Documente Academic
Documente Profesional
Documente Cultură
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Natural Gas Plant Additions in 2012 and Plants Currently Under Construction
Total US Electric Power Sector Capacity Daily Operating Hours Gas Turbines (TTM Average)
End Markets
Source: Credit Suisse Research, Company Data, SNL Financial
122
Energy Sector: Thermal Power Generation
-6,000
-5,000
-4,000
-3,000
-2,000
-1,000
0
1,000
2,000
New Gas Demand
Growth
New Wind Nuclear
Norm
Gas @ $2-3 Gas @ $3-4 Gas @ $4-5
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+1,066
-1,449
-4,015
-458
-825
+415
+823
Natural Gas Price Scenarios
Source: Credit Suisse Research, Company Data
0
5
10
15
20
25
30
35
40
45
50
2012 2013 2014 2015
Other Renewable Solar
Wind Hydroelectric
Nuclear Coal
Natural Gas Liquids
China NDRCs shale gas production target
China Power Gen Capacity Additions 2012-15E
Cumulative Impact to Natural Gas Consumption - US
GE Order ASP Change Y-o-Y (Thermal)
-14%
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
Q310Q410Q111Q211Q311Q411Q112Q212Q312Q412Q113Q2113
End Markets
123
Energy Sector: Gas Turbine Orders by Geography
End Markets
Geographic turbine orders by MW 2012 Geographic turbine orders by MW 2013
Source: McCoy
MW Orders YoY% in Key Geographies, 2013 vs. 2012
China, 12%
Russia, 5%
Japan, 1%
Saudi
Arabia,
11%
United
States, 10%
Other, 60%
China, 17%
Russia, 8%
Japan, 4%
Saudi
Arabia, 8%
United
States, 11%
Other, 52%
36%
-5%
-24%
-29%
-65%
-80%
-60%
-40%
-20%
0%
20%
40%
60%
Saudi Arabia United States China Russia Japan
124
Energy Sector: Steam turbine data by type, vendor
LT global demand (MWe)
Market share by ordered units (2013)
2013 share of ordered units by application
Market share by ordered units excl China and India (2013)
End Markets
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180,000
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240,000
260,000
280,000
300,000
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Rest of World China India Qty
Fossil
36%
GT-CC &
IGCC
27%
Biomass
21%
Geo, Solar,
WTE
10%
NUC
0%
Misc
6%
Siemens
22%
Shanghai
Turbine
6%
Harbin Turbine
9%
Dongfang
Turbine
7%
BHEL
2%
Shin Nippon
8%
GE
8%
Mitsubishi
Hitachi
3%
Alstom
5%
MAN Turbo
7%
Doosan Heavy
3%
Dresser-Rand
3%
Others
17%
Siemens
25%
GE
14%
Shin Nippon
12%
Mitsubishi
Hitachi
5%
MAN Turbo
6%
Alstom
6%
Doosan Heavy
4%
Dresser-Rand
3%
Harbin Turbine
3%
Others
22%
125
Energy Sector: Power Generation US: EPA Timeline
Source: Bloomberg, Credit Suisse Research
The EPA announced the final ruling on the Mercury and Air Toxics Standards (MATS) for US power plants on Dec 23, 2011. The Credit
Suisse Utilities Analyst Team believes the rule will lead to significant coal plant closures and investment to retrofit/replace emitting plants. Although
the new build outlook for overall power generation looks sluggish at present (as per our trip to the Power Gen Expo last week), we think the mix
shift to gas could provide upside for some of our coverage list. We think this news may provide further support for the catch-up trade which we
have been discussing on GE since our China Trip.
How big could the opportunity be for gas? The Utilities team are still comfortable with their base estimate of 60GW of US coal plant closures
(of a US coal fleet of 340GW), and believe this number could go higher, given the economics of running a gas plant are so much more favorable
than coal, when looking at forward curves. In terms of timing, the 31GW of closures (Exhibit 10) so far announced should grow in the 1H12 as
utilities can now proceed with their capex plans given the regulatory uncertainty is clearing.
MATS ruling: The final MATS rule states that compliance is necessary within 3 years, although states do have the ability to extend by 1 year for
plants undergoing upgrades. The final rule also allows plant operators to average on a facility-wide basis, which could protect marginal units.
Implications for EE/MI: The key beneficiary in our sector of a growing gas build-out is GE. As a reminder, GE is the global #1 in gas turbines, and
we estimate that it accrues around one third of Energy sales, and around 50% of profits, from its gas business (OE and service). We estimate that
if we see 75% of 70GW of coal converted to gas in the US, and 60% share for GE, this would imply an OE revenue opportunity of $11bn;
assuming margins of 10% imply an EPS potential of $0.08. We continue to think China could potentially be more meaningful as a driver of demand
in the next 2-3 years; we think the market for gas in China could reach 10GW of annual gas capacity additions.
End Markets
RPM Auction Year 2013/2014 2015/2016 2016/2017 2017/2018 2018/2019 2019/2020 2020/2021
2010 2012 2013 2014 2015 2016 2017
7/10/2010
CATR
proposed
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2 Year Extension Period
Compliance Period 2 Year Extension Period
3/16/2011
Draft Rule
11/16/2011
Final Rule
2011 Draft Rule
2012 Final Rule
2 Year Extension Period Compliance Period
2011
2Q 2011 Final
Rule
Compliance Period
126
Energy Sector: Power Generation China
Source: Bloomberg, Credit Suisse Research
China power demand
End Markets
China power generation
China LNG facility build-out
-50%
-30%
-10%
10%
30%
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70%
90%
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Thermal - Kwh bn Total power YoY% Thermal YoY%
Hydro YoY% Nuclear YoY%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
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China Total Power Demand YoY%
127
Energy Sector: Power Generation China
Coal 68%
Gas 3%
Hydro 23%
Nuclear 1%
solar 0%
Wind 5%
China Existing Power Generation Split by Fuel Source 2010
(% of installed base)
-
50
100
150
200
250
2010 2011 2012 2013 2014 2015 2015 -
NDRC
target
Residential Commercial Industrials Others Power
(bcm)
50bcm shortfall
China gas demand Credit Suisse base case vs NDRC target in bcm
Source: NBS, China OGP, CEIC, Credit Suisse estimates
End Markets
91
97
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92
97
0
10
20
30
40
50
60
70
80
90
100
2011E 2012E 2013E 2014E 2015E
Coal Gas Hydro Wind Nuclear Solar Biomass
China Power Gen Capacity Additions 2011-15E (in GW)
Country Date Details
Russia Pending Supply 68 bcm of gas annually
Turkmenistan Nov-11 Increase annual gas supply to 65 bcm
Brunei Nov-11 Pending
Kazakhstan Sep-11 Increase gas pipeline capacity
Uzbekistan Jun-10 Annual gas supply of 10 bcm
Myanmar Mar-09 Construction of gas pipeline; up to 12 bcm supply
Turkmenistan Jul-07 Annual gas supply of 39 bcm
Recent deals between China and foreign gas suppliers
128
Energy Sector: Power Generation China
-
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China Gas Supply - Base Case China Gas Demand - Base Case
(bcm)
"Surplus" Gas
-
50
100
150
200
250
300
350
400
450
500
2
0
0
5
2
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China Gas Supply - Base Case China Gas Demand - Bull Case
(bcm)
"Surplus" Gas
"Deficit" Gas
Incremental GW 30
Capex/MW (U$m) 1
Capex required (US$bn) 30
o/w labour 50% 15
o/w plant 15% 5
o/w turbine 35% 11
100%
GE share 30%
$m
Incremental revenues 3,150
Mid-cycle margin 15%
Incremental EBIT 473
Net 27% 346
NOSH 10,441
EPS $0.03
Impact from China Gas Turbine OE build-out on General Electric (US$ in millions)
Credit Suisse base case gas supply & demand forecast to
2020E (in bcm)
We see a gas deficit in 2016-2020E based on our bull case
demand forecast (in bcm)
End Markets
Source: NBS, China OGP, CEIC, Credit Suisse estimates
129
Energy Sector: Power Generation - Wind
Global wind installations and YoY growth (rhs)
2.4
5.2
8.4
9.9
10.0
11.0
12.0
13.0
0
4
8
12
16
20
24
28
32
36
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E
U
S
$
b
n
0.00%
0.05%
0.10%
0.15%
0.20%
0.25%
0.30%
F
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Cost US (US$bn - LHS)
Fraction of GDP US (RHS)
Wind investment: Fraction of GDP (GW above columns)
Levelised costs of Electricity (LCOE) (2010) (generic assumptions)
72%
26%
38%
82%
88%
13%
-
20
40
60
80
100
120
140
160
Offshore wind Onshore wind
(20% load
factor)
Onshore wind
(30% load
factor)
Coal Gas (CCGT*) Onshore wind
(40% load
factor)
Nuclear
C
o
s
t
(
/
M
W
h
)
Total capital cost (cost of capital and amortisation) CO2
Fuel Fixed
Marginal costs (ex. fuel & CO2) Average wind power price requirement
17%
82%
30%
20%
26
%
17%
10%
56%
81%
17%
End Markets
0
50
100
150
200
250
300
350
400
2005 2006 2007 2008 2009 2010 2011E 2012E 2013E 2014E 2015E
0%
5%
10%
15%
20%
25%
30%
35% Total Africa and Middle East
Total Americas
Total Europe
Total Asia Pacific
Total YoY%
Natural Gas
44.5%
Nuclear
0.2%
Wind
35.5%
Others
0.3%
Coal
13.7%
Petroleum
1.6%
Other
Renewables
4.1%
US: 35% of all new generation capacity since 2007 from Wind
0
2000
4000
6000
8000
10000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
93%
73% 77%
Lack of strong regulatory framework creates a
boom-bust cycle
130
Energy Sector: Power Grid End Market
End Markets
China Power Grid investment likely to pick up in 2013
Equipment (US$bn) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E
Western Europe 9.4 9.6 9.9 10.8 13.5 14.9 13.4 13.4 13.8 13.5 13.9 14.2 14.4
Change 1% 2% 2% 10% 25% 10% -10% 0% 3% -2% 3% 2% 2%
Eastern Europe + CIS 6.3 7.0 8.1 9.1 10.9 12.0 10.8 11.3 11.9 12.1 12.4 12.7 13.0
Change 6% 11% 15% 13% 20% 10% -10% 5% 5% 2% 3% 2% 2%
Middle East + Africa 3.2 3.8 4.3 4.9 6.2 7.6 7.9 8.8 9.5 10.0 10.6 11.2 11.9
Change 13% 20% 11% 16% 26% 21% 5% 11% 8% 5% 6% 6% 6%
China 8.5 10.0 12.3 17.0 19.1 21.6 29.5 26.3 29.5 30.6 34.3 36.7 39.3
Change 13% 18% 23% 38% 12% 13% 37% -11% 12% 4% 12% 7% 7%
Other Asia 11.8 12.7 13.8 15.5 19.0 21.7 22.7 24.2 26.1 27.5 29.0 30.7 32.4
Change 4% 8% 8% 12% 23% 14% 4% 7% 8% 5% 6% 6% 6%
North America 7.4 7.0 7.1 7.4 8.9 9.8 8.9 8.9 9.0 9.4 9.9 10.4 10.8
Change 2% -5% 1% 5% 20% 10% -10% 0% 2% 4% 5% 5% 4%
Latin America 3.4 3.6 3.8 4.0 4.6 5.1 4.6 4.8 5.1 5.2 5.4 5.7 5.9
Change 2% 5% 5% 6% 15% 10% -10% 6% 5% 3% 4% 4% 4%
Total 50.1 53.8 59.2 68.9 82.4 92.7 97.8 97.7 104.9 108.4 115.5 121.5 127.7
Change 5% 8% 10% 16% 20% 13% 5% 0% 7% 3% 7% 5% 5%
Global power transmission & distribution market trends
131
ABB (PP)
ABB (PS)
Alstom (GRID)
Crompton
Greaves
(Power)
Schneider
(Energy)
Siemens (PD)
Siemens (PT)
SPX Corp
(Waukesha)
TBEA
Valmont (USS)
Henan Pinggao
GE
Transformers
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
-5% 0% 5% 10% 15% 20%
2
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3
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2013 EBIT Margin
Energy Sector: Thermal Power Gen Vendor Data
End Markets
Thermal Power Generation Equipment Trends
Source: Company Data
*Organic
Power Generation Equipment
Power Grid Equipment
Alstom (Total
Thermal)
BHEL (Power)
Dongfang
Electric
Doosan Heavy
( Power)
GE (P&W)
Harbin Power
Mitsubishi
Heavy (Power
Systems)
Shanghai
Electric (Power
Equipment)
Siemens (FPG)
-
5,000
10,000
15,000
20,000
25,000
30,000
4% 8% 12% 16% 20% 24%
2
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1
3
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2013 EBIT Margin
Order Growth (YoY%)
Company (Division) Geo Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14
Alstom (Total Thermal) EU 11% -11% 23% -13% 12% -38% -1% -4% 15%
GE (Power & Water)* US 21% -6% -17% -16% -13% -2% 19% 44% 9%
GEA (Heat Exchangers) EU 8% -15% 1% -24% -11% -4% -7% 22% -
Mitsubishi Heavy (Power Systems) JP -1% -34% -67% 6% -2% 12% 160% 25% -3%
Siemens (FPG/PG)* EU -30% -26% 35% 16% 4% -22% -7% -12% -14%
Sulzer (Turbo Services/RES)* EU 7% 6% 1% 20% -16% 22% -2% -20% 22%
Sales Growth (YoY%)
Company (Division) Geo Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14
Alstom (Total Thermal) EU 1% 6% 4% 4% 7% -7% 6% -7% -8%
GE (Power & Water)* US 5% 16% 20% 3% -26% -16% -10% 0% 14%
GEA (Heat Exchangers) EU 15% 3% -8% -9% -18% -4% -3% -4% -
Harbin Power CN - -24% - 7% - -15% - -26% -
Mitsubishi Heavy (Power Systems) JP 11% 7% 10% 19% -16% 16% -3% 20% 33%
Shanghai Electric (HE & CE) CN - 29% - 4% - -15% - -2% -
Siemens (FPG/PG)* US 9% -2% 7% -3% -14% -9% -3% -11% -8%
SPX Corp (Thermal)* EU 2% -11% -6% 2% 0% 3% -12% -17% -6%
Sulzer (Turbo Services/RES)* EU - 6% - -4% - 2% - 1% -
WEG (GTD) BR 23% 10% 28% 44% -6% 15% 2% -7% 43%
132
Energy Sector: Power Grid and Wind Vendor Data
End Markets
Power Grid Equipment Trends
Source: Company Data
*Organic
Wind Turbine Trends
Order Growth (YoY%)
Company (Division) Geo Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14
ABB (PP)* EU 11% 5% -6% 0% -8% -7% 3% -6% -3%
ABB (PS)* EU 3% 27% -27% -24% -15% -31% -30% -23% -6%
Alstom (GRID) EU -3% 14% 21% -6% 82% -14% -31% -35% -36%
Siemens (PT)* EU -25% -22% -20% -12% -8% 20% 5% -9% 7%
Sales Growth (YoY%)
Company (Division) Geo Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14
ABB (PP)* EU 9% 0% 0% 0% 0% 6% 7% 1% -2%
ABB (PS)* EU 1% 1% 11% -4% 15% 5% 10% 4% -19%
Alstom (GRID) EU 26% 0% 2% -12% -7% 3% -5% 2% -3%
Crompton Greaves (Power) IN 2% 11% 1% -12% 5% 8% 14% 17% 21%
Prysmian (Utilities)* IN -4% -1% 7% 1% 2% -3% -2% -3% 8%
Schneider (Infrastructure)* EU 2% -3% -2% -2% 1% 6% 2% -3% -4%
Siemens (PT)* EU -5% 8% 3% -7% 3% -4% -8% -3% -14%
SPX Corp (Transformers) US 33% 20% 48% 24% 16% 0% 12% 23% 0%
Valmont (Utility Support Structures) US 51% 57% 40% 23% 26% 8% 5% 5% -2%
WEG (GTD) BR 23% 10% 28% 44% -6% 15% 2% -7% 43%
Order Growth (YoY%)
Company (Division) Geo Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14
Alstom (Ren) EU -20% -35% -44% 99% 16% 146% 34% 27% -9%
GE (Wind Equip) US 59% -37% -72% -47% -27% 55% 132% 63% -13%
Siemens (Ren)* EU -70% -68% -5% -25% 480% 19% -33% 100% -46%
Vestas EU 85% -56% -67% -66% -48% 86% 274% 70% 55%
Sales Growth (YoY%)
Company (Division) Geo Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14
Alstom (Ren) EU 1% -18% -17% 11% -13% 6% -3% -7% 8%
Gamesa EU -4% 35% 8% -63% -12% -35% -4% 84% 17%
GE (Wind Equip) US 30% 160% 61% 10% -57% -54% -42% 7% 109%
Goldwind CN -8% -48% -42% 59% -44% 31% 57% -4% 50%
Siemens (Ren)* EU 42% 35% 22% 23% -18% -1% 15% 20% 13%
Vestas EU 4% 15% 49% 23% -1% -26% -27% -6% 17%
133
Energy Sector: Wind Vendor Data
Revenue versus EBIT Margin %
Supplied Capacity expansion plans
MW capacity 2009 2010E 2011E 2012E
Sinovel 3,510 4,500 6,000 6,000
Goldwind 2,727 4,500 5,000 6,500
Dongfang 2,433 3,000 3,000 3,000
United Power 768 1,200 1,200 1,200
Mingyang 573 3,150 3,150 3,150
XEMC 454 454 3,000 3,000
Sewind 281 1,200 1,200 1,200
Windey 261 261 1,500 1,500
China Creative 164 300 300 300
Beizhong 138 138 138 138
CSR 127 500 1,650 1,650
Hewind 119 119 119 3,000
Yinxing 93 300 300 300
CSIC Haizhuang 92 350 600 600
CPC China 65 300 1,500 1,500
Top 15 domestic 11,804 20,272 28,657 33,038
% YoY 71.7 41.4 15.3
Incremental 8,468 8,385 4,381
Top 15 Chinese domestic players (MW supplied in 2009 and expansion plans)
End Markets
0
50
100
150
200
250
300
350
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
CentralandSouthAmerica Africa
MiddleEast Non-OECDAsia
Non-OECDEuropeandEurasia Asia
OECDEurope Americas
Global wind installations (GW)
Alstom
Gamesa
Siemens
Vestas
GE
Goldwind
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
0% 2% 4% 6% 8% 10% 12% 14%
2
0
1
3
R
e
v
e
n
u
e
s
2013 EBIT Margin
134
Energy Sector: Vendor Product Matrix
End Markets
Gas
Turbines
Steam
Turbines Nuclear Hydro Solar Wind
Heat
Exchangers Boilers
Cooling
Towers Automation Components Other HV MV Cables
Towers /
Poles
Europe
ABB x x x x
Alfa Laval x
Alstom x x x x x x
Areva x
Efasec x
Finnmecanica x
Gamesa x
GEA x x
Invensys x
Nexans x
Nordex x
REpower x
Schneider x
Siemens x x x x x x x x
Sulzer x
Vestas x
Voith x
Americas
Alcoa x
Babcock and Wilcox x x
CBE x
Emerson x
First Solar x
Flowserve x
GE x x x x x x
General Cable x
Precision Castparts x
Quanta Services x
Rockwell Automation x
SPW x x x x
Thomas & Betts x
UTX x
Valmont x
WEG x x
Power T&D Power Generation
135
Energy Sector: Vendor Product Matrix
End Markets
Gas
Turbines
Steam
Turbines Nuclear Hydro Solar Wind
Heat
Exchangers Boilers
Cooling
Towers Automation Components Other HV MV Cables
Towers /
Poles
Asia
Baoding Tianwei x x
BHEL x x x
China High Speed x x
Crompton Greaves x x
Dongfang Electric x x x
Doosan Heavy x x x
Goldwind x
Harbin Power x x x
Hitachi x x
Hyundai x x
Japan Steel Works x x x
Ming Yang x
Mitsubishi Electric x
Mitsubishi Heavy x x x x
Shanghai Electric x x x x x x x
Suzlon x
TBEA x x
Toshiba x x x x x x
Power T&D Power Generation
136
Energy Sector: Power End Market Tracker
Thermal Power Generation commentary to date
Power Grid Equipment commentary to date
Renewable Power Generation commentary to date
End Markets
Date Company Direction End market Comment
5/7/2014 Siemens Renewable
In the area of renewable energy we will continue to focus on expanding wind capacity, especially in the offshore
segment, a segment which will grow at a double digit rate in the medium term.
