The Invensys endgame - Siemens acquisition

On the Invensys weblog (see link below), canny observers, investors and employees made perceptive comments, tracking the goings on.

• Investors can't ignore the continuing perilous state of the balance sheet.
• Revenue from ongoing businesses has continued to decline.
• Invensys keeps getting smaller, and there comes a time when you just have to consider that the company is too small to consider as a viable proposition for long-term investment.
• Perhaps now - for the sake of investors and the remaining 35,000 employees, Rick Haythornthwaite should concentrate on finding the right partner to absorb the business.

"Invensys fell back towards its low as Morgan Stanley cut profit forecasts, and conceded that its previously bullish stance had been premature. The broker cut its current-year earnings per share forecast from 1.3p to a 0.3p loss, with that for 2006 falling from 1.6p to 1.3p, and downgraded the shares."

"Investors might be relieved when Invensys is eventually put out of its misery after a string of profit warnings and a cash shortfall so acute that some analysts actually feared for the company's financial survival."

"Heavy dealings continued in Invensys, with 177m shares swapping hands, prompting chatter that the engineering group could be gobbled up by Siemens. The stock ticked up .5 to 13.75p."

"Siemens is already known to have cast an eye over Invensys's rail systems business, and other parts of Invensys's process controls operations. Any deal, however, will hinge on whether it is prepared to take on Invensys's debts and pension fund deficit."

Siemens will likely buy Invensys. But, watch for drama - the German giant may divert at the last minute to buy Honeywell instead.

1. Siemens would prefer Honeywell over Invensys. They had the Honeywell deal done (a spin-off from the United Technology takeover) when GE (as Jack Welch's last hurrah) pre-empted. But then, European anti-trust scuttled the GE deal and Honeywell re-organized, firing the Bonsignore, the bumbling CEO, and getting a new top-gun, CEO David Cote, who tightened the reins.
2. The German mentality dictates once a plan is decided (acquire Honeywell) all effort is focused on achieving the objective
3. Siemens has a ton of money. Buying Invensys just because they are cheap, doesn't fit with the German personality - they would rather pay a higher price for Honeywell
4. Honeywell wants to sell off Process Control (now downgraded as part of Automation and Control Solutions) and Siemens wants to buy it.
5. The latest Invensys bid will bring up an either/or choice for Siemens. Make no mistake, David Cote would sell Process Solutions to Siemens in the blink-of-an-eye at the right price.

In any event, competitors are salivating at the possibilities of this merger which will create tremendous opportunities for them.

Emerson - smooth end of the Chuck Knight era

Chuck Knight ran Emerson for 27 years and left his unmistakable mark. He worked with his father as a management consultant and joined Emerson in 1972 as vice chairman, became CEO in 1973 and chairman in 1974 at the age of 38.

During his 27-year tenure as CEO, Emerson evolved into one of the leading technology-based global manufacturing companies. Revenues increased more than 16-fold, to over $15 billion in fiscal 2000; net earnings increased 18-fold, to over $1.4 billion. During this same period, total return to stockholders averaged 15% per year.

Chuck Knight is legendary for his tough management style. He grilled top managers mercilessly, often using harsh language that strikes terror into those who are not prepared; he admits to getting "carried away" sometimes.

But Chuck Knight is most admired for his leadership in maintaining Emerson's remarkable record of 43 straight years of earnings increases, until 2002, when Emerson's string was finally broken by a devastating economic plunge. Then he became chairman, and handed over the CEO reins to David Farr, previously COO.

This month (September 2004), Emerson announced that David Farr, 49, has been elected to the additional position of chairman of the board, replacing Chuck Knight, now 68. Chuck Knight also announced his retirement from the Emerson board of directors and was named to the honorary position of chairman emeritus.

David Farr joined Emerson in 1981. Previously he served as president of Emerson Electric Asia-Pacific; chief executive officer of Emerson's Aztec joint venture; and in 1997 he became executive vice president with responsibility for Emerson's process control business. Before being named CEO, he was Senior Executive VP and COO.

Emerson insiders are delighted that David Farr is now Chairman, as well as CEO. They feel that he brings management skills that are unequaled in breadth and depth - he is exactly what Emerson needs in the new, global environment.

In my own opinion, David Farr will continue to maintain Emerson's strong leadership, with good strategic vision in a changing environment, and disciplined tactical management.

