JimPinto.com - Connections for Growth & Success™
No. 170 : 17 December 2004

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

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Honeywell Process Solutions - report from analysts meeting

Honeywell presented two very different outlooks at a financial analysts meeting on 6 December 2004: Turbocharging technology ($2.2B in 04, 8.5% of total) and the Process Solutions business ($1.8B in 04, 7% of total).

Honeywell's Turbocharger is poised for continued double-digit growth, with unit volumes growing at 16% compounded annually over the past 10 years - good thing to boast about.

But, the Industrial Process Solutions story was disjointed and unconvincing. It was probably included in this analysts meeting as a ploy - to attract potential buyers. I'm providing this summary those who are interested in a Honeywell prognosis.

Honeywell presented its process solutions business as focused on process "flow" applications. The key end-user markets: chemicals, pulp and paper, and oil & gas, as well as an increasing focus on "hybrid" markets (mixed discrete and process) - pharmaceuticals and food & beverage. Completely "discrete" markets, like textiles and automotive, are not served.

Process Solutions sells automation products (field devices, sensors, controllers, wireless applications), projects (integrated systems for oil & gas, chemical, pulp & paper refining), and aftermarket services (maintenance & upgrades constitute about 30% of the business).

Installed base: about $15 billion in process automation, with $13.5 billion (90%) in mature geographies, and $1.5 billion (10%) in emerging markets. Currently, 70% of sales are to the installed base, with key end markets being refining, chemicals, pulp and paper.

Despite the large installed base Process Solutions remains plagued by slow competitive response and strategic missteps. Strategic direction is toward seamless integration of applications for business optimization, asset management and facilitating real-time use of data. But, the market is slow to accept these offerings.

Honeywell management did admit mistakes in execution and deployment of Experion PKS. But the key message was that the "business is revitalized". Most observers remain unconvinced. There are strong technical and marketing pressures from well-funded global competitors who continue to grab market share. The consensus is that Honeywell is still playing catch-up. Margins in process systems remain well below those of Emerson and others.

Honeywell says that there is a $40-$65 billion market opportunity over the next 10 years, because the installed base is aging and ready for modernization. $30b of this is related to process applications, growing 2-4%, while "hybrid" demand will grow in the 3-6% range.

They listed key market drivers as:

  1. Higher spending (estimate 5-9% CAGR) on automation technology in oil and gas, driven by continued strong demand for further extraction and refining.
  2. New Biopharma production coming on line (5-9%).
  3. Continued sustained growth in emerging regions.
In my view, Honeywell will struggle to regain historical market shares. The emerging hybrid market is clearly targeted by other well-positioned competitors like Siemens, Emerson and Rockwell. In the past, hybrid automation was typically designed and implemented by factory engineers and systems integrators, adapting both process and discrete automation platforms. Now, major players are looking to extend their markets to include hybrid automation, and competition will be significant.

In this context, Process Solutions remains a challenging business for Honeywell to revitalize - they don't have the will and the stamina. In my opinion CEO David Cote will sell it off - when he gets a good price. In the meantime, they are trying to put on a brave face, with not much to offer, other than the big installed base.

The problem is that there are only a limited number of buyers big enough to attempt this kind of acquisition: Siemens, Schneider, GE, Emerson. So, Honeywell Process Solutions continues to float.

Honeywell (corporate) expects to do $ 1 billion in China in 2005. I would not be surprised if a Chinese player picked up Process Solutions, possibly by establishing a joint venture. This uncertainty will continue to drive customers to more stable suppliers such as GE, Endress+Hauser, Emerson and others.

Click Honeywell website

Click JimPinto.com Honeywell weblog

Click Honeywell Confident About China Outlook

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China buys IBM PC Business - Automation next?

That venerable standard, "The IBM PC" is now Chinese. In a $1.75b deal that announces China's ambitions to become a key global player, Chinese manufacturer Lenovo Group is taking over IBM's PC business. This creates the world's third-largest PC manufacturer (after Dell and HP), and changes the structure of global PC manufacturing.