5/7/2014 Alstom Renewable Renewables- orders here show the healthy growth of 26%, fueled by several hydro projects as well as strong orders in wind in Brazil. Sales
4/17/2014 GE Renewable
Wind orders totaled 422 turbines versus 584 in the first quarter of 2013. Our view of Wind orders for the year has not changed; we still expect
strong growth.
+
+
+
Date Company Direction End market Comment
4/1/2029 ABB Power Grid
Continuing weakness in the late cycle and utility related parts of the business but we saw increased power orders in the US and Canada, both
from utility and industry customers.
5/7/2014 Siemens Power Grid Transmission orders were down -14%, mainly due to more selective approach.
5/7/2014 Alstom Power Grid
Grid orders were stable when excluding the Dolwin 3 and Champa HVDC projects that were booked last year. No awards of large HVDC projects
in 2013-2014 led to a lower order level.
4/30/2014 SPX Corp Power Grid
In the US power transformer market, pricing and lead times have been generally steady for several quarters now, and we continue to see a high
level of order volume driven by replacement demand. We had a solid order intake in the quarter with orders up by double-digits, both year-over-
year and sequentially.
4/25/2014 Weg Power Grid
Globally, the recovery of transmission and distribution which is our main focus abroad is so slow, it is gradually improving but slowly in fact a bit
slower than what we expected to see. But so it is a market that has been improving.
4/23/2014 Valmont Power Grid
We continue to be positive on the utility market, both short and long-term, and our discussions with major customers in North America continue
to confirm significant activity levels expected in both 2015 and 2016. The US has a clearly defined need to continue to improve the reliability of
our transmission grid, and the current regulatory environment encourages utility investments through rules allowing attractive returns as well as
penalties tied to reliability.
4/22/2014 Hubbell Power Grid
On the utility side, we're still looking at that and forecasting that at a flat basis. But as I mentioned, I think the tone in
that market has improved a little bit.
-
+
=
-
=
+
=
Date Company Direction End market Comment
5/7/2014 Siemens Thermal Power
On Power and Gas, so if you look at the order intake as on average we've seen pricing pressure to ease. Still not where you just book the order
and you put in the price, still a buyer's market. But it has been easing. We've seen that ease there. And a few competitors obviously also have
come to terms understanding that at some point in time someone needs to make some money over time.
5/7/2014 Alstom Thermal Power
Thermal Power. Orders were down 6%, with a strong order intake in the second half, when we booked a large steam order in Poland, as well as
10 gas turbines out of the 11 booked over the full year. Thermal Services orders stood at a strong level of slightly below 5 billion.
4/30/2014 SPX Corp Thermal Power
Thermal segment, the challenging conditions in power generation markets persist in North America and Europe, where demand for our power
equipment remains stable, but at low levels.
4/24/2014 Flowserve Thermal Power
Power market, we expect growth. China, India, and Russia continue to pursue fossil-based projects. The Middle East also sees growth, both in
conventional and solar power. North America and Europe, however, remain slower, due largely to conservation, the lack of a consistent energy
policy, and modest energy demand drivers. However, the low price of natural gas should drive the US combined cycle market.
4/17/2014 GE Thermal Power
Thermal orders were up 3%. We took orders for 31 gas turbines in the first quarter of this year versus eight a year ago. Service orders were $3.1
billion, higher by 23%. The growth was primarily driven by PGS, up 32%; up 43% ex-Europe. The business had orders for 17 AGPs versus two a
year ago, as well as a large $330 million upgrade order in Japan. Europe continues to be very, very soft... we expect price, particularly in
Thermal to be much tougher as we work through the backlog for the balance of the year.
4/8/2014 Alcoa Thermal Power
Industrial gas turbines -- we expect the industrial gas turbine airfoil market to decline between minus 8% and minus 12%. The orders are flat
relative to 2012 levels, and down from the 2011 levels. And the spare demand is down given the shifts in the energy mix, as well as the usage in
key markets.
-
=
=
-
=
-
137
Energy Sector: Oil & Gas Oil Majors capex rolling over
2012 2013 2014E 2015E 2016E 2017E
Consensus Capex (inc Associates) (USD mn)
COP 14,905 16,127 16,706 16,325 16,081 16,081
CVX 34,229 41,877 40,808 40,959 40,959 38,085
XOM 39,799 42,511 39,458 40,535 40,188 39,917
Total 88,933 100,515 96,972 97,819 97,228 94,083
YoY% 2012 2013 2014E 2015E 2016E 2017E
COP 8.2% 3.6% -2.3% -1.5% 0.0%
CVX 22.3% -2.6% 0.4% 0.0% -7.0%
XOM 6.8% -7.2% 2.7% -0.9% -0.7%
Total 13.0% -3.5% 0.9% -0.6% -3.2%
Oil Majors Capex starting to roll over: We have been fairly cautious on upstream Oil & Gas capex since late last year, and
our Energy Team highlight that Oil Majors are set to reverse the 23% hike in spending they have undertaken since 2011.
Capex constraints are increasingly important for investor perception of the Majors. Our US Energy Team forecasts that
aggregate capex (inc. Associates) for COP, CVX and XOM will shrink from $100bn in 2013, to $98bn in 2015, and to $94bn by
2017.
In Europe, RDS' organic capex is set to drop 8% y-o-y in 2014, while BP is continuing to invest, although at a lower growth rate.
Its annual capex is set to rise from $19bn in 2010-2011, and $24-25bn over 2013-2014, to $24-27bn over 2015-2020. ENI plans
to decrease its capex by 5% over 2014-2017, versus 2013-2016.
Source: CS Estimates, I/B/E/S
138
Energy Sector: Oil & Gas Vendor Data
End Markets
Oil & Gas Equipment Trends
Source: Company Data
*Organic
Order Growth (YoY%)
Company (Division) Geo Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14
Dover (Energy) US 18% 12% 6% 6% 6% -1% 13% 4% -7%
Emerson (Process)* US 17% 19% 5% 2% 3% 9% 4% 3% 12%
Flowserve* US 9% 7% 9% -4% -4% 2% 3% 15% 2%
FMC Technologies US 50% -9% 6% 5% -14% 130% 72% -6% 47%
GE (Oil & Gas) US 28% 3% 12% 20% 14% 24% -4% -9% -13%
Siemens (Oil & Gas)* EU -18% -19% -4% -7% -5% 28% 21% - -
Sulzer (Pumps) EU -8% 8% 1% 23% 2% 9% -2% -4% 3%
Sales Growth (YoY%)
Company (Division) Geo Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14
Dover (Energy)* US 0% 0% 0% 1% 0% 5% 3% 4% 4%
Emerson (Process)* US 14% 23% 20% 24% 9% 3% 6% 5% 1%
Flowserve US 10% 13% 11% 9% 3% 5% 6% 5% -1%
FMC Technologies US 29% 22% 10% 23% 18% 14% 22% 11% 11%
GE (Oil & Gas)* US 24% 6% 9% 13% 2% 8% 9% 9% 18%
National Oilwell Varco US 37% 35% 42% 33% 23% 18% 7% 9% 9%
Siemens (Oil & Gas) EU 12% 7% -18% -5% -6% -3% 16% - -
Sulzer (Pumps) EU 9% 3% -3% 2%
139
Energy Sector: Oil & Gas Tracker
End Markets
Source: Company Data
*Organic
Oil & Gas Equipment earnings commentary
Date Company Direction End market Comment
5/1/2014 Kennametal Oil & Gas
In the energy sector, North America gas inventories finished the winter season well below the five-year average. While the rig count has
remained at relatively similar levels, production activity is growing, due to higher volumes being generated by existing wells. Natural gas
production should continue to increase over the next several quarters to replenish inventories.
5/1/2014 Weir Oil & Gas
Moving on to oil and gas, where we saw a continuation of the positive trends we enjoyed in the second half of 2013. Original equipment and
aftermarket orders were also both 33% higher than the first quarter of 2013, which was the low point of the upstream cycle. On a sequential
basis, input was 9% higher than the fourth quarter of 2013, with growth in both original equipment and aftermarket orders.
4/30/2014 SPX Corp Oil & Gas
We had another good bookings quarter in pipeline valves and the oil and gas aftermarket. The order pipeline for OE pumps remain strong,
particularly in North America and EMEA.
4/29/2014 Rockwell Automation Oil & Gas Oil and gas continues to be a good growth for us. In China -- and the OEM performance was probably the leader there.
4/28/2014 Alfa Laval Oil & Gas
It is also worth mentioning that oil & gas remains on a high level, even if there were fewer
large projects.
4/25/2014 Sandvik Oil & Gas
We're continuing to look at taking more orders and booking more within the oil and gas sector. But we're starting to build a quite considerable
order stock now with this very heavy order intake that we saw in the first quarter.
4/24/2014 Cameron Oil & Gas
Drilling- Overall orders were aided with the award of several deep-water and numerous jack-up projects plus healthy demand for our onshore
operators; Subsea- tendering activity is currently at the highest levels we have seen in over two years. As a result, we expect to see a very
healthy number of project awarded over the next 12 to 18 months; Surface- Total orders are off to another great start, which came in at $600
million, our second-highest quarter ever. North America set an all time high for orders.
4/24/2014 Flowserve Oil & Gas
oil and gas remains solid, considering current oil prices and the positive long-term outlook. These factors support major investments. We expect
new refining investments in the Middle East, Asia, and Latin America, but somewhat at the expense of European refining capacity. North
America continues its strong growth in pipeline construction, refinery upgrades, gas processing, oil sands development, and gas-to-liquid plants
that capitalize on advantaged natural gas and oil supplies.
4/24/2014 Metso Oil & Gas Good demand in oil and gas continued, as we expected to continue that for this year, as well.
4/24/2014 SWK Oil & Gas
Oil and gas delivered 11% organic growth on top of a 9% growth comp the year ago. As both onshore and offshore continue to perform well in
the market and the market continued to be robust. I do remind you, however, that oil and gas faces very challenging organic growth comps for
the remainder of the year as the remaining quarterly comps range between 32% and 43% organic growth. At the same time, onshore pipeline
project activity is facing a lull in this period as pipeliners gear up for what is expected to be a record 2015.
4/22/2014 Pentair Oil & Gas We continue to see strength in our Oil & Gas quoting activity, so we expect to see low single-digit growth in Energy for the year.
4/17/2014 Baker Hughes Oil & Gas
Our activity outlook for North America is relatively unchanged. During the first quarter, the rig count increased 6% in the Permian. We expect
continued rig count growth throughout the summer and fall, leading to an increase of about 10% in this basin over the course of the year. This
growth in the Permian is expected to contribute to a 4% increase in the overall US rig count for the year, with an average rig count of 1,830. The
US onshore well count, on the other hand, declined 3% during the first quarter due to the severe weather conditions previous highlighted.
Despite this drop in wells to begin the year, our full-year forecast has not changed and we continue to project a 5% increase in the US well count
this year. Turning to the US offshore market, our rig count forecast remains unchanged and is still expected to increase 5% in 2014. In Canada,
we continue to project a 5% increase in rig count for the full year. During break up in the second quarter, rig counts are expected to average
about 170 rigs
4/17/2014 Dover Oil & Gas
Sucker rod activity here in the U.S. recovered nicely... we were quite pleased with the artificial lift activity in the U.S., especially around sucker
rods in the first quarter. Rig count, We've actually raised our average now for the year to almost 1,800 units, about a 2% increase. And we're
feeling pretty positive about the Energy outlook for the balance of the year.
4/17/2014 GE Oil & Gas
Oil & Gas orders for the quarter of $4.6 billion were down 5%, with equipment orders down 17% and service growth of 11%. Subsea equipment
was down 62%, principally on timing. As we have commented previously, orders in Oil & Gas tend to be very lumpy on a quarterly basis. We
expect Subsea orders to be up double digits for the total year. We continued to see good growth in Turbomachinery solutions, up 16% in the
quarter, on two large wins in the US LNG space. Downstream Technology was also strong, up 48%. Service orders of $2.2 billion were higher by
11%, led by Turbomachinery up 22%, and Downstream Technology Solutions up 20%. That was partly offset by M&C, which was down 7%.
Backlog continues to grow in Oil & Gas, with equipment up 15% and services up 4% versus prior year. Orders pricing was better by 140 basis
points in the quarter.
4/17/2014 Schlumberger Oil & Gas
The North American supply surge continues to be just enough to equal the world's growing demand, while all other growth regions including Iraq,
Brazil, and the Caspian are struggling to meet their production targets. This should continue to support oil prices around $100 a barrel, and
therefore encourage oil directed investments in both North American and international markets. US natural gas demand reached a new all-time
record in Q1, due to the severe winter weather pushing prices to a six-year high. However, US supply trends remain strong on the back of the
Marcellus, and as the weather normalizes over the spring and summer months, we expect the North American market to return to a balanced
supply-demand situation for natural gas.
=
+
+
+
=
+
+
+
+
+
+
+
+
+
+
140
Industry Sector: Industrial Automation
Source: Company data, Credit Suisse estimates, Markets and Markets, Credit Suisse Research
Industrial Automation
$152bn Globally
Power,
10.5%
Textile, 5.5%
Automotive,
16.7%
Chemical,
14.1%
Packaging,
9.1%
Plastic, 5.3%
Oil & Gas,
9.3%
Pharma,
12.4%
Food
Processing,
5.8%
Other, 11.3%
Factory Automation
$72bn Globally
Automotive
35%
Packaging
19%
Textile
12%
Food
Processing
6%
Other
28%
Process Automation
$83bn Globally
Power
19%
Oil & Gas
17%
Pharma
23%
Food
Processing
5%
Plastic
10%
Other
26%
End Markets
SCADA
14%
DCS
19%
PLC
4%
Robotics
4%
Machine
Vision
5%
Sensors
7%
Relays &
Switches
4%
Motion &
Drives
3%
PLM
17%
MES
3%
ERP
20%
Automation Market Revenue by Product (2011)
Americas,
35%
Europe, 35%
APAC, 26%
ROW, 5%
Automation Market Revenue by Geo (2011)
141
M&A is on the rise because there is a convergence taking place in the plant
Source: Company data, CS Research
Major players
ERP: SAP, Oracle, Microsoft, Sage, Intuit, CDC Software
Plant Design & Simulation: Aveva, Aspen, HON, Invensys
CAD (computed aided
design)
PLM: Siemens, Dassault, PMTC, SAP, Oracle, Autodesk
CAD: Siemens, Dassault, PMTC, Autodesk, Bentley
V
MES: Invensys, CDC Software, Aspen, Rockwell, HON
V SCADA: Siemens, Invensys, ABB
V
V
DCS: ABB, HON, Yokogawa, EMR, ISYS
PLC: Rockwell, Siemens, Omron, Mitsubishi, Schneider
V ^ V ^
Computerized
Numerical Control
(CNC) V CNC: Fanuc, Siemens, Mitsubishi
V ^ V ^ V V
Drives Sensors
Robots Machine Vision
Metrology: Faro, Hexagon, Renishaw
3D Printer
Plant Design & Simulation
Enterprise Level
Controls
Plant Level
Controls
Plant
Instrumentation
Metrology (3D Inspection & Scanning)
Enterprise Resource Planning (ERP)
Manufacturing Execution System (MES)
Product Lifecycle Management (PLM)
Programmable Logic Controller
(PLC)
Supervisory Control and Data Analysis (SCADA)
Process Factory
Distributed Control System
(DCS)
Valves Sensors Machine Tools
3D Printer: XONE, SSYS, DDD
Robots: ABB, Fanuc, Kuka, Yaskawa
Drives: ABB, Danaher, Mitsubishi, EMR, Siemens, ROK
Machine Tools: Mori Seiki, Gildemeister
Factory
Automation
Factory
Instrumentation
Process-level
controls
Enterprise-level controls
End Markets
142
Discrete Discrete Discrete Process Process Process
Company Software Controls Hardware Software Controls Hardware
Traditional IA
ABB Strong Strong Strong Medium
Eaton Medium Medium
Emerson Medium Medium Strong
GE Medium
Honeywell Medium Strong
Invensys Strong Strong
Rockwell Automation Medium Strong Medium
Schneider Strong Medium
Siemens Strong Strong Strong Medium
Industry software
Aspen Tech Strong
Autodesk Strong
Aveva Strong
Dassault Strong
Faro Tech Strong
Hexagon Strong
PMTC Strong
SAP Strong
And the portfolios of the US Automation vendors today is not sufficiently broad to take advantage of this trend
Source: Company data, CS Research
Adding Invensys will give Schneider a significant
complementary presence within process automation
plants, particularly in software, which it currently lacks
End Markets
143
Industry software: Convergence theme is playing out
Last August, in our Global Connections Series report on Industrial Automation, we highlighted 2 key themes which we thought would
drive accelerated consolidation / M&A:
(i) Convergence collapse of traditional barriers between hardware and software: this is the focus of todays report
(ii) 3D printing / additive manufacturing
We think investors will care about this report because:
Convergence thesis is playing out: We have seen a clear pick-up in M&A activity YTD including Siemens' $0.8bn acquisition of
LMS, and Dassault's $0.2bn acquisition of Apriso. We have also received innumerable questions since Schneiders announced bid for
Invensys last week, as to whether GE / EMR / ROK / HON / ETN will launch a counter-bid
Blend of Tech and Industrials: Investors are intrigued about the rising role of software within industrial companies, because it
offers a confluence of two sectors that tend not to overlap significantly, hence, knowledge among the investor base regarding industry
software is pretty limited moves such as Schneider-Invensys suggest this knowledge will have to increase markedly going forward
the report can serve as a primer on the sector, and we think this is the first such report on the Street to do so (we profile many of the
key Industry Software vendors in the report)
EMR and ROK need new growth strategies, GE is moving into software, ETN is moving into electrical equipment.
