JimPinto.com - Connections for Growth & Success™
No. 248 : 23 May 2008

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

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12.5 mins.

Reshuffling the automation majors

After a few lean years, most of the major automation companies have generated respectable growth and profits for several quarters. You know the expression, "A rising tide floats all boats".

As I've predicted previously, this signals a period of new mergers and acquisitions; the weak players are vulnerable to buyout, and the strong are looking for customer-base expansion plus consolidation of talent and resources.

The strong mid-size players, especially publicly-held companies, are subject to attractive buyout offers. The recent MTL acquisition by Cooper Industries is a primary example. Cooper, already $6B, is growing aggressively through good strategic acquisitions.

The top-10 include Siemens, ABB, Honeywell, Schneider, Rockwell, Emerson, GE, Yokogawa, Omron, Invensys. Expect this top tier to be reshuffled soon. So, who will buy whom?

Rule out the Japanese - they are not acquirable and don't know how to make large acquisitions. There's still some talk about Siemens buying Honeywell (Process Solutions), but that's unlikely. Emerson (Process Management) is well managed and more likely to acquire than be acquired (Foxboro?). The Europeans - Siemens, ABB and Schneider - are indeed looking and have the wherewithal to buy, though they may simply settle for small fry.

My recent (15 May, 2008) InTech Pinto's Points discussed growth obstacles for larger companies, at the Phase-5 tier (weblink below). The two majors remaining in this category are Rockwell and Invensys.

At $5B annual revenue, Rockwell Automation made questionable UK acquisitions in an effort to grow, but itself is an acquisition target. ABB has a lot of process systems (via Bailey, Kent Taylor and others) but not much of the PLC-base that Rockwell brings.

In the May 08 issue of his insightful UK "Automation Insider", Andrew Bond discussed the intended Rockwell push into Process Systems via their recent acquisitions - ProsCon, ICS Triplex and Pavilion Tech. - plus the continuing alliance with Endress+Hauser.

Frankly, Rockwell is flailing; they simply don't have the depth of understanding of the Process business. "Long time veteran" Richard Sturt, who is in charge of the Process initiatives, doesn't have the management clout to achieve any real success. This appears to me to be one of many Rockwell "toes in the water". The only way they can succeed in the Process market is through a BIG acquisition. But they are more likely to be acquired.

From the continuing moans and groans on the Rockwell weblog, especially from the UK (link below) Rockwell still seems to be somewhat shaky. How much longer can they flail?

At about 2B ($4B) Invensys has recovered somewhat, but can't hope to get much beyond barely eking out marginal profits to meet cash-flow demands. Even as they finished the fiscal third quarter with net cash for the first time in history, Invensys reported only 5% year-over-year sales growth, lagging the other majors.

Invensys stock is still languishing at about 318p; market-cap is about $4B. Invensys Process Systems (IPS) is precarious, and there are those who suggest that Foxboro's instrumentation side is for sale. Rail Systems is unrelated, and is available if anyone is interested. The crown jewels, Wonderware and Archestra, are bait for the right whale.

Invensys is dangling in the wind. GE has GE-Fanuc but no DCS - so that's a possibility. Emerson? No. Schneider, or Siemens? Maybe. There may be other surprises. Stay tuned.

Click Why Rockwell is a primary acquisition target

Click ISA InTech - Growth obstacles for large companies

Click Rockwell Weblog - read latest blogs & include comments

Click Invensys Weblog - read latest blogs & include comments

Click Andrew Bond's Industrial Automation Insider

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The wild, wacky wireless wars drag on

The disputes and delays over wireless standards are continuing, describable only with poetic license. (See my poem, "The Industrial Wireless Quadrille" (link below). Sadly, 6 months after ISA got involved with WirelessHART, the analysis-paralysis continues. I'm even considering turning my poem into a video. Should I?

The delays are simply obfuscation by committee members, none of whom will admit to being pawns for the marketing ploys of the majors.

Emerson is focused on wireless standards for field-devices. Honeywell (and GE) want standards for much broader lines of products and systems located throughout process plants.

After the WirelessHART announcement (Oct. 2007), there was an initial skirmish. Then ISA and the HART foundation established a "joint technical committee" to assess the degree to which WirelessHART technology meets the ISA's objectives and whether it could be incorporated into what is now being called "the ISA-100 family of standards". (Notice the poetic choice of words). This was hailed as a major breakthrough. But can you guess how long it takes for any "committee" to agree?

In mid-2008, more than a half-year after the start of the joint ISA/HART collaboration, the 51 members of the committees and subcommittees have still not reached any agreement. (Hey, can you believe FIFTY-ONE members?)

The final vote on the recent ballot was 22 in favor, 20 against, 1 abstention, and 8 did not respond. It requires a majority (26) of the voting membership (51) to approve. Someone sent me a copy of the emails flying hither and thither and yon. I'm thinking of publishing it as a joke book. But, that would take several volumes. But, another poem? Nah.

