JimPinto.com - Connections for Growth & Success™
No. 102 : October 29, 2002

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

  • More on Chinacosm & Indiacosm
  • GE-Fanuc buys Intellution
  • ABB woes erupt in a major fiasco
  • HighTech's future is in the toy-chest
  • ISA Exhibition Chicago & Morley's Last Retort
  • eFeedback:
    • Doing business with the Chinese
    • Downfall of acquired companies
    • Stem-cells already being used for anti-aging

More on Chinacosm & Indiacosm

I had a lot of comments on "Chinacosm" - the rise of Chinese leadership in manufacturing and hi-tech. Some protested that they had "heard this many times in past decades" - as if that itself was a reason why it could not happen now. (There are always lots of similar non-arguments about robotics.)

The rising tide of Chinacosm (George Gilder expression) and Indiacosm (Jim Pinto extension) is undeniable. Already a significant share of manufactured goods is sourced in China; and similarly, there is a significant market for outsourced software from India. In the last issue of eNews, few missed the link with the items that followed - Honeywell bragging about software development in India and manufacturing in China; and the Rockwell moving to do the same.

According to the Wall Street Journal, China already makes more than 50% of the cameras sold worldwide, 30% of the air conditioners and televisions, 25% of the washing machines, and nearly 20% of the refrigerators. A private Chinese company now accounts for 40% of all microwave ovens sold in Europe. The city of Wenzhou, in eastern China, sells 70% of the world's metal cigarette lighters.

High Tech in China : A few years ago, the idea of a Chinese Silicon Valley would have been laughable. China was a place to make toys and sneakers, not semiconductors. But today, the specter of Chinese hitech looms. Over the next decade, China will become "a ferociously formidable competitor for companies that run the entire length of the technology food chain," predicts a premier silicon-valley venture-capitalist.

Consider some of China's recent high-tech milestones:

  • Chinese universities granted 465,000 science and engineering degrees last year - approaching the US total.
  • China will become the world's second-largest chip producer by 2004.
  • The Beijing Genomics Institute was among the first to decode the rice genome, landing on the cover of Science journal.
  • 2 Chinese vendors of network switches have opened US and European offices and snatched contracts from Cisco and Nortel.
  • China has been launching satellites for years and will begin manned space missions in 2003.

Click Is China a threat to Silicon Valley?

Click The Hot Zone: South China

You know, the other day I got some excellent technical support from Dell Computers. When we were done, I complimented the technician, and (having noticed a hint of an accent) I asked where he was from. Not only was he from India, he was actually located in India! It turns out that Dell (and others) have thousands of support staff located there!

Software development in India has been booming in recent years. India now sells $5b software annually to the US, with 60% annual growth projected over the next decade. The stock of two software companies from Bangalore (where I was born), India trade in US stock markets with significant market caps. Infosys, with annual revenue of $600m, profit 28%, growth 26%, trades on Nasdaq with a market-cap of $9.2b. Wipro, with annual revenue of $800m, growth 25%, profit 23%, trades on the NY stock exchange with a market-cap $6.5b. Wipro software mogul Azim Premji is already one of the world's richest men.

By mid-century, India will surpass China as the world's most populous country (China's population growth is under control; India's is not). Already the world's largest democracy, India has the advantage of a high-percentage of English-speaking scientists and engineers, generating the Indiacosm of the new century.

Click India's high-tech hopes

Click Can HighTech transform India's economy?

GE-Fanuc buys Intellution

This past week GE-Fanuc acquired Intellution (the leading US automation software company) from Emerson. I had a lottt of email from JimPinto.com aficionados - "why didn't you tell us about this?" Apparently, I am expected to be the first to know. Actually, I knew, but a confidentiality agreement prevented eNews disclosure.

Wonderware and Intellution are automation software leaders, both founded in the late 80's on opposite coasts of the US; Intellution started a couple of years before Wonderware. I knew both founders personally and almost invested in Wonderware - I wish I had!