Key stock conclusions:
- US industrials (esp. EMR, ETN and ROK) are in danger of falling behind European peers if they do not expand their software
exposure
EMR has the most urgent need to act in terms of launching M&A, while ROK should look to merge with a partner
GE is making a big push on its Industrial Internet strategy, and is likely to look for software acquisitions going forward
GE is the most likely EE/MI company to counter-bid for Invensys.EMR should not be completely ruled out
Within Europe ABB and Siemens are already very well-positioned in software; Schneider may now join them
Within Software Dassault and SAP appear best-positioned in the manufacturing vertical.
End Markets
144
Revenue YoY% 2013E 2014E 2015E 2016E 2013-16E AVG
Industry Software
Manufacturing Execution Systems (MES) 6.7% 7.5% 8.3% 8.9% 7.8%
Product Lifecycle Management (PLM) 9.4% 8.6% 8.5% 9.2% 8.9%
Industry Control Systems
SCADA 3.7% 4.8% 5.4% 5.4% 4.8%
DCS 6.1% 6.0% 6.1% 6.1% 6.1%
PLC 0.7% 3.5% 4.4% 4.4% 3.3%
Industry Field Devices
Robotics 8.6% 7.5% 7.5% 7.5% 7.8%
Machine Vision 3.7% 4.1% 5.2% 5.4% 4.6%
Sensors 3.0% 4.2% 4.2% 4.3% 3.9%
Relays & Switches 3.6% 4.2% 4.3% 4.3% 4.1%
Motion & Drives -1.4% 2.8% 3.5% 3.5% 2.1%
Average Growth Rates
Industry Software - Average 8.0% 8.1% 8.4% 9.0% 8.4%
Plant Control Systems - Average 3.5% 4.8% 5.3% 5.3% 4.7%
Field Devices - Average 3.5% 4.6% 4.9% 5.0% 4.5%
Why software appeals to automation vendors (1)
Source: Company data, CS Research
Software offers higher growth:
(i) manufacturing software grows faster than
hardware / traditional controls (we forecast an 8%
CAGR over 2013-2016 for software, against 4% for the
rest of the market)
(ii) Drivers here include: Rising product complexity;
Cyber-security; Time-to-market savings from the
integration of product life cycle stages; Emergence of
3D printing
Industry Software is now a $24bn global market
Software offers higher margins:
Industry Software has higher margins (on average
630bps higher than the rest of the market)
There is less danger of commoditization of margins
by emerging competitors within software, compared
with hardware, given higher IP content in software
70.2%
34.9%
15.5%
3.4%
37.9%
16.2%
22.4%
16.1%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
Software
Gross Margin
Hardware
Gross Margin
Software
R&D/Sales
Hardware
R&D/Sales
Software
SG&A/Sales
Hardware
SG&A/Sales
Software
Operating
Margin
Hardware
Operating
Margin
Gross Margin R&D / Sales SG&A / Sales Operating Maring
End Markets
145
Why software appeals to automation vendors (2)
Source: Company data, CS Research
Software can expand services offerings:
Software can be used to enhance the data analytics ability
of OEMs, allowing them to offer more services on the
equipment they have installed
Remote monitoring abilities offer significant savings for
customers
An example - GEs Industrial Internet comprises a web of
collected industrial data from machines, and can provide
efficiency improvements via anticipating machine failures,
reducing shop visits, part requirements and inventory levels
Software could earn a higher valuation multiple:
Industry Software companies tend to trade at a 40%+
premium to more hardware-focused IA vendors
Recent acquisitions have been done at a steep price:
Dassault acquired Apriso for 3.7X sales, EV/EBITA of 70X
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
16.0x
18.0x
Software Average PA Average FA Average
2013 EV/EBITDA
End Markets
146
Software companies which will increasingly overlap with industrial automation vendors
Source: Company data, CS Research
Company name AspenTech Autodesk Aveva Dassault Systems Faro Technologies Hexagon Invensys PTC Renishaw
Industry Software Total Company Total Company Total Company Total Company Total Company Metrology Software Total Company Metrology
Sales ($B) 0.2 2.3 0.3 2.6 0.3 0.9 0.3 1.2 0.5
% of sales 81% 100% 100% 100% 100% 31% 15% 100% 92%
Operating profit ($B) (0.02) 0.31 0.09 0.82 0.03 0.21 0.1 0.1 0.14
Operating margin -7.9% 13.2% 28.3% 31.6% 11.6% 21.8% 23.9% 10.0% 30.0%
Customers / end-market split Energy, Chemicals,
Engineering and
Construction,
Pharmaceuticals, Packaged
Goods, Power, Metals and
Mining, Pulp and Paper, and
Biofuels
Architecture, Engineering and
Construction, Manufacturing,
and Digital Media and
Entertainment Industries
Oil & Gas (45%), Power
(15%), Marine (20%), Mining,
Petrochemical, Chemical,
and Paper and Pulp (20%)
Transportation & Mobility(29%),
New Industries (High-tech,
Consumer goods & retail, Life
sciences, Energy, process &
utilities, Architecture, E&C,
Financial & Business services,
Natural resources) (24%),
Industrial Equipment (20%),
Busines services (13%),
Aerospace & Defense(13%),
Marine & Offshore(1%)
Manufacturing, Industrial ,
Construction, and Forensic
Automotive (~40%), General
Manufacturing (~35%),
Aerospace (~25%)
General Industries(24%), Oil &
Gas(24%), Discrete
Manufacturing (7%), Utilities &
Power(6%), F&B(6%),
Petrochemicals(4%),
Other(14%)
Airlines, Consumer Products,
Footwear & Apparel, Retail,
Aerospace & Defense,
Automotive, Medical Devices,
Industrial Equipment,
Electronics & High Tech
Automotive, Civil Aviation,
Agriculture, and Energy
Products sold Engineering software
applications, Manufacturing
software applications, Supply
chain management
Design Software - PLM
Solutions, CAD Software
Engineering & Design
Systems, Enterprise
Solutions
3D design software, 3D Digital
Mock-Up and Product Lifecycle
Management (PLM) solutions
CAD-based quality assurance
and process control software
Stationary and portable indusrial
metrology systems
Process Design, Simulation and
Optimization, Real-time
Operations Management and
Asset Management
License (29%), Consulting &
Training Service (23%),
Maintenance (48%) - PLM
Software, Computer Aided
Design Software (CAD, CAM,
CAE), Application Lifecycle
Management (ALM)
Machine tool probe systems,
Coordinate measuring
machine performance testing
products, Position encoders
Major Brands Aspen Plus, Aspen HYSYS,
Aspen Basic Engineering,
Aspen Economic Evaluation,
Aspen DMCplus, Aspen
Collaborative Demand
Manager, Aspen Plant
Scheduler, Aspen Inventory
Management & Operations
Scheduling, Aspen Fleet
Optimizer
Autodesk Cloud, Autodesk
PLM 360, AutoCAD,
AutoCAD LT, Autodesk Revit,
AutoCAD Civil 3D, AutoCAD
Mechanical, AutoCAD
Architecture, Autodesk 3ds
Max, Autodesk Moldflow,
Autodesk Inventor Autodesk
Maya, Autodesk Flame,
Autodesk Smoke, Autodesk
Lustre, Autodesk Flare
AVEVA Diagrams, AVEVA
P&ID, AVEVA Initial Design,
AVEVA Assembly Planning,
AVEVA Laser Modeller,
AVEVA Outfitting, AVEVA
Surface Manager, AVEVA
Review, AVEVA
ReviewShare, AVEVA
Enterprise Resource
Management, AVEVA Portal,
AVEVA WorkMate
SolidWorks, CATIA, SIMULIA,
DELMIA, ENOVIA, 3DVIA,
Exalead, 3DSwYm
FaroArm, FARO Laser
ScanArm, FARO Gage,
FARO Laser Tracker
Vantage, FARO Focus3D,
FARO 3D Imager AMP,
CAM2 software
Hexagon Metrology SimSci, Wonderware, Avantis Windchill, Arbortext, Creo View,
Integrity, Crea Parametric, Creo
Element/ Direct, Mathcad
XR20-W, RESOLUTE,
LinACE, REVOSFP1,
Dynascan
Geographic sales split based on LFY
United States 30% 36% 18% 28% 40% 30% 43% 37% 23%
EMEA 34% 38% 49% 45% 37% 35% 27% 40% 34%
Asia 26% 33% 27% 24% 35% 18% 23% 40%
o/w Japan 10%
o/w China
RoW / Other 37% 12% 3%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100%
End Markets
147
Conclusions for US EE / MI Stocks
Source: Company data, CS Research
EMR: Company has very muted organic growth prospects, a lower valuation, and an underperforming share price
Large scale portfolio change via M&A (into the Industrial Automation and Process Management segments) and divestments (Network Power, Commercial &
Resi Solutions) is the strategy we would recommend to re-create the perception that EMR is a growth stock
We think the company should counter-bid for Invensys; if it does not, we would prefer EMR to buy a software pure-play, rather than ROK (size of
the deal may be prohibitive); EMRs automation businesses currently are too hardware-centric.
GE: Company has become much more vocal around the Industrial Internet, and increasing its software offering as a means of boost ing its aftermarket
revenue among its installed base of devices
We think GE will start to deploy more capital towards software companies, which would mark a change from its recent M&A strategy (recent deals have
focused on aerospace components and oil & gas equipment)
We think GE should counter-bid for Invensys (we first wrote a report on this topic in January 2012).
ROK: We worry about the future growth prospects for the company given intensifying competition; a merger with a conglomerate (ABB?) may now be
more appealing; the company is very unlikely to counter-bid for Invensys, in our view
Partnership preference v M&A: Dassault's recent move into the MES layer by buying Apriso (a partner may now become a competitor)
A risk that ROKs core product (the PLC) in the long run may be dis-intermediated, as control functionality flows 'up' to the software layer, or 'down' to the
instruments level
ROK's product breadth is also fairly narrow, whereas European competitors are increasingly broad
The recent share gains in hybrid automation (15% of sales) may also be under threat from Schneider's potential acquisition of ISYS / its new Plantstruxure
product.
ETN: Invensys counter-bid very unlikely due to timing (CBE deal is too recent); Co appears much less software focused than peers; we think this strategy will have
to change as the Electrical equipment business becomes an increasing share of total sales.
HON: Decent position in process software, but we think M&A capital is likely to go elsewhere in the group; very low chance of bid for Invensys.
DHR: Strong software presence within the Product ID portion of Industrial Tech; however, the company is more likely to sell than buy within Motion.
End Markets
148
10 Reasons to Invest in Robotics
1. Reduce operating costs (no requirement for minimum lighting or heating levels)
2. Improve product quality and consistency
3. Improved quality of work for employees (they dont have to work in hazardous, dangerous
environments and can learn more valuable programming skills to run the robots)
4. Increase production output rates (can run robots overnight and on weekends)
5. Increase manufacturing flexibility (once process is programmed, you can load it at any time to run it)
6. Reduce material waste and increase yield
7. Comply with safety rules and improve workplace safety and health
8. Reduce labor turnover and difficulty of recruiting workers (highly skilled workers hard to find)
9. Reduce capital costs (inventory, work in progress faster production rates)
10. Save space in high value manufacturing areas (robots can be placed on walls, ceilings, on shelf
systems)
According to ABB
End Markets
149
Market Outlook Growth and Margin Profile
Process Factory Automation
Year EM Developed Global Global Global Global
2003 8.5% 1.0% 3.7% -0.3% 11.3% 4.4%
2004 10.6% 2.4% 5.4% 5.1% 13.0% 8.5%
2005 8.3% 2.1% 4.4% 8.4% 9.1% 8.7%
2006 9.5% 2.9% 5.5% 11.4% 11.4% 11.4%
2007 10.1% 2.8% 5.7% 8.8% 11.5% 10.0%
2008 4.9% -2.7% 0.5% 10.6% 2.4% 6.8%
2009 0.8% -13.4% -7.2% -5.1% -19.5% -11.5%
2010 12.6% 7.1% 9.6% -3.3% 20.6% 6.3%
2011 7.6% 2.8% 5.0% 9.7% 13.8% 11.6%
2012E 6.5% 1.2% 3.7% 8.5% 5.2% 7.0%
2013E 7.9% 2.1% 4.9% 5.4% 7.4% 6.3%
03-11 CAGR 8.0% 0.4% 3.5% 4.9% 7.6% 6.0%
vs. Global IP 1.0x 1.4x 2.1x 1.7x
Industrial Production
Automation market bottom up growth analysis
%, unless otherwise stated
Automation market top down growth outlook
%, unless otherwise stated
0%
5%
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15%
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2005-2011 Operating Margins by Industry
%, unless otherwise stated
Sector End-market Current Mid-term Current Mid-term
Elevators / Escalators High High Low Medium
Fire & Security High High Low Medium
HVAC High High Medium Medium
Lighting High High Medium Medium
Oil & Gas Equipment Low Medium Low Low
Power Grid Equipment High High Medium High
Thermal Power Generation High High High High
Wind Power Generation High High Medium High
Process Automation Low Medium Low Low
Factory Automation Low Low Low Low
Test & Measurement Low Low Low Low
Factory Tools Low Medium Low Low
Auto components High High Low Low
Biz Jet OE Mid High Low Medium
Civil Aerospace AM Low Low Low Low
Civil Aerospace OE Low Medium Low Low
Helicopters (OE+AM) (C+D) Low Medium Low Low
Rail Loco's + Signalling High High Medium High
Defense (OE+AM) Low Medium Low Low
Healthcare High High Low Medium
Transport
Industry
China Threat by End Market
Other
Threat within China Threat outside China
Buildings
Energy
China Competitive Threat by End Market
Source: Company data, Credit Suisse estimates, Markets and Markets, Credit Suisse Research
We examine the growth outlook in three ways: (i) scope for automation penetration increases; (ii) specific end-market drivers; (iii)
where we are in the broader industrial cycle
End Markets
Revenue YoY% 2013E 2014E 2015E 2016E 2013-16E AVG
Industry Software
Manufacturing Execution Systems (MES) 6.7% 7.5% 8.3% 8.9% 7.8%
Product Lifecycle Management (PLM) 9.4% 8.6% 8.5% 9.2% 8.9%
Industry Control Systems
SCADA 3.7% 4.8% 5.4% 5.4% 4.8%
DCS 6.1% 6.0% 6.1% 6.1% 6.1%
PLC 0.7% 3.5% 4.4% 4.4% 3.3%
Industry Field Devices
Robotics 8.6% 7.5% 7.5% 7.5% 7.8%
Machine Vision 3.7% 4.1% 5.2% 5.4% 4.6%
Sensors 3.0% 4.2% 4.2% 4.3% 3.9%
Relays & Switches 3.6% 4.2% 4.3% 4.3% 4.1%
Motion & Drives -1.4% 2.8% 3.5% 3.5% 2.1%
Average Growth Rates
Industry Software - Average 8.0% 8.1% 8.4% 9.0% 8.4%
Plant Control Systems - Average 3.5% 4.8% 5.3% 5.3% 4.7%
Field Devices - Average 3.5% 4.6% 4.9% 5.0% 4.5%
150
Globally automation penetration is low
Source: IFR, Credit Suisse Research, World Bank, United Nations, BLS,
0
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Robot Density
Global Average
Robot Density for Select Countries (2011)
Robots per 10,000 manufacturing employees, unless otherwise stated
Country
Employees
(mn)
Output
($bn)
Output per head
($)
Robot
Density
U.S. 14 1,732 121,931 130
China 99 1,612 16,281 7
Point
China has
7x as many
manufacturing
workers
China and
the U.S. produce
the same
output
US has 7.5x
higher output
per head
US has 18.5x the
number
of robots
per head
Output per head China vs. U.S.
121
45
3 3 3 2
22
8
149
88
11
7
11
6
30
19
Developed Developed
(ex Japan)
Emerging
Markets
Total
EMEA
Emerging
NJA
Emerging
LatAm
Emerging
Global Global
(ex Japan)
2002
2011
Robot Density by Region (2002 vs. 2011)
Robots per 10,000 manufacturing employees, unless otherwise stated
3%
2%
8%
10%
9%
4%
Developed Developed
(Ex Japan)
Emerging
Mkts Total
NJA
Emerging
LatAm
Emerging
EMEA
Emerging
Wage Growth CAGR (2007-2011)
In emerging markets (which account for 50% of global manufacturing output), there are only 7 industrial robots per 10,000 manufacturing employees (robot
density), against 149 for the developed markets. Non-Japan Asia accounts for 35% of the worlds manufacturing output, but only has a robot density of 11
End Markets
151
China - Not all doom and gloom
-80
-60
-40
-20
0
20
40
60
80
100
1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
M
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Dwindling Supply of Manual Labor (China)
in millions, unless otherwise stated
10%
12%
14%
16%
18%
20%
22%
24%
2003 2004 2005 2006 2007 2008 2009 2010 2011
Hourly Manufacturing Labor Costs in China)
% YoY, unless otherwise stated
Source: Credit Suisse estimates, World Bank, United Nations, BLS, CEIC, Credit
Suisse Global Strategy
* Population aged between 15-19 minus population aged between
50- 54 and new college students.
Construction/infrastructure markets will likely see lower trend growth in China going forward
Automation investment should remain strong as wage inflation continues to pressure corporate
profitability and China looks to produce higher quality goods
Japan
(1960-1972)
Korea
(1982-96)
China
(1997-2009)
GDP: Average 8.9% 8.5% 9.6%
CPI: Average 5.6% 5.2% 1.3%
CPI: Maximum 13.1% 11.1% 4.8%
CPI: Minimum 3.6% 2.3% -1.5%
China has hit a Lewis Turning Point
One child rule and increased education levels have
created manual labor shortages in China
Labor shortages have created wage inflation, which has
been further buoyed by government policy
After hitting the Lewis Turning Point other Asian export-led countries experienced
higher inflation and lower trend growth (but still good growth)
End Markets
152
Automation investment has accelerated in China in recent yearspenetration remains low
Source: Company data, ICIS, Credit Suisse estimates, OGJ, BP Stats
-
1
2
3
4
5
6
7
8
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Robot Shipments to China (LHS)
Robots per 10,000 Manufacturing Employees in China (RHS)
Robot Shipments to China
Japanese Machine Tool Orders
80
100
120
140
160
180
200
220
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Robotics Shipments
Factory Automation
Robot Shipments and Global Factory Automation Sales
End Markets
153
China Automation penetration at an inflection point
Source: IFR, Credit Suisse estimates, JMTBA, United Nations, BLS, What does the Lewis
Turning Point Mean for China? A computable General Equilibrium Analysis
Progression of Robot Density over time
The industrial robot density S curve
(base year = 1974 for Japan, 1999 for China)
Robots per 10,000 manufacturing employees, unless otherwise stated
Robot Density Year T+0 T+5 T+10 T+15 T+20 5Y 10Y 15Y 20Y
Japan 1980 10 66 183 267 295 45% 33% 24% 18%
Korea 1990 6 38 88 171 287 45% 31% 25% 21%
Taiwan 1990 5 16 30 67 123 26% 20% 19% 18%
China 2011 7
Robot Stock (k) T+0 T+5 T+10 T+15 T+20 5Y 10Y 15Y 20Y
Japan 1980 14 93 274 387 389 46% 34% 25% 18%
Korea 1990 3 18 37 61 101 43% 29% 22% 19%
Taiwan 1990 1 4 7 15 27 24% 18% 18% 16%
China 2011 71
Time Series Cumulative CAGRs
0
50
100
150
200
250
300
350
T+0 T+5 T+10 T+15 T+20 T+25 T+30
Japan Robot Density
China Robot Density
2022 China Robot Density Scenarios
% CAGR of installed robot stock, unless otherwise stated
The automated machine tool S curve
(Share of Machine Tools Shipped with Numerical Controls);
(base year = 1970 for Japan, 2000 for China)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
T+0 T+5 T+10 T+15 T+20 T+25 T+30
Japan China
Productivity isnt everything, but in the long run it is almost everything, Paul Krugman, The Age of Diminishing Expectations
2022 88 90 92 94 96 98 100
30 18% 18% 18% 18% 19% 19% 19%
50 24% 24% 24% 25% 25% 25% 25%
70 28% 28% 29% 29% 29% 29% 30%
90 31% 32% 32% 32% 32% 33% 33%
110 34% 34% 34% 35% 35% 35% 36%
130 36% 36% 37% 37% 37% 38% 38%
150 38% 38% 39% 39% 39% 40% 40%
170 40% 40% 40% 41% 41% 41% 42%
190 41% 42% 42% 42% 43% 43% 43%
Employees (millions)
Robot
Density
(units per 10k
employees)
End Markets
154
Theme #1: Convergence driving more M&A this cycle
Source: Credit Suisse estimates
We think convergence will be more of a theme this cycle given:
Technology changes: blurring the distinction between discrete (PLC) and process (DCS) control systems;
Rising threat of Chinese competition at the instrument layer: may encourage automation vendors to acquire instrument vendors (to help bolster market share
against the new entrants) and / or expand into more software / technology-rich automation product offerings;
M&A trend accelerates convergence: industrial corporates still have strong balance sheets, and industrial M&A continues at a robust pace.