ISA Expo Houston - 5-7 October 2004

I'll be doing the Rimbach lecture this year, as the keynote speaker on Wednesday, Oct. 6, 8:30 am. My topic is: "Automation Unplugged - Global shifts in a new age". Here's my theme:

• What is happening to American manufacturing and engineering jobs?
• What is the reality behind the buzz-term "outsourcing"?
• What is the meaning of the so-called "jobless recovery"?
• Can the US maintain a manufacturing presence in the global age?
• What must America do to sustain its technology leadership?
• How will US competitiveness again India and China, the 2 most populous countries, play out?

On Wednesday, Oct. 6, 11:45 to 1:15pm, I'm leading a dynamic session, "Debunking the Myths: The Good, the Bad and the Future of Outsourcing" with a star-studded panel:

• Dick Morley, the inimitable, one-and-only automation guru,
• Walt Boyes, the fearless and outspoken editor of CONTROL magazine
• Jim Teegarden, Valpers Performance Partners, formerly Fisher Controls

High Tech & Manufacturing jobs - where are they?

Manufacturing's share of the US economy, as measured by real GDP, has been stable since the 1940s. During this entire time, the ratio of manufacturing output to GDP has ranged from 16 to 19%. As of 2002, it was 16%.

During this same 50-year time span, with alternating booms and recessions, the number of manufacturing employees has remained fairly constant, oscillating at around 16.5 million. In the recent downturn, manufacturing employment fell to 14.8 million.

Manufacturing has sustained its share of a growing economy with the same number of workers, mainly due to faster productivity growth. As the economy has grown, manufacturing's share of non-farm employment has decreased from 32% in 1947 to 11.5 % in 2002.

According to a recent report, the US information-tech sector lost 403,300 jobs between March 2001 and April 2004, and the market for tech workers remains bleak. Perhaps more surprising, just over half of those jobs - 206,300 - were lost the recession was supposed to be over in Nov. 2001. In all, the job market for high-tech workers shrank by 18.8% to 1,743,500 over the period studied.

The US Bureau of Labor Statistics says that new job growth from existing US corporations is weak. According to their payroll survey, fewer than 500,000 jobs have been added since the end of the recession in Nov. 2001.

Automation and outsourcing are modern facts of life. So the well-intended but job-inhibiting laws that enforce things such as workers' comp, higher benefits and "living wages" are simply are disincentives for employers to create jobs. So, traditional payroll jobs simply won't be coming back.

To make up for this shortfall, America needs to have its entrepreneurs and home businesses succeed. Which brings us to the good side of these statistics. According to another Bureau of Labor survey, the household survey, 3.25 million new jobs have been created during the same period. In other words, millions of people are simply not reporting to work. They're starting new businesses. Technology makes it easy to start.

Notwithstanding the debacle of the dotcom bust, the next entrepreneurial boom is now taking root in America.

Company startups - Guru advice for engineers

I know lots of friends and acquaintances that have started companies in many different ways - selling products through eBay, 'moonlighting' from their current dead-end jobs, hanging out their own 'consulting' shingle and prospecting for good business with targeted email and dynamic websites that hide their humble origins. Some determined entrepreneurs are teaming up to develop new, exciting technologies, getting amazing results, with remarkable speed, on shoestring budgets.

The best companies are founded, not by a single individual, but by a balanced team. Very few company CEOs are engineers. Even in technology companies the top gun is typically a Marketing person, followed (in order of probability) by Finance, then Sales, then Operations (manufacturing) and then Engineering. I'm an engineer, so I feel I can discuss these things frankly and directly, for and about engineers.

It takes more than good engineering to develop a successful business. Some 35 years ago, when I started Action Instruments, I went to the top engineering gurus - who were surprisingly accessible. Here's their advice that inspired me:

John Fluke, Founder of Fluke Manufacturing (now part of Danaher):
"Good people make good products which make a good profit."

Hewlett Packard, the ultimate engineering company, was started by 2 engineers, Bill Hewlett and Dave Packard in the proverbial garage. Bill Hewlett's advice:
"Understand the numbers. Engineers forget things like margins and profit. What you measure, you can control."

Dave Packard:
"People are the keys. Without good people you have nothing!"