And so, the "wireless wars" drag on. This is remarkably similar to what happened with the Fieldbus wars. Remember? ISA coordinated the SP-50 Fieldbus standard which never really got anywhere. The SP-100 standard was expected to take twice the effort, and hence the name: SP-100 (SP-50 x 2). But now, some on the committee think the heated arguments have tripled, and so the ISA wireless standard may be re-named: SP-150. Now, wouldn't that be poetic?

Click The Industrial Wireless Wars

Click Poem: The Industrial Wireless Quadrille

Click Wireless Network Standard Progressing

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Performance-based pricing

Products in the automation industry have traditionally been sold with "cost-based" pricing - selling price based on manufactured cost, with target gross and net profit margin multipliers. But global competitors (especially China) are prepared to compete with lower profit margins. So, the traditional cost-based pricing model is seriously flawed.

The tactical response by large automation suppliers is to offer broader ranges of products, software, systems and services. But this still has the effect of reducing overall profit margins. The problem lies in obsolescent cost-based pricing.

Pricing is a zero-sum game between the supplier and customer. The focus must move to win-win - simultaneously providing greater customer value and higher supplier profitability. Performance-based pricing is the answer. It allows the up-front cost to the buyer to be relatively low, and offers the seller a high return based on performance.

Performance-based pricing is "insurance". It guarantees that when suppliers provide more, they're paid more. Buyers also receive insurance through paying only for the performance delivered.

With performance-based pricing, suppliers get the opportunity to manage customer value and be closely involved with generating additional profits for both sides. With the risk comes added revenue and profit opportunities for the suppliers.

Click Automation World May 2008 - Performance-based pricing

Click China targets the Achilles-heel of Capitalism

Click Is Performance-Based Pricing the Right Price for You?

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The Youtube phenomenon - Jim Pinto's videos

YouTube was created in mid-Feb. 2005 by 3 former PayPal employees. In Nov. 2006, Google acquired the company for $1.65B in stock. Google now reports that Youtube revenues are "immaterial".

In January 2008, nearly 79 million users viewed over 3 billion videos on YouTube. As of April 2008, a YouTube search returned about 83.4 million videos and 3.75 million user channels. Estimates are that in 2007, YouTube consumed as much bandwidth as the entire Internet in 2000.

A terabyte is one trillion bytes, or 1000 gigabytes. Just a few years ago, bandwidth of "terabytes/day" sounded like science fiction. Current estimates of Youtube's bandwidth are 200 Terabytes/day, or 72 petabytes per year. That's a lot of Libraries of Congress, and equivalent to a sustained 9.26 Giga bps data stream.

Here's how and why Youtube works for me: These days, most digital cameras take both stills and videos. A typical short video takes about 100MB of memory, so it's not something you can email; most servers don't allow over about 10-20MB per email. So, you'd have to copy your video to a CD (which holds about 700MB) and send it via snail-mail. But then, how many copies can you send?

With Youtube, you can upload a movie (in any video format) up to 10 minutes and 100MB, and within a few minutes, there's a link which anyone can use to view your video. Unregistered users can watch most videos, while registered users are permitted to upload an unlimited number of videos. Some people upload several hundred.

I can download a movie to Youtube and email the link to my list, or include it with an article I write. Within a day, several thousand people around the world can watch it, when they want, and as many times as they'd like. And it doesn't cost them (or me) a penny. That volume of traffic would overload my server, many times over.

Several hundred people responded to my recent email asking for feedback on my first attempt at making videos - thank you! Most thought the quality was acceptable. And I did receive a lot of good tips on lighting and other techniques, which I appreciated very much. I hope you'll keep track of my improvements.

Many reported that Youtube was blocked at work - bandwidth and other restrictions. Most like the idea, though everyone still wanted the text version of eNews - reading is much faster than watching a video. Plus text can be scanned, re-read, clipped, pasted and forwarded.

So, I'll continue with this text version of JimPinto.com eNews. And I'll include video-links whenever I think it's worthwhile.

My weekly "Pinto's Points" is published by ISA InTech eNews. Editor Greg Hale has asked me to include a video-link with each column. So, take a look at this weeks InTech eNews (weblink below) and I'll appreciate your comments and feedback.

Click Links to all the current JimPinto videos

Click InTech eNews (22 May 08) - Never be the lowest bidder

Click Wikipedia discussion of YouTube statistics

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Wonderful to participate in Pangea Day

The first-ever Pangea Day (May 10, 2008) was a monumental success. My eNews (25 April 2008) featured the alert. Did you watch? If you missed it, or want to revisit, there's a one-hour highlights video (weblink below).

Pangea Day was named for Pangea, the prehistoric super-continent which symbolizes "one-world". Pangea Day featured a four-hour program of short films, live music and brief messages of hope, humor and sadness. No one has ever put on an event quite like this before. The emphasis was on storytelling. The films offered vivid scenes of sadness and contemplation, of joy and tragedy, of human love and empathy and togetherness.