Convergence
Vertical convergence: automation vendors offer a broad range of controls / software products, as well as hardware
Horizontal convergence: a gradual merging of discrete and process markets
End Markets
155
Theme #2: 3D printing an emerging growth theme
Revenue YoY% 2007 2008 2009 2010 2011 1H12 2007-11 CAGR
Stratasys
North America -3% 7% -17% 18% 26% 7.1%
Europe 26% 38% -29% 31% 44% 16.4%
Asia Pacific 19% -6% -14% 30% 4% 2.1%
Other 172% -34% -41% 90% 3% -6.3%
Total 8% 11% -20% 24% 27% 30% 8.6%
3D Systems
United States 12% -16% -11% 48% 63% 15.8%
Germany 44% -7% -25% 12% 29% 0.1%
Other Europe 14% -12% -17% 56% 26% 9.2%
Asia Pacific 0% -1% -31% 44% 34% 7.2%
Total 16% -11% -19% 42% 44% 57% 10.2%
Stratasys and 3D Systems Revenue Growth
3D Systems Offerings and Price Range
Source: Company Data, Wohlers Associates, 3D Systems, Credit Suisse Research
3D printing is a fast growing market (and hence pure plays such as 3D Systems and Stratasys are likely to remain
attractive opportunities for investors), but is only $1.5bn in size today vs. $150bn for global industrial automation. Hence
we think its growth poses little threat to conventional manufacturing over the near term
End Markets
156
Industry Sector: Automation Acronyms / Descriptions
Term Description
Discrete Automation Assembly of component parts to construct a product that can be measured in physical units; ie automobiles,
computers, appliances
Process Automation Blending and treatment of raw materials to produce a continuous stream of product; ie chemicals, pulp and
paper, beverages, oil & gas
Batch Automation Blending and treatment of raw materials in finite batches rather than in a continuous stream
SCADA System Sits above a group of PLC's, CNC's, or a DCS system; monitors the entire system and can send instructions
to individual PLC's within the system; SCADA systems coordinate but do not control processes in real time;
they never send direct instructions to a motor, robot, etc.
PLC Programmable logic controller; digital computer used to control motors, conveyors, inspection systems, and
similar devices to complete a manufacturing process; most commonly used in discrete applications
DCS Distributed control system; digital computer used to control manufacturing process; differs from PLC in that it
is a system where controlling elements are not central in location; ie one or several controllers delegates
additional controlling responsibilities to satellite controllers; more commonly used in process (continuous)
applications
CNC Computer numerical control; optimized for controlling machine tools; different command sets than PLC's and
generally more expensive
Motors / Drives Device used to generate mechanical motion; motors generally have fixed speeds, drives have variable
speeds; usually either AC or DC powered; used in motion control;
Valves Used to control flow; typically used in process application
Robots Machine controlled by computer and electronic programming
Milling Machines Shaping metal, giving texture to metal
Cutting tools Tools to cut metal, drill holes in metal, etc. (drillbits)
Welding tools Tools to weld pieces of metal together
Machine Vision Used to test for quality assurance, sorting, material handling, robot guidance, calibration, detecting defects,
identifying parts; commonly used in discrete applications
Sensors Discrete sensors indicate the presence or absense of an object; analog sensors may be used to sense
pressure, position, temperature, etc.
Types of Automation
Control Systems
Power Systems /
Machinery /
Consumables
Feedback
End Markets
157
Major players
PLM: Autodesk, Dassault, Siemens
ERP: SAP, Orcacle
MES: Invensys, Aspen, CDC Software
SCADA: Siemens, Invensys, ABB
DCS: ABB, Honeywell, Yokogawa;
PLC: Rockwell, Siemens, Omron
V ^ V ^ Computerized Numerical Control (CNC) CNC: Fanuc, Siemens
V ^ V ^ V
V ^ V ^ Human Machine Interface (HMI) HMI: Invensys, Mitsubishi, Siemens
Drives Sensors
Robots Machine Vision
Plant Instrumentation Valves Sensors Machine Tools
Sensors: Eaton, Honeywell, Omron
Machine Vision: Cognex, Teledyne
Robots: ABB, Fanuc, Kuka
Drives: ABB, Danaher Mitsubishi
Machine Tools: Mori Seiki, Gildemeister
Plant Level Controls
Supervisory Control and Data Analysis (SCADA)
Process Factory
Distributed Control System (DCS) Programmable Logic Controller (PLC)
Enterprise Level Controls
Product Lifecycle Management (PLM)
Enterprise Resource Planning (ERP)
Manufacturing Execution System (MES)
Key Automation Vendors At Different Parts of the Chain
End Markets
158
Industry Sector: Diagram of Theoretical Factory and Automation Applications
Source: Rockwell Automation
End Markets
159
Industry Sector: Process Automation Verticals
Source: Rockwell Automation
End Markets
160
Routes to Market
End User
Automation OEM (Emerson, Rockwell Automation, Siemens)
OEM Machine Builder
Specialist producer of custom industrial machines
Examples: Stolle Machinery, Vecoplan
Specialist producer of industrial panels
Panel Builder System Integrator
Examples: Schneider, Panel Builder
Arranges automation system for use by end user
Examples: ABCO, L2 Systems, Sunapsys
Distributor
Purchaser from OEM and seller to end user from maintained inventory
Examples: Rexel, Grainger, MSC Industrial
Source: Credit Suisse Research, Rockwell Automation
In general, an automation system is sold through a distributor, to an end user; the
automated system then requires integration by a third party systems integrator.
End Markets
161
Major industrial automation vendors
Source: Company data, Credit Suisse estimates
Profile of Major Public Automation Vendors Globally
US$ in billions, unless otherwise stated
End Markets
Share Price Market Eap Automation Sales Automation Sales Automation Exposure Market FoEus ProduEt FoEus Key Offerings
USD bn $USD bn % of total Eompany High / Medium / Low FaEtory / Disrete Eontrols / Instruments ProduEts & Solutions
3D Systems Corporation USD 50.42 5.5 0.5 0.5 100% High Factory Instruments 3D Printing Systems
Adept Technolgies USD 11.47 0.1 0.0 0.0 100% High Factory Combined Industrial Robots, Machine Vision
Ametek USD 52.96 13.0 3.6 2.2 61% High Process Instruments Motors, Sensors
AspenTech USD 43.24 4.0 0.3 0.3 100% High Factory Controls Optimization software
Autodesk USD 53.15 12.1 2.3 2.3 100% High Factory Controls PLM and CAD software
Cognex USD 36.03 3.1 0.4 0.4 100% High Factory Instruments Machine vision
Crane Co USD 72.9 4.3 2.6 1.2 45% Medium Process Instruments Commercial valves and pumps
Danaher USD 78.79 55.1 19.1 0.9 5% Low Factory Instruments Motion control / motors
Emerson USD 66.94 47.0 24.7 13.8 56% High Both Instruments DCS, process instrumentation
Flowserve USD 73.76 10.1 5.0 1.6 33% Medium Process Instruments Valves, pumps, actuators
GE USD 26.79 268.6 142.9 0.7 1% Low Both Instruments SCADA, control software
Hardinge USD 12.1 0.2 0.3 0.3 100% High Factory Instruments Milling and grinding machinery
Honeywell USD 93.26 73.0 39.1 3.2 8% Low Process Controls Process control (DCS)
Hurco USD 27.76 0.2 0.2 0.2 100% High Factory Instruments Computerized machine tools and control software
Idex USD 77.07 6.2 2.0 0.9 44% High Process Instruments Pumps, meters, valves & controls
Kennametal USD 45.46 3.6 2.6 2.6 100% High Factory Instruments Cutting tools
Newport USD 17.58 0.7 0.6 0.6 100% High Factory Instruments Motion control, industrial lasers
PTC USD 36.2 4.3 1.3 1.3 100% High Factory Controls PLM Software
Rockwell Automation USD 122.48 17.0 6.4 6.4 100% High Factory Combined PLCs (technically controller), drives, safety control
Rofin-Sinar USD 22.39 0.6 0.6 0.6 100% High Factory Instruments Industrial laser sources and solutions
Roper USD 141.45 14.1 3.2 1.5 48% Low Process Instruments Meter readers, pumps, valves
Sensata USD 43.51 7.5 2.0 2.0 100% High Factory Instruments Sensors and controls
SPX Corp USD 105.48 4.6 4.7 2.5 53% High Process Instruments Pumps, valves, filters
Stratasys Inc USD 91.5 4.5 0.5 0.5 100% High Factory Instruments 3D Printing Systems
Romi BRL 4.34 0.1 0.3 0.2 65% High Factory Instruments Machine Tools
WEG SA BRL 26.4 9.4 3.2 2.3 73% High Factory Instruments Motors
ABB CHF 21.02 54.4 41.8 18.7 45% High Both Combined Robotics, control systems, drives, and sensors
Alfa Laval SEK 174.7 11.0 4.6 4.6 100% High Process Instruments Pumps, valves and heat exchangers
Andritz EUR 43.07 6.1 7.6 4.0 53% High Process Instruments Pulp & Paper machinery, Separation machinery
Dassault Systems EUR 92.9 16.0 2.7 2.7 100% High Factory Controls PLM Software
Gildemeister EUR 23.475 2.5 2.7 2.4 88% High Factory Instruments Machine tools
GEA EUR 31.95 8.4 5.7 3.1 54% High Process Instruments Pumps, valves, heat exchangers
IMI Plc GBp 1570 7.1 2.7 2.1 77% High Process Instruments Valves, actuators, controllers
Krones EUR 70.6 3.0 3.7 3.7 100% High Both Instruments Package and bottle machine machine manufacturer
Kuka EUR 41.145 1.9 2.4 2.4 100% High Factory Instruments Robotics
Metso EUR 27.38 5.6 5.1 0.6 12% Low Process Combined Controls, sensors
Renishaw GBp 1697 2.1 0.5 0.5 100% High Factory Instruments 3D Printing Systems, Precision metrology and Inspection equip
Rotork GBp 2622 3.8 0.9 0.9 100% High Process Instruments Valve actuators and control systems
Sandvik SEK 94.1 17.7 13.4 3.8 29% Medium Factory Instruments Cutting tools
Schneider EUR 68.41 54.0 31.3 6.1 19% Low Factory Combined PLCs, switches, motion control, drives
Siemens EUR 97.19 116.7 99.6 24.1 24% Medium Factory Combined PLCs, drives, motors, CNC
Sulzer CHF 137.8 5.3 3.5 3.5 100% High Process Instruments Pumps, controls
Weir Group GBp 2596 9.3 3.8 0.3 7% Low Process Instruments Valves and pumps
Airtac TWD 329 1.9 0.2 0.2 100% High Factory Instruments Pneumatic cylinders, valves
Amada JPY 1001 3.9 2.6 2.6 100% High Factory Instruments Machine tools
China Automation Group HKD 1.29 0.2 0.4 0.3 90% High Process Controls DCS
Delta TWD 194.5 15.8 1.3 0.3 21% Medium Factory Controls HMI, PLC, Sensors, Servo Motors & Drives, Machine Vision
Doosan Heavy KRW 33000 3.4 6.1 1.0 17% Low Factory Instruments Machine tools
Ebara JPY 645 2.9 4.5 3.7 82% High Process Instruments Pumps
Fanuc JPY 17745 41.5 4.5 4.5 100% High Factory Combined Robotics, CNC
Hiwin TWD 310 2.6 0.3 0.3 100% High Factory Instruments Linear motion, ball screws, actuators
Hollysys USD 21.45 1.2 0.3 0.2 50% High Process Controls DCS, SCADA
Hyundai WIA KRW 179500 4.5 5.7 0.2 4% Low Factory Instruments Automotive parts & Machine Tools
Kawasaki JPY 395 6.4 13.8 1.9 13% Low Factory Instruments Pumps, motors, valves, robots
Keyence JPY 41865 24.8 2.7 2.7 100% High Factory Instruments Sensors, machine vision
Makino JPY 832 1.0 1.2 1.2 100% High Factory Instruments Computerized machinery
Mitsubishi Electric JPY 1238 25.9 40.5 5.0 12% Medium Factory Combined PLC, robots
Mori Seiki JPY 1328 1.7 1.6 1.6 100% High Factory Instruments CNC
Nachi JPY 682 1.7 1.8 1.8 100% High Factory Instruments Cutting tools, machine tools, robots
Nikkiso JPY 1220 1.0 1.2 1.2 100% High Process Instruments LNG Pumps, hemodialysis machines
Okuma JPY 958 1.6 1.3 1.3 100% High Factory Instruments Computerized machinery, CNC, CAD
Omron JPY 4040 9.0 7.7 3.9 51% High Factory Combined PLCs, sensors, relays, machine vision
OSG JPY 1768 1.7 0.9 0.9 100% High Factory Instruments Cutting tools
Seiko Epson JPY 3770 7.4 10.0 1.9 19% Low Factory Instruments Robots, digital control, optic devices, sensors
Siasun CNY 49.89 2.4 0.2 0.2 100% High Factory Instruments Robots, Energy Automation Equipment
SMC JPY 27845 18.7 3.9 3.9 100% High Factory Instruments Actuators, valves, and switches
Teco TWD 33.75 2.2 0.9 0.9 100% High Factory Instruments Industrial motors
THK JPY 2381 3.1 1.9 1.9 100% High Factory Instruments Electronics, Machine Tools
Wuhan Huazhong Numerical CNY 18.48 0.3 0.1 0.1 100% High Factory Instruments CNC
Yaskawa JPY 1290 3.2 3.6 3.6 100% High Factory Instruments Motion controls, robotics
Yokogawa JPY 1294 3.4 3.9 3.4 88% High Process Controls Industrial automation & controls
Asia
Eompany
North
America
South
America
Europe
Company Sales
$USD bn Region
162
Competition in Process Automation is on the rise
Source: Company Data, Credit Suisse Research
The strong petrochemical growth outlook is attracting new players into the market, which
may reverse the multi-decade trend of consolidation
End Markets
E&H and HON have taken share other players are now looking to join them
80
90
100
110
120
130
140
150
160
Endress &
Hauser
Honeywell (ACS-
Process)
Emerson (PM) Rockwell
Automation (PA)
Invensys (OM) Yokogawa (IA &
Control)
ABB (PA)
163
Competition in Process Automation is on the rise
Source: Company Data, Credit Suisse Research
Yokogawa in particular is likely to represent a more fierce competitor
End Markets
Schneider / Invensys will be a stronger player too
164
Source: Company Data
Industry Sector: Factory Automation Vendor Data
End Markets
Source: Company Data
*Organic
Orders Change YoY
Company (Division) Geo Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14
Americas
Emerson (IA)* US -7% -6% -6% -12% -5% 3% 0% 8%
Europe
ABB (DA&M)* EU -2% 1% 3% -7% -2% 6% 10% 9%
Krones EU -4% 12% 21% 4% 4% 13% -6% 8%
Kuka EU 15% 0% 20% -20% 4% 13% 11% 27%
Siemens (D)* EU -11% -7% -3% -11% -5% 7% 6% 14%
Siemens (IA)* EU -5% 2% -12% -9% 0% 0% 7% 11%
Asia
Fanuc JP -14% -4% -8% -30% -16% -14% 8% 55%
Mitsubishi Electric (FA) JP -28% 2% -11% -3% 12% 13% 41% 20%
THK JP -11% -6% 5% 6% 8% 18% 27% 26%
Yaskawa JP -15% 1% 12% 7% 13% 10% 21% 14%
Sales Change YoY
Company (Division) Geo Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14
Americas
Danaher (IT-Motion)* US -8% -8% 2% -9% -15% -8% -5% -2%
Emerson (IA)* US 3% -1% -6% -6% -7% -4% 0% 2%
PTC US 10% -5% 2% 5% 4% 6% 2% 5%
Rockwell Automation* US 7% 5% 2% -2% 4% 3% 7% 7%
WEG (Industrial/Elec Equip) BR 27% 20% 0% 8% 3% 8% 21% 9%
Europe
ABB (DA&M)* EU 11% 5% 7% 4% -1% 10% 8% -2%
Dassault Systems* EU 9% 7% 4% 5% 3% 4% 5% 5%
Krones EU -1% 9% 15% 5% 8% 8% 2% 3%
Kuka EU 33% 33% 7% 19% -2% -7% 3% 6%
Schneider (I)* EU -6% -3% 0% -4% 4% 0% 5% 6%
Siemens (D)* EU -1% -1% -5% -9% -3% 2% 1% 5%
Siemens (IA)* EU 0% 1% -3% -7% -1% -4% 2% 6%
Asia
Airtac TW 1% 7% 13% 15% 27% 29% 24% 21%
Fanuc JP 5% -7% -11% -17% -23% -13% -9% 9%
Hiwin TW -13% -23% -20% -11% -24% 12% 30% 27%
Keyence JP 7% 10% 9% 10% 13% 25% 25% 24%
Mitsubishi Electric (FA/IA) JP -4% -6% -6% -5% 7% 11% 14% 18%
Omron (IA) JP -12% -6% 0% 9% 1% 11% 19% 13%
Siasun CH 38% 31% 21% 5% 17% 6% 71% 10%
SMC JP -6% -8% 0% -8% 13% 26% 28% 22%
THK JP -12% -18% -15% -12% -6% 10% 16% 22%
Yaskawa JP -5% -5% 1% 13% 18% 18% 20% 14%
165
Source: Company Data
Industry Sector: Process Automation Vendor Data
End Markets
Source: Company Data
*Organic
Order Growth (YoY%)
Company (Division) Geo Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14
ABB (PA) * EU -1% 3% -3% 18% -1% -21% 0% -7% -11%
Alfa Laval (Process)* EU 22% 3% -4% 21% -12% -8% 1% 13% -1%
Emerson (PM) * US 17% 19% 5% 2% 3% 9% 4% 3% 12%
GE (Measurement & Cntrl OE) US -13% 18% 17% 8% -
GEA (Process)* EU 22% -10% 4% 3% -4% 43% 14% 9% -20%
GEA (Farm Tech)* EU 16% 9% 1% 4% -7% 4% 5% 10% 22%
GEA (Mechanical Equip)* EU 7% -3% 5% 19% 5% 11% 13% -2% 5%
Invensys (OM)/ Schneider (Process)* EU -11% -6% 3% - 9%
Metso (Total) EU 4% -40% -21% 29% -18% 9% 11% -10% -15%
Yokogawa (IA & Control) JP 10% -2% 4% 20% 4% 13% 43% 12% 2%
Sales Growth (YoY%)
Company (Division) Geo Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14
ABB (PA)* EU 6% 5% 3% -3% 1% 4% 13% 3% 4%
Alfa Laval (Process)* EU 8% 9% -4% 2% 1% 2% 9% 14% 1%
Aspen Tech US 17% 22% 40% 16% 24% 30% 23% 28% 31%
China Automation Group HK 5% 19% 7% 2%
Emerson (PM)* US 14% 23% 20% 24% 9% 3% 6% 5% 1%
GE (Measurement & Cntrl) 1% -5% -4%
GEA (Process)* EU 20% -1% 2% 2% 7% 10% 9% 5% 1%
GEA (Farm Tech)* EU 16% 8% 10% 9% -9% -1% 0% 5% 20%
GEA (Mechanical Equip)* EU 11% -1% 10% 5% 0% 11% 7% 8% 6%
Hollysys CN 19% 23% 1% 9% -9% 29% 28% 76% 59%
Honeywell (ACS-Process)* US 9% 8% 5% 3% -1% 4% 0% 1% 3%
IMI Plc UK 6% 4% 3% 0% -3% -3% 3% 15% 1%
Invensys (OM)/ Schneider (Process)* UK 5% 7% 5% 8% 0%
Metso (Total) EU 22% 21% 12% 1% -9% -7% -4% -10% -11%
Pentair (Valves & Controls) US 1% -3% 4% 0% 20% -9%
Rockwell Automation (PA) US 23% 15% 18% -2% -1% 2% 1% 8% 3%
Rotork (Controls) UK 11% -1% 4% 15%
SPW (Flow Tech)* US 10% 12% 1% -1% -2% -4% 0% -1% -1%
Yokogawa (IA & Control) JP 8% 10% 6% 5% 6% 10% 11% 20% 14%
166
Industry Sector: Industrial Products
End Markets
Order Growth
Company (Division) Geo Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14
ABB (DA&M)* EU 9% -2% 1% 3% -7% -2% 6% 10% 9%
Atlas Copco (CT)* EU 5% -7% 2% 0% -4% 1% -4% 2% -3%
Atlas Copco (IT)* EU 10% 1% 1% -2% -8% 4% 9% 10% 13%
Eaton (Hydraulics) US -15% -9% -25% -24% -8% -12% 8% 19% 9%
Emerson (IA)* US 3% -7% -6% -6% -12% -5% 3% 0% 8%
Gildemeister EU 36% 11% -4% 34% -14% -6% 6% -13% 16%
IR (Industrial Tech)* US 1% 2% 2% 3% -1% -1% 1% 2% -2%
PH (Industrial NA) US 7% 4% -11% -6% -10% -5% 3% 3% 6%
PH (Industrial RoW) US -1% -9% -8% -5% -7% 3% 5% 6% 5%
Romi (Machine Tools) BR -26% 27% -6% 47% 3% 5% 36% -23% 42%
Sandvik (Machining Soln)* EU 7% 2% -3% -4% -7% -1% 3% 4% 6%
Siemens (D)* EU -1% -11% -7% -3% -11% -5% 7% 6% 14%
Sales Growth
