokers and banks at fault too? You bet! Should we have bailed them out, including the 14 former execs at one financial institution who received $10M or more in BONUSES right before the collapse? Hey, that's not even a golden parachute. Why should I pay them for their greed?"

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