The deal, one of the biggest acquisitions ever by a Chinese company, is expected to quadruple sales of Lenovo, already Asia's biggest computer manufacturer. It also signals IBM's transition from leader and innovator in PC hardware to computer services, software and consulting.

Lenovo will take over IBM's desktop PC business, including R&D and manufacturing for $1.25 billion in cash and shares, and IBM will keep a 18.9% share. Lenovo also takes on liabilities, which raises the deal value for IBM to $1.75 billion. The deal is structured to ensure that IBM still has a say in the PC business, despite its small stake. Lenovo will be licensed to use IBM's brand.

There's a lot of pent-up money in China from its exports to the US and the rest of the world. Until now, US capital has been going in the opposite direction, pumped into China's booming economy. Total US foreign investment in China's manufacturing is about $12 billion.

Despite a trade surplus projected to reach $150 billion this year, China has not yet put much direct investment into the US; their cumulative investment in the US is only a miniscule $314 million.

Right now the Beijing government has tight control over conversion of the Yuan currency, which is pegged to the US $. The Chinese government now holds $174 billion - almost 10% of outstanding US Treasury securities, second only to Japan. Most people feel that the Yuan is undervalued by about 30%.

A revaluation will devalue China's US debt by a third. Unless it simply accepts the devaluation of this huge debt, China will surely be using this cash to do a lot more deals in the US.

Click Business Week - China Goes Shopping

Click Prospects for China's Currency Revaluation

Click IBM Could Lose Half Its PC Prospects To Dell, HP

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Books online with Google

Google has just announced an agreement with leading research libraries (including Harvard, University of Michigan, Stanford, New York Public Library, and Oxford University) to begin converting books into digital files that will be freely searchable via the Internet.

This will be the start of a global virtual library. The goal is to expand the Web to create a digital card catalog and searchable library for the world's books, papers and special text collections.

Google - flush with money generated by its recent stock offering - will finance the project, and use its own technical abilities in the gigantic task of scanning and digitizing tens of thousands of pages a day at each library. The cost is estimated at about $10 for each of the more than 15 million books and documents, and could take several years.

The agreement is not exclusive. Other major Internet search providers like Amazon, Microsoft and Yahoo will also offer online access to similar libraries sooner or later. Within a decade or so, most of the world's knowledge will be digitized and available for free reading on the Internet, just as there is free reading in libraries today. This is information that has, till now, been available to only small groups of students and scholars.

Last year, Amazon.com started creation of a digital archive of more than 120,000 books. The Amazon goal is to digitize most of its multimillion books catalog, to make every page and every book viewable on line.

This is a significant trend for the future world. Most books will be available for free reading at any time. Beyond that, the ability to search millions of books brings mind-boggling benefits.

Click NY Times - Google Is Adding Major Libraries to Its Database

Click Forbes - Book 'em, Google

Click Wired - The Great Library of Amazonia

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My Roomba robot vacuum cleaner

Well, after hesitating for a while, I finally bought a robot to do some real work at home. I am now the proud owner of Roomba, the home vacuum cleaning robot made by iRobot.

I've got to tell you - my wife was cynical about my "buying a toy". She felt I would play with it for a while, and then allow it to gather dust till it was moved to the attic for storage. (I've done this with other robots in the past) I don't usually hesitate too long when buying techhy toys, but I didn't want my wife to crow, "I told you so!" on this one. So I waited with unusual patience while I studied the possibilities.

The Roomba website has a fairly detailed description of Roomba, with lots of good diagrams and pictures, and enough technical details to satisfy the most discerning geek. Amazon.com has another wonderful feature - reviews from customers who have already used the product. I found 45 reviews, mostly very positive, but with a few not-too-happy comments (which adds credibility).

Heck, so I bought one - $249.00 from Amazon.com, same price from anyone else. Now it's discounted for Christmas. There are other cheaper models, but I bought the upgraded Roomba Model 4210 Discovery Robot Floorvac.