Company (Division) Geo Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14
ABB (DA&M)* EU 15% 11% 5% 7% 4% -1% 10% 8% -2%
Atlas Copco (CT)* EU 14% 5% 6% 4% -2% 2% 0% 3% 2%
Atlas Copco (IT)* EU 24% 15% 13% 0% -7% -3% 5% 11% 9%
Danaher (IT)* US 0% 1% 2% 3% -2% -3% -1% 3% 3%
Eaton (Hydraulics)* US 3% 3% -4% -11% -9% -9% -2% 5% 6%
Emerson (IA)* US -1% 3% -1% -6% -6% -7% -4% 0% 2%
Gildemeister EU 20% 17% 23% 23% 3% 9% -2% -5% 8%
IR (Industrial Tech)* US 9% 6% 4% 4% -1% -4% 2% 0% 2%
Kennametal (Company)* US 11% 2% -7% -10% -11% -8% -2% 2% 3%
NSK (Company) JP 11% 14% -3% -8% -2% 8% 16% 32% 21%
NTN (Company) JP 5% 6% -6% -4% 1% 11% 20% 24% 19%
OSG (Company) JP 7% 12% 2% -5% -5% -2% 7% 21% 24%
PH (Industrial NA)* US 12% 9% 5% 1% -8% -6% -3% 0% 2%
PH (Industrial RoW)* US 0% -10% -9% -4% -7% -1% 1% 6% 5%
Regal Beloit (C&I NoAm) US 7% 1% -6% -1% -7% -6% -3% -4% -4%
Regal Beloit (Mechanical) US 0% -4% -13% -13% -16% -14% -14% -8% -3%
Rexnord (Process & Motion)* US 14% 2% 3% -3% -4% 0% 1% -1% 3%
Romi (Machine Tools) BR 23% -34% 3% 45% -6% 36% 18% -3% 2%
Sandvik (Machining Soln)* EU 7% 2% -3% -4% -7% -1% 4% 4% 5%
Siemens (D)* EU 8% -1% -1% -5% -9% -3% 2% 1% 5%
SKF* EU 1% -1% -5% -5% -8% -2% 2% 7% 6%
Timken (Bearings)* US 8% 4% -8% -5% -16% -12% -10% -8% 9%
167
Industry Sector: Vendor Data
Process Automation
Factory Automation
End Markets
ABB
Alfa Laval
Emerson
Gea
HOLI
Invensys
SPX Corp
Yokogawa
Honeywell
E+H
CAG
ROK
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
4% 6% 8% 10% 12% 14% 16% 18% 20% 22% 24%
2
0
1
3
R
e
v
e
n
u
e
s
2013 EBIT Margin
Danaher (IT)
Emerson (IA)
Rockwell Automation
WEG (Industrial/Elec Equip)
ABB (DA&M)
Schneider (I)
Kuka
Siemens (D)
Siemens (IA)
Krones
Fanuc
Keyence
Mitsubishi Electric (FA)
Omron (IA)
SMC
THK
Yaskawa
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
0% 10% 20% 30% 40% 50% 60%
2
0
1
3
R
e
v
e
n
u
e
s
2013 EBIT Margin
168
Industry Sector: Automation Vendor Product Matrix
End Markets
Company PLC Motors/Drives CNC Robots
Milling
Machine
Welding
Tools
Cutting
Tools DCS
Equipment /
Valves Sensors Vision
Cognex x
Crane Co x
Danaher x x
Emerson x x x
Flowserve x x
GE x x x x
Hardinge x
Hass Automation x
Honeywell x x x
Hurco x
Idex x
Illinois Tool Works x x
Ingersoll (private) x x
ITT x x
Kennametal x
Lincoln Electric x
Moore Tools x
Regal Beloit x
Robbins & Myers x
Rockwell Automation x x x x x
Romi x
Roper x
Sensata x
SPX Corp x
Tyco x
ABB x x x x x x
Alfa Laval x
Charter (ESAB) x
Endress & Hauser (pvt) x
Festo x x x
Gildemeister x
GEA x
IMI Plc x
Invensys x x x x
Iscar x
Korber Schleifring x
Krones x x
Kuka x
Metso x x x
Parker x x x
Pepper & Fuchs x x
Rotork x
Sandvik x x
Schneider x x x
Schuler x
Seco Tools x
Siemens x x x x x x
Staubli (private) x x
Weir Group x
Europe
America
Discrete Focused Process
Focused
Feedback
169
Industry Sector: Automation Vendor Product Matrix
End Markets
Company PLC Motors/Drives CNC Robots
Milling
Machine
Welding
Tools
Cutting
Tools DCS
Equipment /
Valves Sensors Vision
Airtac x
Amada x
China Automation Group x
Doosan Infracore x x
Fanuc x x
Hiwin x x
Hollysys x x x x
Kawasaki x
Keyence x x
Kitako x
Makino x
Mitsubishi Electric x x x x x
Mori Seiki x
Nachi x
Okuma x
Omron x x x
OSG x
SMC x x
Supcon x x
Yaskawa x x
Yokogawa x x x
Asia
Process
Focused
Feedback Discrete Focused
170
Industry Sector: Automation Flow Vendor Matrix
Company Preparation Marination Processing Slicing Packaging Packaging Instrumenation Pumps/Valves DCS
ABB x x x
Airtac x
Alfa Laval x x x x x
China Automation Group x
Crane Co x x
Ebara x
Emerson x x x x x
Endress & Hauser (pvt) x
Flowserve x x x
GEA x x x x x
GE O&G x x
Hollysys x
Honeywell x x x x
Idex x x
IMI Plc x x x
Invensys x x x x
Krones x
Metso x x x x x x
Meyn Processing Solutions (pvt) x x
Roper x x
Rockwell Automation x x x x x
Rotork x x
Siemens x x x x x x
SMC x
SPX Corporation x x x x
Sulzer x x
Supcon x
Pentair x x x
Tyco x x
Yokogawa x
Weir x x
Food & Beverage Fluids
End Markets
171
Industry Sector: End Market Tracker
Automation earnings commentary to date
End Markets
Date Company Direction End market Comment
4/1/2029 ABB Automation (FA) Discrete automation and motion delivered a strong order increase, mainly the early cycle businesses.
4/1/2029 ABB Automation (Process)
Process Automation went down in Brazil; Base orders in Germany are close to 10% in automation; In Asia, base orders in China are higher, led
by a double-digit improvement in automation.
5/7/2014 Kuka Automation
The trend toward automation using robot-based solutions remains uninterrupted, with especially strong demand from the automotive segment
and from China driving the growth.
5/7/2014 Siemens
Automation
In the Industry sector short cycle businesses at Industry Automation and at motion control in the Drive Technologies division stabilized further
with especially strong growth in new orders in Germany and China.
5/6/2014 Emerson Automation (Process)
Orders increased 12%, led by unconventional upstream oil and gas projects. The robust orders growth reinforced continued strength in process
automation markets, particularly in North America.
5/6/2014 Emerson Automation (IA)
Orders growth accelerated to a high single-digit rate in the quarter led by double-digit growth in power generating alternators. The order strength
supports the expectation for improved growth in the second half with acceleration in the U.S. and Europe.
4/30/2014 SPX Corp Automation (Process)
We had a solid start to the year with Q1 orders up over the prior-year period, and the front log remains very attractive, particularly in food and
beverage, and oil and gas markets.
4/29/2014 Rockwell Automation Automation
We now expect organic growth for the full year to be about a half point higher across the range. 3.5% to 6.5% organic growth, compared to the
previous guidance of 3% to 6%. In the year over year comparisons, for the second half, growth rates will moderate compared to the first half
because the comparisons get more difficult. That's particularly true in the solutions and services businesses and especially in Q3.
4/28/2014 Alfa Laval Automation
Food technology was down due to non-repeats, while market units food solutions and vegetable oil had strong growth. Process industry was
virtually unchanged with substantial growth in refinery, while life science and petrochemicals declined. It is also worth mentioning that oil & gas
remains on a high level, even if there were fewer large projects.
4/24/2014 Schneider Automation
Order intake have been nicely up by 9% with particularly good performance for Software, double-digit growth; Industrial Automation, high-single-
digit growth.
4/17/2014 Danaher Automation
Motion platform core revenues improved sequentially from the fourth quarter, but still declined at a low single-digit rate. Strong sales in North
American distribution were more than offset by a weak defense market and the impact of exiting certain lower margin product lines.
4/17/2014 Honeywell Automation (Process)
Process Solution sales were up 3% on an organic basis in the quarter, with continued good growth in high-margin areas like Services and
Advanced Solutions more than offsetting the impact of large project completions. Orders growth also continues to be healthy, and backlog is
growing.
=
+
+
+
+
+
+
+
+
+
-
+
172
Industry Sector: End Market Tracker
Industrial Products commentary to date
End Markets
Date Company Direction End market Comment
5/1/2014 Kennametal Industrial Products
Going forward, we expect to see continued demand growth in our served industrial end markets and across distribution channels. Although not
immediate, we anticipate improvements in markets related to our Infrastructure segment, as well.
4/29/2014 Atlas Copco Industrial Products
We see solid strong development in industrial tools; Stable demand for industrial compressors, at the low level for the largest tickets, that's an
area where we don't see it's really moving.
4/29/2014 Eaton Industrial Products
Hydraulics- We think a very strong quarter of performance, 3% volume growth. But you could see the core growth was actually 6%, and we had
negative forex of 3 points, so you're seeing, I think, pretty strong volume top-line growth. The bookings up another very solid 9%, as you can see
below.
4/29/2014 Parker Hannifin Industrial Products
Diversified Industrial North American orders for the quarter just ended, increased 6%. Diversified Industrial International orders increased 5% for
the quarter.
4/25/2014 Sandvik Industrial Products
We continue to see, I would say, very stable demand development from what we saw in the end of the first quarter, into the second quarter for
machining solutions.
4/24/2014 Flowserve Industrial Products
General industries markets faced challenges in the first quarter as mining companies cautiously evaluated projects based on concerns of
oversupply. Global fertilizer projects remained on track, and our distribution business, primarily valves, continued to produce solid levels in the
first quarter, driven by the oil and gas markets.
4/24/2014 SWK Industrial Products
The industrial business is going to be stronger, as I indicated. We expect now the organic revenue growth to be a little bit stronger than
previously indicated back in January.
4/23/2014 Ingersoll-Rand Industrial Products Orders in the industrial segment were down 2% excluding currency.
4/17/2014 Dover Industrial Products
Our Fluid segment outperformed where our recent acquisitions plus healthy market conditions for both pumps and fluid transfer resulted in very
solid revenue growth. Our pumps businesses are benefiting from strong demand in the plastics and petrochemical verticals and first quarter
results were boosted by strong project shipments into these markets.
4/15/2014 SKF Industrial Products General industry which is, as I said, pumps, compressors, etc., and heavy industry was weak.
-
+
+
+
-
+
+
+
=
+
173
Process Control Companies
End Markets
Company name ABB AspenTech China Automation Group Emerson Endress+Hauser Hollysys
Automation business Process Automation Total Company Total Company Process Management Total Company Total Company
Sales ($B) 8.5 0.3 0.4 8.6 2.4 0.3
% of sales 22% 100% 100% 35% 100% 100%
Operating profit ($bn) 1.01 0.06 0.0 1.82 0.37 0.1
Operating margin 11.9% 17.9% 10.8% 21.2% 15.3% 17.8%
% of operating profit 24% 100% 100% 42% 100% 100%
Customers / end-market split Oil & Gas (35%), Minerals & Metals
(25%), Marine (20%), Pulp & Paper
(10%), Utility & Water (5%), Other (5%)
Process Industries; Energy, Chemicals,
Engineering & Construction, Consumer
Packaged Goods, Power, Metals &
Mining, Pump & Paper, Biofuels, and
Pharmaceuticals
Petrochemical, Rail Oil & Gas (39%), Chemical (15%),
Power/Utilities (14%), Refining (9%),
Other (23%)
Chemical & Petrochemical, Food &
Beverage, Oil & Gas, Water &
Wastewater, Primaries & Metal, power
& energy, Life Science, Pulp & Paper
and Shipbuilding industries
Chemical, Petro-Chemical, Power,
Energy, Rail
Products sold Robotics, Control Systems, Drives,
High/Medium/Low Voltage Products,
Sensors, Robotics, Actuators,
Measurement Products, Bearings,
Circuit Breakers, Couplings, Conveyor
Components, Feeder Automation,
Generators, Inverters, Motors, PLCs,
Servomotors, Transformers ,
Converters
Process Optimization Software;
Engineering Software, Manufacturing
Software, Supply Chain Softare -
License (52%), Training & Other (33%),
Maintenance & Professional Services
(15%)
Safety and critical control systems,
Control valves, Railway signalling
system, Traction and auxillary power
supply systems
Measurement and Analytical (44%),
Valves and Regulators (32%),
Systems, Solutions and Services (24%)
Sensors, Instruments, Systems and
services for level, flow, pressure and
temperature measurement, liquid and
gas analysis and data acquisition,
Solutions for PA
DCS, Batch, MES, AMS, Safety
System, Signalling systems, Subway
automation,
Major Brands Freelance, Compact 800 Systems, eA
Series, Symphony Plus ("S+") Series,
Heritage Systems, cpmPlus Series, IRB
Series, BORDERLINE Series
aspenONE China Automation Group Measurement and Analytical (CSI,
Daniel, Mobrey, Micro Motion,
Rosemount, Roxar), Valves and
Regulators (Fisher, TESCOM, Bettis),
Systems and Software (DeltaV)
Endress+Hauser HOLI
Geographic sales split based on LFY
United States/ Americas 22% 36% 47% 21%
EMEA 51% 27% 29% 55%
Asia 27% 24% 24%
o/w Japan
o/w China 93%
RoW / Other 38% 7%
Total 100% 100% 100% 100% 100%
Europe 39% 27% 20% 51%
MEA 12% 9% 4%
Geo Split Segment Process Automation Total Company Process Management Total Company
Company name Honeywell Schneider (Invensys) Krohne Neway Valve Yokogawa
Automation business Process Solutions Operations Management Total Company Industrial Automation & Control
Sales ($B) 3.1 2.1 0.6 0.4 3.9
% of sales 8% 7% 100% 100% 90%
Operating profit ($bn) 0.45 0.22 - 0.10 0.23
Operating margin 14.7% 10.9% - 23.1% 6.0%
% of operating profit 7% 5% - 98%
Customers / end-market split Chemicals (15%), MMM (7%), Oil &
Gas (30%), P3 (14%), Pharmaceutical
(2%), Power (6%), Refining (23%),
Other (3%)
Oil & Gas (33%), General Industrial
(27%), Utility (14%), Discrete
Manufacturing (7%), Petrochemical
(5%), Other (14%)
Oil & Gas, Water and Wastewater,
Chemical & Petrochem, Power,
Pharma, F&B, Pulp & Paper, HVAC,
Iron, Steel and Metal, Marine, Minerals
& Mining
Oil & Gas, Chemical, Power, Marine,
Mining, Water Treatment, General
Industrial
Petrochem and Chem (36%), Refining
(19%), LNG, Oil & Gas (18%), Power
(8%), Water & Wastewater (7%),
Metals & Mining (3%), Pulp & Paper
(2%), Others (7%)
Products sold Field Solutions (13%), Control Systems
(40%), Advanced Solutions (12%),
Lifecycle Solutions (35%)
Systems (60%), Equipment (22%),
Software (18%)
Flow measurement, temperature
measurement, Level measurement,
Pressure measurement, Analysis
instruments, Gas & steam
measurement
Mabual valves- Gate, Globe and Check
valves, Ball valves, Butterfly valves,
Pipeline valves, Knife Gate valves,;
Actauted valves- Switch Control valves,
Control valves;
Nuclear valves, Special valves
Control (83%), Measurement (10%),
Other (7%) - Production Management
Systems, Production Controls and
Safety Management (PLCs, DCSs,
Safety Instrumented Systems "SISs"),
Controllers, Recoders, Data Acquisiton
Equipment, Measurement Equipment,
SCADA,
Major Brands Ademco, Fire-Lite, Hand Held,
Metrologic, MK, North, Notifier, Novar,
RMG, System Sensor
Foxboro I/A Series DCS, Triconex,
Avantis, IMServ, IntelaTrac, SimSci-
Esscor, Skelta, Wonderware,
Eurotherm, Foxboro, InFusion,
Triconex
KROHNE NEWAY Centrum VP, TruePeak, VigilantPlant
Services, Fast/Tools
Geographic sales split based on LFY
United States/ Americas 22% 29% 6%
EMEA 45% 40% 16%
Asia 21% 24% 67%
o/w Japan 1% 41%
o/w China 8%
RoW / Other 12% 7% 11%
Total 100% 100% 100%
Europe 37% 26% 8%
MEA 8% 14% 8%
174
FA Controls Companies
End Markets
Company name Autodesk Beckhoff Dassault Systems GE Mitsubishi Electric Omron PTC Rockwell Automation Schneider Siemens
Automation business Total Company Total Company Total Company Intelligent Platform Factory Automation Systems Industrial Automation Total Company Total company Industry Industrial Automation
Sales ($B) 2.3 0.6 2.8 0.7 4.0 2.6 1.3 6.4 5.9 10.8
% of sales 100% 100% 100% 0% 1% 37% 100% 100% 18% 11%
Operating profit ($B) 0.59 - 0.87 0.01 0.28 0.29 0.29 1.12 1.06 1.83
Operating margin 25.4% - 31.5% 1.5% 7.0% 11.0% 22.1% 17.6% 18.0% 17.0%
% of operating profit 100% 100% 100% 0.1% 2% 58% 100% 100% 21% 18%
Customers / end-market split Architecture, Engineering and
Construction, Manufacturing,
and Digital Media and
Entertainment Industries
Aerospace & Defense (14%);
Transportation & Mobility (31%);
Marine & Offshore; Industrial
Equipment (21%); High-tech;
Architecture, Engineering
&Construction; Consumer Goods
retail; Consumer Packaged
Goods retail; Life Sciences;
Energy, Process & Utilities; and
Financial & Business Services
(11%); New Industries (23%)
Automation OEMs, Power,
Consumer Products, Biomass,
Data Centers, Life Sciences,
Mining, Oil & Gas,
Telecommunications, High-
Frequency Trading, Water &
Wastewater
Automotive, Home Appliances, Building,
Energy, Factory Automation, Information
and Communication Systems, Public
Systems, Semiconductors & Devices,
Space Systems, Transportation, Visual
Information Systems
Automotive, IT, Public Facilities,
Traffic, Security, Medical,
General Industry
Airlines, Consumer Products,
Footwear & Apparel, Retail,
Aerospace & Defense,
Automotive, Medical Devices,
Industrial Equipment,
Electronics & High Tech
Heavy Industry (50%), Consumer
(32%), Transportation (13%),
Other (5%)
Water, Food & Beverage,
Mining, Minerals, & Metals
Manufacturing Industry, Water,
Transport, Buildings, Utilities
Products sold Design Software - PLM
Solutions, CAD Software
Industrial PCs, I/O and
Fieldbus Components, Drive
Technology and automation
software
PLM Software and SolidWorks Computing Platforms - Single
Board Computers, Memory
Products, Operator Interfaces &
Industrial PCs, Processors,
Adaptors. Control Platforms -
Control Software, System
Controllers, Distributed I/O,
Safety, Software, Operator
Interfaces & Industrial PCs,
Conventional Control Systems.