Andy Grove (former Intel chief:
"Only the paranoid survive". Read his book.

You might like to read recollections of my meetings with these gurus in my new AutomationTechies.com article.

eFeedback

"I too would like to see the end to this stupid war. But, it won't happen any time soon. People here in the US seem to love war. They love violence, killing, cruelty. Sounds a lot like television to me. Our society is very strange.

"I do not like the swagger that President Bush exhibits, but he is the man that we hired and the public will re-elect him. They are not through with this war. They need to have blood on their hands or the enemy soundly beaten. This war will probably go on long after this election and the next.

"I watched a movie last night (Hall Mark Hall of Fame). All through the show I waited for the sex and violence. It was there. Violence including murder and sex (from the eyes of a boy - somewhat normal behavior). What I am getting to is the mentality that we all have. This violence, sex and 'anything goes' mentality is everywhere in our society. I am to the point where television is not fun for me. The news programs make me wish for simpler times. If humans continue in this direction, all of the breakthroughs in technology will leave us with... what?

"I am not condemning those that impose there views on society (the sex, violence, etc.) but I am watching and wondering when will our society say 'enough!'

"I am as conservative as they come. You and I are on opposite sides of the middle (most of the time) but my guess is that I came across as more liberal (or center) today..!? I am also very much an isolationist when it comes to international dealings. These days with the Internet breaking down barriers, this seems less possible. But, when trade and moral issues are combined, short sighted decisions are made. I have no use whatsoever for the political thinking coming from France and Germany. I could add Washington as well. I could go on..."

"Your concern about electronic voting struck a chord with me. When I first heard that this was to be the "solution" to the perceived problems with traditional voting methods, I also had to fight back the urge to scream. A paper trail is the reason it's been done the way it has (warts and all)

for a long time. After seeing some of the implementations, I'm beginning to suspect it can be done in a way that is trustworthy and more important, demonstrably so.

"Some units employing a touch screen or whatever electronic means, allow the voter to enter his vote, and confirm it, before printing out a paper ballot (which is still the document of record). So they've taken advantage of the potential of electronic hardware to improve the logistics of casting one's vote, eliminating "dimpled chads", "hanging chads", over votes, and other forms of ambiguity, without opening the door to vote fraud.

"I was quite amused, though to find that you would trust government employees with power that you find ominous in the hands of private citizens. I think a lot of people have a blind spot that prevents them from seeing axes to grind as long as they are held by 'progressives'. You know the type: any leftist group is a "consumer group" while the NRA is a 'gun lobby'.

"You may suspect corporations of an ulterior motive which could manifest itself in the voting equipment, and you could very well be right, but don't forget that government employees have a vested interest, namely the insinuation of government into new aspects of our lives, pro union electees, and even less accountability. After all, their jobs could be at stake with every election."

"Logically I can see nothing unethical with using brain- or performance-enhancing implants to help with exams, provided the effects are indeed permanent. After all, tests and exams are supposed to assess how self-reliant a candidate is and will be, and how (s)he is likely to perform in a task, job, or career in the future. If the implants do actually make the candidate permanently more able, so well and good. They will have effectively created a new person, who is now being tested 'as is', in the same way as a year's math course enhances a candidate's math ability compared to one who has not taken the course.

"No-one would dream of asking a candidate to remove spectacles or a hearing aid or a pacemaker because they artificially enhance his/her performance in an 'unfair' way! If another candidate isn't wearing spectacles, and as a result does not do so well in the exam, more fool him/her! And implants may well be more reliable and 'permanent' than spectacles and hearing aids.

"You might argue that this is 'unfair' on people who cannot afford to buy these artificial aids. There is something in this, but it's no more unfair than the fact that rich people can afford to coach their children more for exams, send them to better schools, and provide better environments for learning and doing homework. Life is 'unfair'! Is it 'fair' that my neighbors' children were born cleverer than mine, and may therefore do better in their careers and earn more money? It's a nonsense to argue in this direction.

"Using drugs or performance-enhancing implants in sporting competitions is entirely different. Here, the competition is to see who can run/ jump/throw/swim the best on the day, not (usually) as a predictor for some future long-term career or activity. If, however, a career regularly involved the ability to run fast, then assessing the candidate while (s)he was using a permanent speed-enhancing implant would be completely ethical!"