Well, whaddyaknow - it not only worked well, but my wife is delighted! It's easy to use. To start, I simply pressed the "clean" button and Roomba vacuumed the carpeted floor in my home office. It's about a foot wide, and has rotating brushes that scoop stuff into its dustbin, with a vacuum to pick up smaller dirt, hair etc.

Roomba actually get floors clean, going under beds and other furniture where regular vacuums can't go. My wife worried about how it could do corners - it has an edge-cleaning spinning side brush, which removes dirt from the base of walls, from corners, and hard-to-reach places.

Roomba detects when it's stuck and has escape routines to free itself. It actually survey's the room and adjusts run time to clean the entire floor. It bumps the walls and furniture very gently, backing up to find a way to go around an obstacle. It adjusts automatically to carpet or tiles and other floor surfaces.

We closed the doors to my office and let it run for a while, watching to see if it picked up little things my wife had purposely scattered around - it did. And when it was finished, it purred back to its corner to its charging dock, to re-charge.

We moved it to our patio-room, which is mostly tiles, with a rug in the middle. It did well, climbing on the rug, and sliding off on to the tiled floor. It did the bedroom next, going under the bed (where you don't usually bother). We then tried the landing upstairs. I didn't want to trust it's "cliff sensors" which are supposed to prevent it from falling off an edge. Instead, I used an "artificial wall" - a little battery-operated box (two of these came with the Roomba kit) that acts like a barrier which it cannot cross. We left it alone for about an hour, and came back to find it happily plugged into its wall-charger. My wife thought this was "sweet".

We have 2 guest-rooms, with a corridor in between - like a T-junction. I put it in the corridor and closed the door, wondering whether it would find its way to both rooms. We went out for dinner. When we returned, it had cleaned both rooms and the corridor, and was happily re-charging itself. Sweet....

After all this vacuuming, we wondered how much dirt it had collected. I allowed my wife to snap open the dirt-cover without any instructions (she is suspicious of tech-manuals) which she did with remarkable ease. It clicked open, and she dumped the stuff away quite easily. She was impressed.

The Roomba kit includes its battery, a charger that plugs into the wall, a remote-clicker (if you prefer to order it around) and two artificial-wall boxes. Nice clean box, easy to unpack and get started.

I'm happy that I finally got my Roomba Robot. But, you know what I'm surprised about? My wife likes it! She has now put me in charge of regular vacuuming, and is giving our regular vacuum cleaner to my daughter.

Hey, but hang on a minute - who's going to vacuum the stairs...?

Click iRobot's Roomba models

Click iRobot's website

Click Buy your own Roomba robot at Amazon.com

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Consumer technologies to watch in 2005

I guess I'm a gadget freak. I've got a 19" LCD-screen for my 3.2 GHz desktop, and am eyeing a new, 23" Apple Cinema display. All my computers are on my home network, with WiFi-G access if I want to sit in the gazebo to check my email and Google around in the California sunshine on Christmas day (you know, just another ho-hum day in paradise....) And I've got my Bluetooth PDA and my camera phone to play with when we're wandering around. Now I'm waiting to see what's next on the horizon.

Consumer gadgets are hot right now. Best Buy, Circuit City, Frye's and other electronics stores are all going strong, as lots of new and wonderful gadgets come out for the Christmas season.

The Consumer Electronics Association recently picked the top 5 technologies which they think will shake up the home-gadget market in the coming year. If you're a gadget geek like me, this may give you some ideas.

  1. Home networks:
    More than 50% of US households will have home networks by 2008. Media servers with hard disk drives will allow distribution of digital media throughout the home.
  2. Advanced portable entertainment:
    More sophisticated types of cell phones, PDAs and digital recorders. Portable DVD players and mobile video for people who want to take digital video content with them wherever they go.
  3. Smart appliances:
    Refrigerators that can monitor the shelf life of their contents and ovens that can download recipes via the Internet and make the food.
  4. Innovative online and portable games:
    Interactive games on PDAs and cell phones. Next-generation consoles for new and exciting games.
  5. Telematics:
    Smarter cars, with electronics embedded to connect wirelessly . Off-board navigation systems will allow satellite information to be beamed directly to the car instead of being scripted from a CD or DVD.