Dennis Morrin, the bright, entrepreneurial founder of Wonderware in California, sold the company to Invensys, then Siebe, for a hefty price and exited shortly after. Invensys paid too much, because Wonderware never lived up to its potential; after all these years, annual sales are still south of $100m. The market niche as a whole has been shrinking. Invensys lumped it in with Simsci and other software pieces, but organic growth never resulted.

Around the same time that Wonderware started, Steve Rubin founded Intellution near Foxboro, MA. and the company grew to become Wonderware's primary competitor. To generate growth with global muscle, Steve Rubin sold his company to Emerson and stayed to develop his vision.

When the market for Intellution's products flattened in the past few years, the entrepreneurial Steve Rubin still tried to push things forward in the same way he had in the past: new products, OEM relationships, new market niches, etc. Unfortunately that did not help the declining bottom line and rising red ink. So, always well-managed Emerson brought in Bob Yeager to run the business with one clear goal in mind: clean up Intellution and sell it.

Bob Yeager is a disciplined manager. He quickly narrowed the focus and made the hard cuts - people, products, and new programs. As the market continued to decline, Yeager continued to make the cuts needed to become profitable. Yet again, this showed the difference between a short-term cutter (Yeager) and a long-term builder (Rubin). The cutter generates fast results; the builder inspires a culture of growth and innovation which takes a lot longer. Now that Yeager has accomplished his task, he will likely get another management "cutter" job somewhere else.

The acquisition of Intellution evidently fits the GE-Fanuc strategy of market consolidation. After their Honeywell acquisition plans were thwarted, GE has been buying a lot of solid, smaller ($ 50-100m) companies like Druck, Panelmetrics, Bentley Nevada - this acquisition strategy will continue. Through these acquisitions, the GE presence at the recent ISA show in Chicago was evident. Not one of the other "majors" was present.

Questions about the future of Intellution as part of GE:

  • What does this mean to GE Cimplicity and Intellution customers?
  • Will GE will eventually dump one, or perhaps combine the two?
  • What happens to Intellution's partners like Mountain Systems?
  • What about Intellution distributors - where do they sit now?
Kevin Roach, the GE-Fanuc VP who is now responsible for Intellution (already has Cimplicity) came to Ge-Fanuc through their acquisition of Total Control Products, which in turn had just acquired his tiny I/O company. Kevin is a smart guy, or at least he used to be before he ascended the corporate maze of GE. He will no doubt try to respond quickly. However, most of the questions are muddied by conflicting interests. The ensuing puzzle will indeed be difficult to unravel.
Pinto Prognostications:
  1. PLCs and associated products are commodities in a steep price and unit decline. GE is "dressing up" their PLC business which has been a perennial poor performer. And Cimplicity software alone has not really provided enough oomph.
  2. GE is betting on a "sole survivor" strategy, which can be very profitable but devoid of growth. Perhaps they are looking at this conglomeration of miscellany as feed stock for their service business, and they don't really care about synergy or relevance to other parts.
  3. Why is GE doing buying all of these small, secondary suppliers in the measurement, automation and control business? GE has been in the industrial controls business many times before, and they screwed it up every time. Maybe it is arrogance that makes them believe they can do it, when others cannot. GE has bet on their ability to achieve this business transformation by paying as much as 2X sales, or 10-20X profit for some of their recent acquisitions.
  4. This seems to be an obvious defocus of GE after Jack Welch's departure. It is not clear who is running GE right now - CEO Jeff Immelt or a committee? These are serious question to employees, customers and investors alike. The precipitous decline in the GE stock price is one result of this uncertainty.

Click GE Fanuc Automation to Acquire Intellution from Emerson

Click GE INDUSTRIAL Press Release

Click Why is GE-Fanuc buying Intellution - FAQ

ABB woes erupt in a major fiasco

Once again, Jürgen Dormann, ABB's third chief executive in five years, is finding himself having to slash and burn. Dormann, who has been called "a boardroom Rambo", is trying to salvage ABB with radical surgery: $800 million in cuts, a whole division to be sold, the rest of the company to be shuffled and about 18-20,000 more jobs to be eliminated. This is on top of recent efforts to cut $500 million and 13,000 jobs.