Automation Software -
HMI/SCADA software products
PLCs, HMIs, AC Servos, CNCs, No-fuse
Circuit Breakers and Earth Leakage
Circuit Breakers, Memory Car Navigation
Systems, ETC Equipment for Vehicles,
Industrial Robots, Laser Processing
Machines, Electrical Discharge
Machines, Electron Beam Machines,
Low Voltage Power Distribution and
Power Monitoring Products
PLCs, Controls, Sensors,
Servomotors, Servo Drivers,
Inverters, Network Automated
Optical Inspection (AOI) Devices,
Laser Repair Devices for Liquid-
crystal Applications, Power
Supply Units, Indicator Display
Equipment
License (29%), Consulting &
Training Service (23%),
Maintenance (48%) - PLM
Software, Computer-Aided
Design Software (CAD, CAM,
CAE), Application Lifecycle
Management (ALM)
Architecture & Software (43%)
and Control Products & Solutions
(57%) - Control products
(discrete, batch, continuous
process, drives control, motion
control and machine safety
control); Software products
(configuration and visualization
software used to operate and
supervise control platforms)
Circuit Breakers & Switches,
Contractors & Protection
Relays, HMIs, Feeder
Automation, Measure &
Control Relays, Motion &
Drives, Controllers, Sensors,
Switchgear, Transformers
MES, CNC, Controls, Drives,
Electric Motors, Gearboxes and
Couplings, Motion Control, Power
Distribution, Process Analytics,
Process Control Systems
(PCSs), Process Instrumentation,
PLM Software, Identification
Systems, Power Supplies, HMI
Devices and Software
Major Brands Autodesk Cloud, Autodesk
PLM 360, AutoCAD, AutoCAD
LT, Autodesk Revit, AutoCAD
Civil 3D, AutoCAD Mechanical,
AutoCAD
Architecture, Autodesk 3ds
Max, Autodesk Moldflow,
Autodesk Inventor Autodesk
Maya, Autodesk Flame,
Autodesk Smoke, Autodesk
Lustre, Autodesk Flare
BECKHOFF SolidWorks, CATIA, SIMULIA,
DELMIA, ENOVIA, 3DVIA,
Exalead, 3DSwYm
PACSystems, Proficy,
PACMotion, VersaMax, Rxi,
Durus,
MELQIC, MELSEC Series, GOT Series,
MERLSERVO, FREQROL Series,
EcoMotor Pro
SYSMAC, E5CC/E5EC, OMRON
Scientific Technologies Inc.,
Windchill, Arbortext, Creo
View, Integrity, Crea
Parametric, Creo
Elements/Direct, Mathcad
Allen-Bradley, Rockwell
Software, FactoryTalk, ICS
Triplex
Masterpact Series, TeSys
Series, Easergy Series,
Magelis Series, Zelio Series,
Altistart Series, Altivar Series,
Minera Series, Modicon
Series, OsiSense Series,
Argus Series
SIMOTION, SINUMERIK,
SIMATIC IT, SIRIUS< SITOP,
SIDAC, SINVERT, SIMATIC
HMI, SIMATIC PCS, SIMATIC
Series, SIMOTICS
Geographic sales split based on LFY
United States 36% 27% 6% 12% 37% 56% 23% 23%
EMEA 39% 46% 7% 14% 40% 20% 32% 54%
Asia 25% 26% 87% 72% 23% 16% 27% 23%
o/w Japan 72% 48% 10%
o/w China 16% 12%
RoW / Other 1% 2% 8% 18%
Total 100% 100% 100% 100% 100% 100% 100% 100%
Europe 46% 7% 14% 40% 20% 32%
MEA
Geo Split Segment Total Company Total Company Total Company Total Company Total Company Total Company Total Company Industry
175
Major US / European factory automation product vendors
End Markets
Company name ABB Bosch Rexroth Cognex Danaher Emerson Hyundai WIA Kuka Siemens
Automation business Discrete Automation & Motion Total Company Total Company Motion Industrial Automation Factory Automation Total Company Drive Technologies
Sales ($B) 9.9 7.9 0.4 0.8 4.9 0.2 2.4 12.1
% of sales 24% 100% 100% 4% 20% 4% 100% 12%
Operating profit ($B) 1.46 0.09 0.16 0.80 0.02 0.16 1.05
Operating margin 14.7% 24.4% 20.0% 16.5% 4.9% 6.8% 8.7%
% of operating profit 30% 100% 5% 19% 7% 100% 14%
Customers /
end-market split
Discrete Manufacturing, Hybrid Manufacturing,
Process Industries, Utilities, Transportation
Equipment, Infrastructure Buildings,
Renewable Energy
Automotive, Rail, Industrial,
Consumer goods,
Packaging, Pulp & paper,
Solar, Maritime, Aerospace,
Infrastructure
Factory Automation (75%),
Semiconductor &
Electronics Capital
Equipment Manufacturers
(12%), Web & Surface
Inspection (13%) - Engine
Parts and Semiconductor
Wafers, Pharmaceutical
Packaging, Product
Assembly, Materials (steel,
paper, plastics), Food and
Beverage
Industrial Automation,
Packaging, Medical
Equipment,
Robotics, Circuit Board
Assembly Equipment,
Elevators and Electric
Vehicles
General Industry (26%), Building
& Construction (11%), Power
(10%), Oil & Gas (7%), Other
(46%)
Automotive Automotive (42%), General
Industry (39.4%), Service
(18.6%)
Manufacturing Industry,
Transport, Buildings,
Utilities
Products sold LV Drives, Power Electronics & MV Drives,
Motors & Generators, Robotics, Power
Electronics, PLCs, DCSs
Drives, filters, gears,
motors, pumps, valves,
electromechanical
actuators, accumulators,
cylinders
Machine Vision Systems
(85%) , Surface Inspection
Systems (15%)
Motors, Drives, Controls,
Mechanical Components
(Ball Screws, Linear
Bearings, Clutches/Brakes,
and Linear Actuators)
Power Generation (24%),
Mechanical Power Transmission
(20%), Motors and Drives (19%),
Fluid Automation (18%), Power
Distribution (12%), Industrial
Equipment (7%)
Robot, Jigs, Vertical Machining
center, horizontal machining
center, boring machine, turning
center, Factory automation
Robotics (42%), Systems
(58%)
Converters, Motors, Geared
Motors, Gear Units,
Couplings, Hybrid Drive,
Engineering Software
Major Brands RobotWare, SafeMove, Freelance, Compact
800 Systems, eA Series, Symphony Plus
("S+") Series, Heritage Systems, cpmPlus
Series, IRB Series, BORDERLINE Series
Rexroth DataMan, 1DMax+,
Hotbars, 2DMax+,
OCRMax, In-Sight,
VisionPro
KOLLMORGEN,
THOMSON, DOVER,
PORTESCAP
Appleton, ASCO, Branson,
Control Techniques, Kop-Flex,
Leroy-Somer, Numatics,
Sealmaster, SD Wind Systems,
Control Techniques, System
Plast, Trident
WH50TFC, WH63TMB, R series,
M series, K series, BX-series, L
series, I series, F series, H series
QUANTEC, KRC4 ELFA, FLENDER,
SINAMICS
Geographic sales split based on LFY
United States 32% 16% 34% 43% 41% 19% 23%
EMEA 41% 58% 33% 32% 20% 58% 54%
Asia 27% 27% 15% 16% 36% 23% 23%
o/w Japan 15%
o/w China
RoW / Other 17% 9% 3%
Total 100% 100% 100% 100% 100% 100% 100%
0%
Europe 38% 58% 33% 16% 58% 54%
MEA 3% 4%
Geo Split Segment Discrete Automation & Motion Total Company Total Company Motion (w/in Industrial Tech) Industrial Automation Total Company Drive Technologies
176
CNC and Machine Tools Comps
End Markets
Company name Amada Fanuc Gildemeister (DMG Mori) Mori Seiki Okuma Romi Siasun Trumpf Wuhan Huazhong Numerical Yaskawa
Automation business Total Company Total Company Machine Tools Total Company Total Company Machine Tools Total Company Machine Tools + Laser Total Company Total Company
Sales ($B) 2.6 4.5 2.799 1.6 1.3 0.2 0.2 2.6 0.1 3.6
% of sales 100% 100% 100% 100% 100% 65% 100% 93% 100% 100%
Operating profit ($B) 0.16 1.68 0.20 0.10 0.09 0.01 0.04 0.24 (0.01) 0.26
Operating margin 6.3% 37.4% 7.2% 6.1% 7.0% 3.4% 19.5% 9.2% -9.4% 7.1%
% of operating profit 100% 100% - 100% 100% - 100% - 100% 100%
Customers / end-market split Aerospace, Alternative Energy,
Automotive, Composite,
Consumer Goods, Distribution
Center, Education, Electronics,
Fabricated Metals, Food &
Beverage, Foundry, Glass,
Medical, Paper & Printing,
Pharmaceutical, Plastics, Wood
Corporate Services ( 3%),
Industrial Services (36%),
Gildemeister Beteiligungen AG
(6%), Ultrasonic/Lasertec (1%),
Machine Tools Milling (35%),
Machine Tools Turning (19%)
Industrial Machinery, Automotive,
Aviation/Space,
Hydraulic/Pneumatic Equipment,
Molding, Electronic Components
& Communications, Oil & Energy,
Agriculture & Construction
Equipment, Semiconductor,
Medical, Others
Automotive, Aerospace &
Defense, Construction & Farming
Equipment, Oil & Energy,
Medical, Mold and Dye, Fluid
Power Industries
Job Shops (29%), Automotive
(11%), Capital Goods(15%),
Tooling(7%), Technical
Schools(3%),Agri Equip (4%),
Others (30%)
Automobile, Motorcycle,
Engineering Machinery, Electronic
and Electric Assembly
Machine tools and Power tools
(67%), laser machines and
Process Power Supplies (26%)
Textile and Mechanical Industries,
Education, Energy, Medical,
Chemical, Steel
Elevators & Escalators,
Automotive, Building Automation,
Chemical/Petrochemical,
Converting, Food and Beverage,
Machine Tool, Material Handling,
Metalforming, Packaging,
Pharmaceutical, Plastics and
Rubber, Solar, Textile
Products sold Metalworking Machinery (Sheet-Metal
Processing 74%, Presses 3%), Metal
Machine Tools Business (Bandsaws
14%, Machine Tools 8%), Others 1%
Factory Automation (50%),
Robots (21.%), Robot machines
(29%) - CNCs, Servo Motors,
Lasers, Robotics
Turning-Technology, Milling-
Technology, Ultrasonic/Lasertec,
DMG ECOLINE, DMG
AUTOMATION, DMG
ELECTRONICS, Energy
Solutions
CNC Lathes, Machining Centers,
Multi-axis Machines, Application
Systems
Numerical Control Lathes (29%),
Machining Center (45%),
Multitasking Machine (22%),
Numerically Controlled Grinding
Machine (2%), Other (3%)
Engine Lathes, CNC Lathes,
Heavy and Extra-heavy duty CNC
Lathes, Vertical CNC Lathes,
Turning Centers, Machining
Industrial Robots Motion Control (53%), Robot
(28%), Systems Engineering
(12%), Information (5%), Others
(3%)
CNC Controllers, Servo Drives and
Motors, CNC Machines, Infrared
Products
Motion Control (53%), Robot
(28%), Systems Engineering
(12%), Information (5%), Others
(3%)
Major Brands Amada Machine Tools, Amada Tool
Precision, Amada Engineering, Amada
Tools
ROBODRILL, ROBOSHOT,
ROBOCUT, ROBONANO,
ROBOWELD, FANUC CNC
Systems, Laser C Series, Ai/Bi
Series, i-Model Series
DMG, Gildemeister N-Series, X-Class,
GILDEMEISTER, DMG, TOBLER
S.A.S., Magnescale, DCG (Driven
at the Center of Gravity), DDM
(Direct Drive Motor), BMT (Built-in
Motor Turret), ORC (Octogonal
Ram Construction), MAPPS IV,
ZERO CHIP, Spinning Tool
"THINC", 3D Virtual Monitor
Software, MacMan-Net 2010,
Collision Advance System (CAS),
One Touch IGF-XL, Okuma ATC
(Automatic Tool Changer),
Okuma Automated Modular Pallet
System (AMPS)
Tormax, ROMI Trumpf, TruMatic, TruPunch,
TruLaser, TruBend, TruTool,
TruFlow, TruCox
HNC Products "Bestact," MotoSight, iQpump,
iQrise, Z1000 Series, E7 Series,
Sigma Series, Junma Series
Geographic sales split based on LFY
United States 11% 14% 5% 28% 18% 2% 11% 13%
EMEA 15% 12% 74% 21% 10% 6% 60% 10%
Asia 74% 73% 16% 50% 73% 23% 77%
o/w Japan 63% 24% 35% 64% 49%
o/w China 6% 8%
RoW / Other 0% 0% 5% 92% 6% 0%
Total 100% 100% 100% 100% 100% 100% 100% 100%
Europe 15% 12% 74% 21% 10% 6% 60% 10%
177
Other major factory automation related products vendors
End Markets
Company name Airtac Delta Hiwin Keyence SMC Teco THK
Automation business Total company Energy Mgmt Total company Total Company Total Company Total Company Total Company
Sales ($B) 0.2 1.1 0.4 2.7 3.9 1.9 1.9
% of sales 100% 19% 100% 100% 100% 100% 100%
Operating profit ($B) 0.07 0.16 0.08 1.31 1.05 0.16 0.17
Operating margin 30.1% 14.7% 19.0% 49.3% 26.6% 8.2% 9.4%
% of operating profit 100% 21% 100% 100% 100% 100% 100%
Customers / end-market split Automotive, Machinery
Manufacturing, Metallurgy,
Electronics, Environment
Protection, Lighting and Textile,
Ceramics, Medical Equipment,
Food and Packaging Industry
Food, Textile, Chemical,
Electronics, Metal, Plastic,
Pharmaceutical, Printing, Energy
Saving Air-Conditioning, Water
Treatment Facilities
Machine Tool Supplies, Medical
Equipment Supplies, Vending
Machinery Supplies, Material
Handling Supplies, Automotive
Industry Supplies
Automotive, Defense/Aerospace,
Electrical Appliances, Food,
Pharmaceutical, Cosmetic,
Packaging, General
Manufacturing, Metals, Materials
(Plastics, Rubber, Glass,
Ceramics, Textile),
Transportation, Precision
Manufacturing
Life Science, Machine Tool,
Resources, Secondary Batter,
Food and Packaging
Petrochemical, Textile, Mining,
Construction, Machine Tool
Industry, Metals Industry,
Semiconductor Plants, TFT
Plants, Mechanical Electronics
Turn-Key Projects, Printing
Equipment Industry, Dyeing,
Plastics Industry, LED Lighting,
Solar Photovoltaic, Water
Projects, Home Appliances, Wind
Power
Machine Tools, General Industry
Machinery, Precision Instruments,
Semiconductor and LCD
Manufacturing Equipment,
Industrial Robots, Electronic
Devices, Transport Systems,
Construction, Aerospace, Medical,
Other
Products sold Pneumatic Equipment - Actuators,
Control Components, Air
Preparation Products, Oil Buffers,
PU Hose
Telecom and Industrial Power
Systems, Uninterruptible Power
Supplies (UPS), Photovoltaic
Inverter (PIV), Medium Voltage
Drive, Vehicle Power Product
Line, Micro PV Inverter, AMI,
PLCs, AC Motor Drives, AC Servo
Motors and Drives, Brushless DC
Motors and Drives, HMIs,
Temperature Controllers,
Encoders, Electric Vehicle Motors
and Drives
Linear Motors, Linear Actuators
(SAR and LA), Ball Screws, Linear
Guideways, Linear Encoders -
PMS, Elevator Gearless Traction
Machine
Sensors, Measuring Devices,
Machine Vision Systems,
Control/Measuring Instruments,
PLCs, Analysis Devices for R&D,
Business Information Technology
Devices, Application Software
Actuators, Valves, Airline
Equipment, Connectors,
Vacuums, Switches, Dryers,
Temperature Control, Sensors,
Filters, Pumps
Motors (49.4%), Home Appliances
(17.9%), System Automation
(13%), Mechanical & Electrical
Construction (8.1%), Others
(11.6%)
Machine Tools (7%), General
Machinery (8%), Electronics
(11%), Transportation (2%), Other
(2%)
Major Brands G Series, A Series, B Series,
Solenoid Valve, Flow Control
Valve, Manually/Mechanically
Actuated Valves, Standard
Cylinders, Mini Cylinder, Compact
Cylinder
AC Motor Drives Series, VFD
Series, BLDCM, Active Front End,
DVP, Delta DOP, Delta Industrial
Ethernet Total Solution, Delta
Machine Vision (DMV)
LAN Series, LAC Series, LAM
Series, LAS Series, WE Series,
RG Series, HG/HGL Series, EG
Series, MG Series, PG Series, QH
Series, QE Series, TMS Series,
TMA Series
Visual KV Series, FD-M Series,
AP Series, FT Series, MD/ML
Series, VHX Series, VK Series,
VW Series, BZ Series
TECO Westinghouse Economy Series ES/EC, TSC,
Universal Series US, Compact
series SKR, Linear Motion Series
GLM, Clean Series CSKR, Super
FA Series KT, Rod Actuator
CRES, LM Guide, "RHYTHM"
Geographic sales split based on LFY
United States 16% 7% 9% 13% 33% 12%
EMEA 30% 8% 15% 4% 11%
Asia 85% 59% 63% 83% 68% 63% 77%
o/w Japan 69% 39% 6% 67%
o/w China 85% 57% 19%
RoW / Other 15% 25% 4%
Total 100% 100% 100% 100% 100% 100% 100%
Europe 8% 15% 11%
MEA
Geo Split Segment Total Company Total Copany Total Company Total Company Total Company Total Company Total Company
178
Transport Sector: Aerospace
Credit Suisse Business Jet Delivery Forecast
Commercial OE deliveries
Source: ICAO, IATA
End Markets
179
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
-5.0%
-3.0%
-1.0%
1.0%
3.0%
5.0%
7.0%
9.0%
RPK GDP
Transport Sector: Aerospace
RPK Growth (lhs) versus Global GDP Growth (rhs)
Source: Company data, Credit Suisse estimates, ICAO, Credit Suisse Research, GAMA, Bloomberg
Spares and MRO Growth versus RPKs
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Spares growth MRO growth RPK
End Markets
180
Aero engine sales growth outlook
Source: Company data, Credit Suisse Research
Aftermarket: installed base to grow 4.5% CAGR, inc pricing, AM
sales growth should be +7-8%
OE (53% of sales): In 2012, we expect OE revenues to grow at 21%, given strong ramp ups at Airbus and Boeing,
particularly with entry into service of new widebodies (55% of the installed base) like the 787. In 2013 and 2014 we
expect OE growth to moderate to 7% CAGR.