Millions from around the world were linked via satellite with this broadcast which was designed to encourage peace and understanding. Watch it to feel connected to the world and warm your soul.

Click Highlights of Pangea Day (1 hour):

Click Pangea Day joins audiences around the world

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My friend Caston Dalon [Caston1@aol.com] has studied Islamic militancy and discussed the subject with several people, including many Muslims :
    "Jim, thank you for covering Religions in your newsletter. I'd like to point out some more statistics on Islam.

    "There are 1.5 billion Muslims worldwide with an estimated 10-15% who believe in an Islamic, Theocratic, one-world, Sharia-run Govt. This number translates to about 200 million Muslim fundamentalists.

    "To put this in perspective: If all the "radical" Muslims were in the USA (population 300 million), then 2/3 of this country would believe in overthrowing our Republic and replacing it with a Sharia-run Islamic Caliphate.

    "The radical segments of Islam are growing at a rapid rate in Europe. Present predictions are that by 2050, they will force many European countries to accept Islamic Law.

    "In the U.S. they are currently using our own freedoms to undermine through Cultural and Financial jihad. Example include infiltrating our colleges and grade schools with teachings that are sympathetic to Islam, as well as actively buying up Wall Street assets with 'oil money'.

    "The West needs to be aware of the dangers of radical Islam's growing base and resist it wherever it becomes apparent. We cannot bury our heads and end up like France, Spain, UK, Germany, North and East Africa and Scandinavia, which are all currently altering their laws and traditional cultures to accommodate the sensitivities of their expanding Muslim populations.

    "Moderate Muslims should speak out. But sadly, they remain largely quiet. The way the Koran and Hadith are written, it is difficult for them to rise up. To do so would require that they throw out 60% of Islamic teachings which are intolerant towards non-believers. It's important to note that it is written and taught that to question their prophet's teachings is punishable by death.

    "Islam would be fine if their underlying theology/ideology would not teach intolerance and violence towards non-Muslims, women and even other Muslims that don't fit into their belief system. In modern times, all other main-stream religions teach tolerance. But tolerance is deeply antithetical to Islam."

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Ricardo Pessoa [pessoa.ricardo@gmail.com] from Brazil has been reading eNews over the years, with his comments published as eFeedback before. He responds to the recent article on "The Post American world":

    "Your eNews has explicitly mentioned Brazil as one of USA's melting-pot ingredient, I'd like add a Brazilian view to it. I've been partially raised in the US, have an American sister, besides having (as an Ayn Rand reader) an intrinsic admiration for the US and the efficiency of your model of capitalism and democracy.

    "The point is that America has grown fat, believers of your own propaganda. Let me give you an example:

    "My first feedback to your list gave you my personal view about China and the US, noting that the US perception of China was a rough underestimation of that country's importance and impact in the world economy. You published my response.

    "My second feedback, in 2000, was about the fiasco of the ballots in Florida. I cited the Brazilian experience in automated voting systems as fraud-proof. Your response to me (unpublished, perhaps because I was from Brazil) was patronizing, over stating the size and complexity of the US voting system, and the difficulties and costs associated to implement something of that sort in the US.

    "Jim, I respect you professionally. Especially because of your origin, you cannot be blind to the world outside USA-borders. Stop and think about the roots of the past intrinsic superiority, beaten everyday by reality. This is affecting America's views of the world and hurting relations with other countries, and decisions within America.

    "The US is not a US-only matter. The well-being of the US affects the whole world. But America has been choosing to cast out allies. This is not just a government or policy issue; it's becoming the people's behavior.

    "I hope America changes. I miss the America I learned to admire."

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Walter J. Cholawsky [wcholawsky@program4.com] bemoans the shortage of engineering skills in the US:

    "As an owner of an Automation Engineering company since 1990, I can tell you that there's a serious shortage in talent, as never before.

    "I know it is true at least in Philadelphia and Lancaster, PA., for Manufacturing Companies and competing Systems Integrators. An online Monster Ad, or a big advertisement for engineers in the Philadelphia Inquirer gets little or no response.

    "Here's my opinion: Manufacturing in the US has not invested in new automated production lines since the 1990's. In the 90's many young engineers were driven to the Automation field. Today, the work is simply not there.

    "Compared with Electrical, Mechanical or Civil Engineering, the design and engineering skills of the Automation Engineer are under-utilized, under-valued and getting overlooked. The Automation Engineer is becoming an outsourced commodity.

    "There is a trend in large corporations to order equipment and production lines with the controls, HMI and Data Acquisition software completed. There is little value placed in the control system design process.

    "The System Integration business has gained a reputation for 'churn and burn'. Production startups have become increasingly demanding, with travel, weekend hours, etc. This has driven many 'journeyman' level control engineers to take jobs in product companies with a 9-5 schedule."

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