ABB, which once hoped for $50 billion in sales this year, may wind up with only $18 billion. The company faces two severe threats to its ability to ride out this slump: rising debts (reached $5.5b in Sept. 02), and a flood of lawsuits over asbestos liability, literally 110,000 suits so far. Estimated costs to settle asbestos related claims have now exceeded the value of Combustion Engineering assets. So, ABB will seek protection under Chapter 11, believing they can isolate CE from the rest of ABB.

On Oct 21 02, a UK Financial Times article proclaimed: "ABB nears collapse as shares hit record low." On Oct. 22, ABB share price fell over 50%, ending the day 62% down.

Highlights from a recent analysts conference : Revenues down 7% for the quarter and 2% YTD. Sales down 13% for the quarter and 7% YTD. Orders for Utilities down 47%, Oil, Gas and Petrochemical down 43%. Process Industries segment showing recovery with orders up 2% for the quarter, but down 9% YTD.

Pinto Prognostications:
  1. The ABB position is a fiasco. Combustion Engineering (with Taylor and other pieces in tow) was bought with all liabilities - including the asbestos liability. ABB is trying to protect their European assets by forcing the US company to file bankruptcy. This will cause serious pain to many employees, ex-employees and customers who suffer from a disease called asbestosis. This will likely cause the US government to intervene.
  2. It should be noted that ABB results are really bad, even without the CE fiasco included. The rest of the ABB US business is in a complete shambles and ABB is not investing anything to save it. The consequence to US customers is huge. ABB was already not supporting their legacy products; now this cannot be rectified as their cash position worsens.
  3. Key mistake: To save costs, ABB will move from direct-sales to Reps & Distributors ("channel partners"). This means they will lose touch with customers; and the Sales Reps will remain wary as they harvest business rather than aggressively pursue new business. The savvy Sales Reps know full well that they are in a dying business which cannot support their costs in an increasingly more competitive market.
JimPinto.com has already covered ABB in several previous issues of eNews over the past few years. You might like to read these items together in a combined review.

Click The ABB Blahs (summary of past 2 years):

Click Log your comments in the **NEW** ABB weblog

Click ABB axes costs and plans energy sale to cut debts

Click Swiss Union Fears 18,000-20,000 Job Cuts At ABB

High Tech future is in the toy chest

It is interesting that, instead of coming directly from main-stream applications, many new advances are generated as toys. Perhaps the requirement to be at once effective and inexpensive generates practicality and avoids bloated budgets.

Toymakers are pushing the boundaries in artificial intelligence, wireless communications, and virtual reality. And the benefits are flowing to other industries as well. Today's cutting-edge technology toys are blurring the boundaries between the living and the mechanical; toymakers have pushed the limits of artificial intelligence, speech synthesis, wireless communications and networked virtual reality.

DarkCon, a virtual-reality video game is being developed by the US Army-backed Institute for Creative Technologies (ICT) at the University of Southern California (USC). This aims to create total-immersion military training tools. Why did the Army back this eclectic group of video game makers, tech PhDs, and Hollywood producers to develop the next generation of military training tools? Because they realized that the cutting edge for such technology exists not in the labs of Silicon Valley but in the electronic games and toys strewn about the rooms of 10-year-olds everywhere. This is driving technology development into the future.

Indeed, toy inventors are pushing the boundaries of artificial intelligence, speech synthesis, wireless communications, and networked virtual reality. What's more, they are figuring out how to cram huge chunks of realistic graphics, dialogue, and sensory cues onto tiny, inexpensive computer chips.

Click Business Week - High Tech's Future Is in the Toy Chest

Click Toddling towards high-tech

ISA Chicago exhibition - Dick Morley's Last Retort

Last week (Wednesday, 23 Oct. 02) a special event took place at the ISA show in Chigaco. "Dick Morley's Last Retort" attracted a significant audience. An estimated 600 people attended this 2-hour session and voted it a big hit, asking for more of the same next year.

Most people recognize that ISA shows are somewhat sleepy & boring. With a broad business decline, attendance at this years show was down, attended by few customers and populated mostly by vendors viewing each others wares. None of the major companies was present - they considered the ISA show a "bad investment".