Aftermarket (47% of sales): We expect the installed base of aircraft to grow at 4.5% CAGR, which should translate into
aftermarket growth of 7-8%, assuming 3-4% annual pricing, and no material change to engine utilisation rates.
OE: delivered thrust to grow at 10% CAGR; in 2013-2014 OE sales growth
should reach +7%
2012E 2013E 2014E CAGR 12-14E
Rolls-Royce 29% 9% 16% 18%
Safran 8% 5% 4% 6%
GE Aviation 26% 4% 4% 11%
Pratt & Whitney
(inc IAE stake increase)
29% 19% 1% 16%
Total narrowbody 7% 7% 2% 5%
Total widebody 33% 6% 7% 15%
Total OE delivered thrust 20% 6% 6% 10%
Pricing 1% 1% 1% 1%
Total OE revenue growth 21% 7% 7% 11%
2012E 2013E 2014E CAGR 12-14E
Rolls-Royce 6% 6% 7% 7%
Safran 8% 9% 7% 8%
GE Aviation 4% 7% 6% 6%
Pratt & Whitney
(inc IAE stake increase)
2% 3% 1% 0%
Installed base growth 4% 5% 5% 4.5%
Pricing 3% 3% 3% 3%
Total AM revenue growth 7% 8% 8% 7.5%
End Markets
181
Commercial Aero Engine
Servicing &
parts
revenues
(7x OE)
OE
revenues
Design & test
0 5
40+ years
Aero engine cash flows
Aero engine cumulative cash flows
Cash flow cycle for MTU commercial engine project
Source: MTU, Credit Suisse Research
End Markets
182
Premium profit margins to be sustained...
Source: Company data, Credit Suisse Research
0%
5%
10%
15%
20%
25%
2008 2009 2010 2011 2012E 2013E 2014E
Safran Aerospace Propulsion Rolls-Royce Comm Aerospace
GE Aviation UTX (P&W)
Premium margins for Engine OEMs
The industry structure remains supportive for high levels of profitability (15% operating margins), with no new entrants (from China, S Korea etc), and only a
handful of incumbent suppliers.
The business model tends to revolve around very low margin / loss-making engine unit deliveries, and high operating margins (20-30%+) on the aftermarket
business, which can last 20-30 years.
OE: Discounting on new orders can be aggressive - Court documents in a patent dispute between Rolls-Royce and Pratt & Whitney last year revealed
discounts of over 80% from list price on the A380. In some instances, we believe OEMs may even give away engines for free. Generally, we would assume 60-
80% discounts to list price.
AM: Given the extreme environments in which commercial engines operate, many components will require replacement, often multiple times, over the course
of an engines life. By the time the engine is 25-30 years old and ready to be retired, it is likely not a single original part remains.
End Markets
183
...despite higher risks
Source: Company data, Credit Suisse Research
For engine OEM For airline
Advantages Locks in control of the aftermarket for the
duration of the contract, eliminating threat
posed by independent MROs and increases
control of spares supply
Positive cashflow from day 1 rather than from
first overhaul. No issue for OEM if engine
proves more reliable than expected and time
to overhaul increased
Constant engine monitoring across multiple
airline fleets means OEMs can better
anticipate problems before they happen, and
manage capacity of their MRO shops more
efficiently
Provides ability to offer attractive
maintenance option on an engine for which
raw maintenance costs end up being higher
than the competition (? CFM LEAP)
More predictable cashflows via regular payments
Risk transfer from airline to OEM
Possibly higher level of discounts at OE stage than on
a traditional contract
OEM arguably best placed to manage maintenance in
the least disruptive way for the airline, and better at
anticipating problems before they happen (given
constant engine monitoring and experience across
multiple fleets)
Airline and OEM interests better aligned: under PBH, it
is in the OEMs interests to increase reliability and
minimise downtime for the engine. Not necessarily the
case under traditional.
Disadvantages Transfer of risk from airline to OEM for
engine failures, abnormal maintenance, etc
Risk that contracts get mispriced, due to
incorrect estimations regarding amount of
spare parts/MRO engine will consume over
its life.
Margin is lower than traditional in first half of
contract (but higher in second half, as risk is
retired)
Cash outflow front-end weighted
Much less aftermarket choice / independent MRO
options, less flexibility should airline want to defer
maintenance costs
Probably higher through-life maintenance
costs than an independent shop
(but better value at OE stage)
Airlines have complained when put on PBH contracts
for engines which turned out to be more reliable than
expected and raw maintenance costs were lower
PBH contracts: advantages and disadvantages for OEMs and airlines
OE: Several new engine models are being launched (GEnx, LEAP, GTF) - New programmes, weighed down by ramp-up costs and high unit costs, as well as
particularly aggressive pricing, are likely to be loss making. We estimate an operating margin on the GEnx engine at present of between -5 and -10%.
However, GE has been shipping the GEnx for several quarters, implying less of a headwind from production ramp-ups, and is at the design freeze stage for the
LEAP 1-A / B, implying R&D should be coming down.
AM: There is no obligation under the traditional business model for the overhaul to be performed by the OEM. There has been mount ing concern that
independent service shops can eat into the aftermarket revenues of the engine OEMs.
But we think the engine OEMs are fighting back, and have introduced contracts known as power-by-the-hour (PBH) or flight-hour agreements. These tend to
involve monthly payments, engine health monitoring, and a duration typically of 10-12 years.
Aero engine cumulative cash flows
End Markets
184
Credit Suisse Global Engine Model (GEM) methodology
Source: Company data, Credit Suisse Research
To help project commercial OE and aftermarket demand, we have developed a proprietary Credit Suisse aero engine model.
OE methodology
The model uses bottom-up forecasts from Credit Suisses global Aerospace & Defence team for OEM build rates across the four major airframers (Airbus,
Boeing, Bombardier and Embraer). It then translates aircraft build rates into engine build rates by accounting for engine market share, thrust, number of
engines per aircraft, spare engines, and production lead times. Finally, it adds pricing to reach revenue growth forecasts.
We have backtested the models output for engine build rates and it was invariably accurate to within 5%.
We have also checked our approach with some of the engine OEMs, and they concur with the analytical approach.
Aftermarket methodology
The model uses a database containing the current installed base of engines (a snapshot of the installed fleet taken at the end of 2011). It projects out the
size and age distribution of the active engine fleet for the next three years, using our forecasts for new deliveries, flows into and out of storage, and
retirements.
Next, the model calculates the year-on-year growth in the installed base of engines that are greater than 5 years old. (we assume that engines younger than
5 years do not generate any spares demand). Finally, it adds on pricing.
We assume this is a good proxy for aftermarket revenue growth. We acknowledge that, on a short term basis, there may be other factors that are not
captured, such as airlines deferring maintenance spend, but as a medium to long term trend we think this a good approximation.
P&W (UTX): snapshot of age (years) of current installed thrust base GE: snapshot of age (years) of current installed thrust base
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32
GP7000
CF34
GEnx
GE90-110/115B
GE90 first generation
CF6
CFM56 second generation
CFM56 first generation
End Markets
185
Profiles of the major engine OEMs
Source: Company data, Credit Suisse Research
Company Name General Electric Rolls Royce Safran United Technologies
Aero Engine business Aviation Civil Aerospace, Defense Aerospace Aerospace Propultion Pratt & Whitney
Sales ($mn) 18859 12380 7818 12711
% of sales 13% 69% 52% 23%
Operating Prof it ($mn) 3512 1387 1163 1867
% of op profit 17% 76% 76% 24%
Operating margin 18.6% 11.2% 14.9% 14.7%
Civil
Aviation,
60%
Military
Aviation,
11%
Helicopter
turbine
engines,
17%
Ballistics
and Space,
12%
Widebody
engines,
44%
Narrowbody
engines, 9%
Corporate/re
gional
engines,
19%
Defence
engines,
29%
Commercial
engines,
25%
Commercial
engine
services,
38%
Military
engines,
10%
Military
engine
services,
10%
Civil
Systems,
7%
Military
Systems,
7%
Other
(BG&A,
other), 3%
Large
Comm' l
OE, 9%
Large
Comm' l
AM
Spares,
18%
Large
Comm' l
AM MRO,
18% P&W
Canada,
24%
Military,
26%
Power
Systems,
5%
OE, 62%
Aftermarket,
38%
OE, 35%
Aftermarket
, 65%
OE, 54%
Aftermarket
, 46%
OE, 62%
Aftermarket
, 38%
End Markets
186
Market shares GE a clear winner; looks to remain so
Source: Company data, Credit Suisse Research
Narrowbody market share of delivered thrust
Overall, GE is the global leader, with 40% share of the global installed thrust base, and similar share of the order backlog. With OE lead times of 3-4 years,
followed by a position in the installed base for 25 years, engine market shares tend to move slowly.
Narrowbody market: We expect GE and Safran to remain the dominant players via their joint venture, CFM. CFM holds 78% of the narrowbody installed thrust
base and we expect it to provide over 70% of delivered thrust over the next three years. We expect a similar market share distribution on the re-engined
narrowbodies, with P&Ws GTF acting as the de facto replacement for the IAE consortium.
Widebody market: GE holds the number one position with 52% of installed base, and we expect it to have a 60% share of delivered thrust between 2012 and
2014.
Widebody market share of delivered thrust
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2010A 2011A 2012E 2013E 2014E
IAE (Pratt/MTU/JAEC) CFM (GE/Safran)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2010A 2011A 2012E 2013E 2014E
Pratt & Whitney Rolls-Royce GE Aviation
End Markets
187
We are at an inflection point in the biz jet market
Source: GAMA, Credit Suisse Research
Long-term Business Jet Delivery Assumptions (units globally)
End Markets
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
0
200
400
600
800
1,000
1,200
1,400
Jet Deliveries
YoY% (RHS)
We estimate that 2013
represents a trough in
deliveries
188
What metrics do we track in the biz jet market? International traffic growth
Source: FAA, Eurocontrol
US Biz Jet Traffic Total Operations YoY% growth
International Biz Jet Traffic Total Operations YoY% growth
Global take offs and landings (by seat), YoY% change
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Total
Domestic (US)
International
Total change YoY%
Traffic growth has remained positive since 2010 (+7% average annual growth)
However, traffic growth has decelerated from 2010 to 2012; the US is flat in 2012
Global traffic remains 17% off prior peaks (2007)
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
End Markets
189
What metrics do we track in the biz jet market? Used aircraft trends
Source: AMSTAT
Used aircraft for sale as % of the active fleet
Used biz jet aircraft average price per unit (indexed to 100)
Total business jet deliveries
0
200
400
600
800
1000
1200
1400
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
The depressed prices in used
aircraft suggest to us that the excess
capacity from overbuy in 2007-08 is
being pushed out of the market; the
available secondary aircraft for sale
are now approaching historically
normalized levels
0%
5%
10%
15%
20%
25%
Heavy jet Medium jet Light jet
0
50
100
150
200
250
300
A
p
r
-
9
0
A
p
r
-
9
1
A
p
r
-
9
2
A
p
r
-
9
3
A
p
r
-
9
4
A
p
r
-
9
5
A
p
r
-
9
6
A
p
r
-
9
7
A
p
r
-
9
8
A
p
r
-
9
9
A
p
r
-
0
0
A
p
r
-
0
1
A
p
r
-
0
2
A
p
r
-
0
3
A
p
r
-
0
4
A
p
r
-
0
5
A
p
r
-
0
6
A
p
r
-
0
7
A
p
r
-
0
8
A
p
r
-
0
9
A
p
r
-
1
0
A
p
r
-
1
1
A
p
r
-
1
2
A
p
r
-
1
3
Heavy jet Medium jet Light jet
End Markets
190
What metrics do we track? OEM market share
Source: Gamma, company data
Deliveries by OEM (Trailing 12 Months)
100
120
140
160
180
200
220
240
260
Q
1
1
0
Q
2
1
0
Q
3
1
0
Q
4
1
0
Q
1
1
1
Q
2
1
1
Q
3
1
1
Q
4
1
1
Q
1
1
2
Q
2
1
2
Q
3
1
2
Q
4
1
2
Q
1
1
3
Cessna
60
70
80
90
100
110
120
130
140
Q
1
1
0
Q
2
1
0
Q
3
1
0
Q
4
1
0
Q
1
1
1
Q
2
1
1
Q
3
1
1
Q
4
1
1
Q
1
1
2
Q
2
1
2
Q
3
1
2
Q
4
1
2
Q
1
1
3
Gulfstream
80
90
100
110
120
130
140
150
160
Q
1
1
0
Q
2
1
0
Q
3
1
0
Q
4
1
0
Q
1
1
1
Q
2
1
1
Q
3
1
1
Q
4
1
1
Q
1
1
2
Q
2
1
2
Q
3
1
2
Q
4
1
2
Q
1
1
3
Embraer
0
20
40
60
80
100
120
Q
1
1
0
Q
2
1
0
Q
3
1
0
Q
4
1
0
Q
1
1
1
Q
2
1
1
Q
3
1
1
Q
4
1
1
Q
1
1
2
Q
2
1
2
Q
3
1
2
Q
4
1
2
Q
1
1
3
Hawker
0
20
40
60
80
100
120
Q
1
1
0
Q
2
1
0
Q
3
1
0
Q
4
1
0
Q
1
1
1
Q
2
1
1
Q
3
1
1
Q
4
1
1
Q
1
1
2
Q
2
1
2
Q
3
1
2
Q
4
1
2
Q
1
1
3
Dassault
100
120
140
160
180
200
Q
1
1
0
Q
2
1
0
Q
3
1
0
Q
4
1
0
Q
1
1
1
Q
2
1
1
Q
3
1
1
Q
4
1
1
Q
1
1
2
Q
2
1
2
Q
3
1
2
Q
4
1
2
Q
1
1
3
Bombardier
Competitive dynamics remain largely unchanged with the exception of Hawkers
exit; declines at Cessna and Embraer are likely related to light jet exposure
rather than substantive market share shifts
End Markets
191
What might be different about this cycle versus the previous cycle?