Click Report from the Consumer Electronics Association

Click PC World: What's Next for Consumer Gadgets?

Click Book - Consumer Gadgets: 50 Ways to Have Fun and Simplify Your Life with Today's Technology ... and Tomorrow's

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Ricardo Pessoa [ricardo@ibiseng.com] on "The China Price":
    "There are three issues that your eNews item, and the related Business Week article) do not touch in analyzing China:

    1. The model: Chinese companies are not constrained by quarter profits. They can and do implement a long term strategy, such as buying market share in Telecom network gear, while US companies struggle to cut margins and compete.
    2. The US deficit: You seem to forget the fact that China (besides other Asian economies) have a huge stock of US Treasury bonds. The US has tied it's own hands through the ever-growing deficit.
    3. Culture: Americans tend to analyze other cultures through their own lenses. And everybody seems to forget that China was producing Confucius and the China wall when Western civilizations (specially Anglo-Saxon) was still gathered around fires in the woods. The Chinese are not, and will not be, willing to play by US rules, especially now that the US have isolated themselves politically in the international community, through unilateral political and economic decisions.

    "So, if you think that Japan has had an impact in world economy in the near past, remember that China is older, at least as wise, and they outnumber Japan at least 8-fold."

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Dennis Nichols [Nicholsd@mc-mc.com] on global competition:
    "I am old enough to remember the laughable toys and poor attempts at producing saleable goods for export to the U.S. marked 'Made in occupied Japan'.

    "What has evolved from that feeble attempt in manufacturing has become our nemesis in the Pacific Rim. With the world shift in manufacturing capability to Asia, and the shift in data processing chores finding their way to Pakistan and India, a new middle class is forming. With a new middle class growing in regions of over-population, it doesn't take much imagination to realize that these new classes are going to want more goods and services, and lots of them.

    "Those wanted goods and services will probably not come from the USA. The US has already lost its position as one of the world's leading manufacturers and may perhaps, at some time, lose its position as services provider.

    "I was speaking with a middle school teacher the other day who shared with me what she had recently told her class. She told them that unless they work very hard to gain the expertise in whatever field the chose for employment they will be the first generation since the great depression to NOT fare as well as their parents.

    "Her statement provokes a scary thought. Can we survive without our SUVs and our Timeshare Condos in Florida? Now, the great question: With this tremendous loss in revenue, how will we be able to pay off the existing national debt?"

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Henk Borsje [hjborsje@alert-systems.com] on slavery:
    "Your points regarding modern slavery touched upon a thought that has been spinning in my mind for a long time. I agree very much with your observation that foreign labor, whose products show up in Wal-Mart and similar places, is nothing but slavery, if it is not done with free will by the people who perform the labor. The poverty and corruption in many foreign countries (and I don't want to exclude the US) makes it impossible for many, many people to find freedom.

    "If our fearless and oddly inspired leader speaks about giving freedom to foreign countries, he should take off his blindfolds; the sooner the better.

    "Is has bothered me that there does not seem to be a good working model to raise the level of prosperity, and with it freedom, in countries that have commercial relations with the US and other first-world countries. A good start to address this problem may be to require a certain balance between imports and exports between rich and poor countries. For every euro/dollar imported, X % of that amount must be exported in return. This amount X should be negotiable and could be used not necessarily for 'stuff' things, but could also for services. I can think of health, environmental services. But high-tech products should be the bulk of this amount X. A nice side effect is that the US has a chance of preventing, or at least limiting, the loss of high tech jobs to developing countries. I think the threat of high-tech knowledge drain out of first-world countries is more serious than anything else.

    "I know that this idea sounds idealistic and could easily be labeled as naive, but solving the current import/export problem has to start somewhere. An impasse, while waiting for the perfect solution, is certainly not the right answer."

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