Dick Morley, the visionary, seminal thinker and famed "father of the PLC" accepted a challenge to moderate a special event which would liven up the show.

The advance advertising asked:

    "What should you expect from industry leaders like ABB, Emerson, Honeywell, Invensys, Rockwell, Siemens or Yokogawa? How do the economies of their decisions affect you?

    "If you're tried of the same old stuff, then join this forum and get real answers to real questions. This ensemble panel of consultants, analysts and protagonists will probe the latest developments in our corporate community. What are the mergers and acquisitions doing to our industry? Where will the next big moves be made?"

With his sharp wit, eclectic mind and iron-fist, Dick Morley was a superb and motivating moderator. Ken Crater of Control.com represented the analysts and consultants, leaving yours truly to serve as the protagonist.

I had personally invited Jack Bolick, the new President of Honeywell Industry Solutions to be there - he didn't respond. With Rockwell having "the largest layoff in its history", I had looked forward to talking with Steve Eisenbrown, Senior VP of Rockwell, who had agreed to be on the panel. He cancelled. From Invensys, Sasan Goodarzi (who?) President of IMAPS (what?) had agreed to be there. He didn't show. We tried hard, but couldn't find anyone to represent Siemens or ABB.

Representing the major companies were John Berra, President of Emerson Process, and Shuzo Kaihori, President of Yokogawa N. America. Both agreed that the event was effective, and that their attendance was very beneficial to their companies, and to the industry as a whole.


Fred McClintock [rds@rdsglobal.com] President of RDS Global, wrote:
    "I read your Chinacosm article with a great deal of interest. I visit China regularly for clients, 2 to 3 times a quarter. Mr. Gilder is right in his perception of China manufacturing. What is not reflected in his commentary is the fact that Chinese manufacturers pay less for imported components than anyone else in the world. Negotiation in China actually begins after a hard fought general agreement. In the "after" agreement negotiations, the Chinese continually work on pricing issues. They are very astute at accomplishing further reductions based on volume, promises, component problems, etc.

    "China is indeed an interesting place to do business. They learn fast and are in the process of gaining global acceptance for their products. You'll hear much more about the Chinese in the future. Much the same as when Japanese products took hold."

An observer in a large company wrote regarding the seemingly inevitable fate of smaller acquisitions:
    "I would just like to tell you that your article 'downfall of acquired companies' is an extremely accurate description of what is so often happening nowadays in large companies. My congratulations for this good analysis.

    "Short term high profit based strategies often result in 'valued customers' being considered as an unavoidable pain. The extreme combativeness of most big-company managers to develop their own career, surely does not create any value for shareholders. All big companies, from many different industry sectors, are stuck in the same 'vicious circle'. This non-sensical spiral will be somewhere, sometime be opened by some revolutionary or evolutionary threshold.

    "Let me predict (I also love predictions) that we are at the end of this nonsense (I think at a distance less than 6 sigma). After all, aren't we in a new millennium?"

On the subject of aging, an expert who is engaged in the field of anti-aging wrote :
    "I work in a little known part of healthcare - hyperbaric medicine. Embryonic stem cell injections are being given today at $25,000 per shot, 10,000 cells per shot, in the subcutaneous fat of the abdomen. Neurogenic or liver stem cells are utilized, depending on if you want anti-aging effects or relief from neurologic conditions such as stroke or traumatic brain injury. No guarantees are offered, either. Many Hollywood types have participated. I know 2 people (elderly) who have had the liver shot and see remarkable improvement for them.

    "Early work has shown that stem cells harvested from adults can be grown, but they do not grow as quickly nor to the large volume as those of cord, pediatric or young adult stem cells. The same work has shown adult stem cells to proliferate at the rate of cord and pediatric stem cells if exposed to a regime of hyperbaric oxygen. Harvest and grow ones own stem cells & not need immune suppressing drugs. This is the best way to NOT use a fetus-farm, nor require immune suppressing drugs, and cause life extension in the best health possible. I would not be surprised to find that a famous paralyzed actor has not also had this injection."

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