Source: Datastream, AMSTAT, Credit Suisse Research
Light / medium biz jet deliveries vs. US unemployment
3%
4%
5%
6%
7%
8%
9%
10%
11%
0
200
400
600
800
1,000
1,200
1
9
9
0
1
9
9
1
1
9
9
2
1
9
9
3
1
9
9
4
1
9
9
5
1
9
9
6
1
9
9
7
1
9
9
8
1
9
9
9
2
0
0
0
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
light & medium jet deliveries
unemployment
The delay in recovery could be attributable to higher unemployment, lower
consumer confidence, and uncertainty surrounding government policy in the US
6%
7%
8%
9%
10%
11%
12%
13%
N
o
v
-
0
8
F
e
b
-
0
9
M
a
y
-
0
9
A
u
g
-
0
9
N
o
v
-
0
9
F
e
b
-
1
0
M
a
y
-
1
0
A
u
g
-
1
0
N
o
v
-
1
0
F
e
b
-
1
1
M
a
y
-
1
1
A
u
g
-
1
1
N
o
v
-
1
1
F
e
b
-
1
2
M
a
y
-
1
2
A
u
g
-
1
2
N
o
v
-
1
2
Polls begin to favor Obama
Obama elected
Cessna Example: Used Citations for Sale as % of Active Fleet
0
20
40
60
80
100
120
Mar-03 Mar-05 Mar-07 Mar-09 Mar-11 Mar-13
US Consumer Confidence Index
End Markets
192
Competitive Landscape
Source: Gamma, company data
Primary product offerings by major OEMs
Very Light
Jet
Light Jet
Super
Light Jet
Midsize
Jet
Super
Midsize
Jet
Large Jet
Super
Large Jet
Ultra Long-
Range Jet
Bombardier X X X X X X X
Cessna X X X X
Dassault X X X
Gulfstream X X X X X
Embraer X X X X X X
Others X X
Light Jets Medium Jets Large Jets
End Markets
193
Biz jets - China a large opportunity, possibly sooner-than-expected
While the China market value is likely grossly overstated, order trends are encouraging:
OEMs have made inroads servicing and product delivery capabilities are increasing
The number of Yuan billionaires has increased appreciably (~60,000 as of year end 2012)
The Chinese government appears willing to compromise on restrictions relating to military controlled airspace necessary for flight
The market still face significant hurdles:
The infrastructure is not there
The ability to file flight plans close to departure time has improved substantially, but is still several hours behind the US / W Europe
Manpower may be an issue: sufficient trained technicians, pilots
Near-term, corporate profit growth has slowed in China; GDP growth rates in the next decade are likely to be much slower than the prior decade
Source: Asian Sky Group, Want China Times
Gulfstream
36%
Bombardier
29%
Cessna
10%
Hawker
Beechcraft
8%
Dassault
Falcon
6%
Airbus
5%
Boeing
3%
Embraer
3%
Large Cabin
70%
Light /
medium jet
30%
Market share of installed base (2012) Installed base by type (2012)
Large Cabin
91%
Light /
medium jet
9%
Additions to installed base (2012)
A market survey notes that there are 875,000 [yuan] millionaires and 60,000 billionaires in mainland China and one-sixth of them have plans to buy private
aircraftEven if only 5% of the country's 60,000 billionaires planned to buy their own plane or helicopter, the market's value could be pegged at 150 billion yuan
(US$24 billion), leaving aside the economic value of maintenance and operation services and fuel consumption costs. Want China Times, Jan 2013
The Greater China business jet fleet increased by 40% in 2012 over 90% of 2012
additions were large jets and the total fleet is now 336 units
End Markets
194
What might be different about this cycle? Fractional demand presently subdued; could return
Source: Textron, CS Estimates, NetJets
0
20
40
60
80
100
120
140
160
180
200
1
9
9
6
1
9
9
7
1
9
9
8
1
9
9
9
2
0
0
0
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
Medium Fractional
Medium Non-Fractional
Medium Business Jet Deliveries Example: Fractional demand represented
~10% of annual deliveries from 2000-2010 at Cessna
In late 2012, NetJets announced that it plans to order up to 425 new aircraft (125 firm orders) for 2015-16 delivery
This includes:
Up to 275 Bombardier Challenger aircraft, including 100 firm orders and options for 175 more. The order comprises 75 firm and 125 options of the
Challenger 300 Series aircraft. Deliveries for this aircraft are scheduled to begin in 2014. The order also includes 25 firm and 50 options of the Challenger 605
aircraft, with deliveries scheduled to begin in 2015.
Up to 150 Cessna Citation Latitudes, including 25 firm orders and options for 125 more, with deliveries beginning in 2016.
Fractional demand was a significant growth contributor last cycle
Returning demand could contribute to a recovery in 2015+
End Markets
195
What might be different about this cycle? 2. Asia, EMEA a bigger share of the market
Source: GAMA
58%
54%
49%
42%
50%
25%
26%
26%
23%
20%
4%
5%
9%
12%
14%
8%
9% 9%
14%
10%
5%
6% 7%
9%
7%
2007 2008 2009 2010 2011
MEA
LatAm
AsiaPac
Europe
U.S.
681 shipments
-10.7% YoY
763 shipments
-12.3% YoY
870 shipments
-33.7% YoY
1,313 shipments
+15.6% YoY
1,136 shipments
+28.2% YoY
End Markets
196
Transport Sector: Aerospace Vendor Data
Aerospace Products Vendor Data
Aerospace Engines Vendor Data
End Markets
Order Growth
Company Geo Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14
GE* US 8% 5% -8% 8% 22% 4% 51% -5% -17%
GE (Comml OE) US 36% -19% -51% 9% 90% 81% 333% -11% -56%
GE (Commercial Spares) US -10% -14% -18% 0% 10% 19% 9% 16% 17%
UTX (PW Comml Spares) US -3% -15% -21% -8% -28% 15% 17% 20% 11%
Sales Growth
Company Geo Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14
GE (Equipment)* US 22% 2% -1% 19% 7% 12% 8% 18% 10%
GE (Service)* US 3% -6% -2% 3% 1% 6% 12% 2% 10%
GE (Commercial Spares) US -2% -16% -11% -11% 0% 21% 25% 17% 22%
GE* US 12% 3% 0% 11% 4% 9% 10% 10% 10%
MTU EU 5% 26% 26% 5% 35% 5% 2% 6% 1%
Rolls Royce EU - 5% - 11% - 9% - 3% -
Safran EU 16% 12% 15% 19% 10% 11% 10% 4% 1%
UTX PW* US 6% 5% -1% -4% -2% -6% 0% 13% 4%
UTX (PW-Large Comml OE) US -20% +40% -2% +7% +35% 15% -15% 9% 5%
UTX (PW Comml Spares) US -4% -13% -25% -18% -19% 2% 22% 20% 15%
UTX (PW MRO) US -3% -5% -20% -30% -9% -5% 0% 45% 2%
Orders Growth
Company (Division) Geo Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14
Eaton (Aerospace) US 7% 2% -7% -4% 7% 5% 6% 8% 2%
UTX (Aero comml spares) US 13% -4% 2% -4% 2% 4% 5% 19% 9%
Sales Growth
Company (Division) Geo Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14
Eaton (Aerospace) US 11% 8% 1% 1% 2% 3% 7% 2% 5%
Honeywell (Air Transport RJ OE) US 11% 11% 14% 6% 9% 6% 1% 14% -2%
Honeywell (Air Transport RJ AM) US 10% 4% 3% 0% -4% 2% 2% 1% 2%
Honeywell (BGA-OE)* US 33% 25% 9% 15% -11% 12% 7% -21% 7%
Honeywell (BGA-AM)* US 29% 19% 13% 9% -2% 5% 11% 10% 8%
MOOG ( Aircraft Controls) US 15% 10% 11% 9% 10% 13% 9% 5% 6%
MOOG (Space & Defense) US 2% 9% 1% -2% 18% 15% 11% 15% -10%
Parker Hannifin (Aero) US 8% 8% 9% 6% 7% 10% 5% -5% -6%
Rockwell Collins (Biz jet OE) US 7% -9% 4% -6% 7% 9% 4% -9% -8%
Rockwell Collins (Biz jet AM) US 5% -1% 14% -3% -2% 8% 14% 4% 1%
Rockwell Collins (Commercial) US 7% 1% 9% -1% 2% 7% 3% 3% 3%
Triumph Group* US 3% 5% 19% 8% 4% 6% 3% 3% -11%
UTX (AS Comml OE) US 8% 10% 7% 10% 8%
UTX (AS Comml AM) US 1% 4% 5% 18% 10%
Woodward (Aero)* US -15% -26% 9% 9% 5% 5% 1% -3% -4%
197
Transport Sector: Vendor Data
Helicopters Vendor Data
Business Jet Vendor Data
End Markets
Sales Growth
Company (Division) Geo Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14
Bombardier (Business) NA -38% 35% 13% 21% 81% 0% -14% 7% 1%
Embraer (Executive Aviation) LA 31% 6% 12% 18% 15% 42% 89% 10% 53%
General Dynamics (Aerospace) US 20% 16% 30% 0% 10% 29% 17% 15% 20%
Textron (Cessna)* US 20% 17% 1% -11% 5% -28% -25% 2% -3%
Sales Growth
Company (Division) Geo Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14
Textron (Bell) USD 33% 21% 20% 14% -5% -3% 8% 20% -8%
United Technologies (Sikorsky) USD -15% -9% -12% 3% -7% -3% -7% -13% 9%
198
Transport Sector: Aerospace End Market Tracker
Aerospace earnings commentary to date
End Markets
Date Company Direction End market Comment
4/29/2014 Eaton Aerospace
Aerospace- Very strong commercial strength The very good news is within those overall bookings, our aftermarkets was up some 15%, and
we've been talking to you for several quarters about the fact that we had expected to see an uptick occur at some point.
4/29/2014 MTU Aero Aerospace
We expect the Group revenues at around EUR3.75 billion. Within that, we expect the new engine sales to grow by around 10%; spare parts to
grow mid-single digits; and the commercial MRO to grow by a mid to high-single digit percentage.
4/29/2014 Parker Hannifin Aerospace Aerospace Systems orders increased 16% for the quarter.
4/23/2014 Boeing Aerospace
Global customer demand remains high for our fuel-efficient and value-creating commercial airplane family, as evidenced by our strong orders
intake during the quarter. Global passenger traffic trends remain strong, and air cargo traffic continues to gradually improve. Despite some
variation in emerging market growth rates, we see no softening of demand for our commercial airplanes, given the compelling operating
economics and increased fuel efficiency that our airplanes provide. In fact, underpinning the strength of this cycle relative to the past ones is a
sustained high level of replacement demand.
4/22/2014 UTX Aerospace
At Pratt & Whitney, commercial spare orders were up 11%, while at UTC aerospace systems, spares orders were up 9%.... strong growth in
commercial OE and aftermarket, where overall sales increased 8%.
4/17/2014 GE Aerospace
Orders in the quarter of $5.5 billion were down 17%, as expected, driven by equipment orders down 38% to $2.4 billion. Commercial engine
backlog ended the quarter at $21 billion. That is 16% higher versus last year. Service orders were $3.1 billion, up 10%. Commercial service
orders were up 12%, driven by strong commercial spare parts, up 17% to $29.7 million a day. Orders pricing was strong at 2.6% in the quarter.
4/17/2014 Rockwell Collins Aerospace The air transport market continues to remain strong with good OEM growth driven by deliveries of the 787.
4/17/2014 Honeywell Aerospace
Aero sales growth is expected to be low single-digit commercial growth. On commercial OE, we are still seeing healthy demand for air transport
deliveries, which is helping offset the continued drag from lower regional aircraft sales. In commercial after-markets, we are expecting ATR
spares growth to be about in line with flight hours in the quarter, as well as continued BGA and RMU strength.
4/15/2014 SKF Aerospace North America-aerospace stayed at a good level; Europe- Aerospace was strong.
4/8/2014 Alcoa Aerospace
In aerospace we ramped up our forecast here by 1 percentage point. And we are now at 8% to 9% growth that we forecast for this year. We see
a continued strong performance from the large commercial aircraft segment. We believe it's up by 12.1%. If you look at Boeing and Airbus, the
backlog stands now at 10,675 aircraft units, which is well over eight years of backlog. We've just seen recently strong demand coming from Asia
and the Gulf region.
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Bizjet earnings commentary to date
Date Company Direction End market Comment
5/1/2014 Bombadier Business Jet Well, it's still a market that is coming back, but not as rapidly as the industry, if you want, and ourself had anticipated.
5/1/2014 Textron Business Jet
The overall numbers are not a lot higher in terms of unit deliveries we certainly feel better about what's going on in the market and feel a lot
more confident about where we're heading here as we go into the second and third quarter than we did a year ago.
4/30/2014 Embraer Business Jet
In executive jets, we had a good first quarter with a total of 20 aircraft delivered, broken by 17 light jets and 3 large jets. And for this business we
expect a better delivery profile for the year, with less seasonality. With that, we are maintaining our guidance figures for 2014. They were in the
range of 92 to 97 E-Jets, 25 to 30 executive jets large, and 80 to 90 executive light jets.
4/23/2014 General Dynamics Business Jet
Our orders have tended to be a little lumpier, light in the first quarter, building, with a strong fourth-quarter finish. That's the pattern we have been
looking at for a while. And this year looks about the same, with no material difference. But the order interest -- or the activity is very strong. It's
just when we get the closure, and that's what makes it difficult for us to be real clear and specific on quarter timing.
4/17/2014 Rockwell Collins Business Jet
In business aviation, as expected we had a soft quarter as the rate reductions we saw in the latter half of last year continue to play through
particularly at the low end.
4/8/2014 Alcoa Business Jet
Nice here in the other segment, the smaller segment, regional jets. That has nicely rebounded plus 13.2%, and now has a backlog of roughly
five years with over 1,200 aircraft.
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199
Transport Sector: Automotive components / auto capex
Source: Autodata, CSM, CS Estimates
Global Light Vehicle Market Forecast
End Markets
Transport Vendor Data
Production 2010 2011 2012 1Q13E 2Q13E 3Q13E 4Q13E 2013E 2014E 2015E
Asia Pacific 37.1 37.0 40.9 10.2 10.5 10.4 11.0 42.1 45.0 47.8
- Japan 9.1 7.9 9.4 2.3 2.1 2.1 2.0 8.5 8.5 8.2
- S. Korea 4.2 4.6 4.5 1.1 1.1 1.0 1.2 4.4 4.4 4.2
- China 17.1 17.6 18.6 4.7 5.1 4.9 5.6 20.3 22.6 24.8
- South Asia 6.6 6.9 8.4 2.1 2.1 2.3 2.3 8.9 9.6 10.6
North America 11.6 13.0 15.2 4.0 4.2 3.8 3.9 15.9 16.5 16.9
South America 4.2 4.3 4.3 1.0 1.2 1.2 1.1 4.5 4.9 5.3
- Brazil 3.1 3.1 3.2 0.8 0.8 0.8 0.8 3.2 3.4 3.9
Pan-Europe 19.0 20.2 19.2 4.6 4.7 4.2 4.8 18.3 19.8 20.6
- W. Europe 13.2 13.6 12.6 3.1 3.0 2.6 3.0 11.7 12.4 12.8
- E & C. Europe 5.8 6.5 6.6 1.5 1.7 1.5 1.8 6.6 7.3 7.9
Africa/ME 2.2 2.3 1.7 0.4 0.5 0.5 0.5 1.9 2.1 2.3
GRAND TOTAL 74.1 76.7 81.4 20.2 21.1 20.1 21.3 82.7 88.2 92.9
Asia 28% 0% 11% -2% 4% 7% 4% 3% 7% 6%
North America 36% 12% 17% 3% 7% 6% 2% 4% 4% 3%
South America 13% 3% -1% 5% 13% 2% -2% 4% 9% 8%
Pan-Europe 15% 6% -5% -12% -6% -4% 4% -5% 8% 4%
Africa/ME 20% 4% -23% -27% 23% 19% 35% 9% 11% 8%
GRAND TOTAL 24% 4% 6% -4% 3% 4% 4% 2% 7% 5%
Sales Growth Geo Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14
Allison Transmission US 16% 1% -14% -6% -24% -8% -6% 1% 8%
Borg Warner US 11% 2% -5% -3% -3% 3% 6% 9% 9%
Cummins (Turbo Tech) US 0% -5% -14% -19% -11% -1% 2% 15% 18%
Eaton (Vehicle)* US 8% 2% -11% -16% -8% -3% 5% 9% 9%
Honeywell Transport* US 1% -1% -2% -8% -4% 5% 5% 15% 7%
Textron (Industrial)* US 10% 11% 8% 0% -3% 5% 2% 7% 5%
200
Transport Sector: Automotive / Rail End Market Tracker
Automotive earnings commentary to date
Rail earnings commentary to date
End Markets
Date Company Direction End market Comment
5/1/2014 Borg Warner Automotive
We see sales growth in 2014 expected to be between 12% and 15%. This is up from the 7% to 11% previously, primarily due to the impact of
the Wahler acquisition We are expecting industry-leading revenue growth and continued excellence from our operations.
5/1/2014 Ford Automotive
It has been a nice sign the last two months seeing the recovery in the industry. Just to share some of the actual numbers, as you recall, with
some of the weather challenges we all experienced earlier this year, January was at about a 15.5 total SAAR, February at a 15.6. We had a
good bounceback in the spring market with better weather in March and total industry at a 16.6 and this month as again we don't have all the
industry data in, but it looks to be in that mid-16 million range. So what we've seen is a return to slightly above the longer-term average run rate
on the industry and well within our guidance of the 16 million to 17 million.
5/1/2014 Textron Automotive
We saw good growth at Kautex, reflecting strength in Asian and European auto markets. We also continued to win new platforms at Kautex,
which bodes well for continued long-term growth.
4/29/2014 Cummins Automotive
North America Heavy Duty Truck market- We now expect the full-year market size to increase by 12%, up from our previous forecast of an 8%
increase.
4/17/2014 Allison Trnsmission Automotive
Continued recovery in the North American on-highway end market and higher demand for global service parts are encouraging and consistent
with our full-year guidance which we are affirming.
4/17/2014 Honeywell Automotive Transportation Systems continues its healthy pace of recovery.
4/15/2014 SKF Automotive
In North America, our automotive business was in line with our expectations. Light vehicle production was up, as were our sales; trucks
developed very well indeed, as did our sales to the vehicle service marketEurope- Very good growth in cars and light vehicles, and really grew
ahead of the industry growth ... CHina- very good growth in China, driven by cars, sales to passenger rail, renewable energy, but also in China
general industry developed okay for us.
4/8/2014 Alcoa Automotive
In automotive, we have regional markets, so let's first look at USA. We continue to believe in a 2% to 5% growth for this year; In Europe
automotive, the picture also has slightly improved. We now believe a 0% to 4% growth range, up from what we predicted before, the range
between minus 1% and plus 3%; automotive China. We continue to believe in our forecast of the growth that ranges between 6% to 10% for this
year.
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Date Company Direction End market Comment
5/7/2014 Alstom Rail
Orders were sound at 6.4 billion, leading to a book-to-bill of 1.1. Orders are slightly down versus last year, which benefited from particularly
strong bookings, notably with suburban trains in France and tram-trains in North America.
5/1/2014 Bombadier Rail
We see transportation book-to-bill to be above one for the full year. This strong activity is a testament to our decision to invest heavily in new
products in both group, and we are starting to see the benefit of these investments.
4/17/2014 GE Rail In Transportation, we see a strengthening market for North American locomotives,
4/15/2014 SKF Rail In North America, Europe and China, railway was strong.
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201
Alstom (T)
Invensys (R)
Siemens (Mob)
Vossloh
GE
Bombardier (T)
China Southern
Rail
China Northern
Rail
1,000
3,000
5,000
7,000
9,000
11,000
13,000
15,000
17,000
0% 5% 10% 15% 20%
2
0
1
2
R
e
v
e
n
u
e
s
2012 EBIT Margin
Transport Sector: Rail Vendor Data / US Carloads
End Markets
Source: Company Data
*Organic
2012
Rail OEMs Quarterly Book to Bill US total railroad freight (carload + intermodal)
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
w
k
1
7
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1
0
w
k
3
2
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1
0
w
k
4
7
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1
0
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k
1
0
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1
1
w
k
2
5
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1
1
w
k
4
0
'
1
1
W
k
3
'
1
2
W
k
1
8
'
1
2
W
k
3
3
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1
2
W
k
4
8
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1
2
W
k
1
1
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1
3
1.04
1.06
1.33
1.21
1.77
1.05
1.14
1.14
1.12
1.10
1.09
0.80
0.87
-
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13
Order Growth
Company (Division) Geo Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14
Alstom (Transport) EU 1% 135% 35% 12% -62% -51% -22% 49% 15%
GE (Transport) US 67% 2% 21% 7% -26% -23% 34% -9% 107%
Invensys (Rail) EU 164% 6% -13% - -
Siemens (Transport)* EU -34% -75% -25% -31% 148% 200% 29% 129% -29%
Sales Growth
Company (Division) Geo Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14
Alstom (Transport) EU 11% 17% 8% 4% -5% -7% 8% 5% 25%
Bombardier (Transport) US -20% -31% -11% -12% 5% 19% 6% 21% 9%
GE (Transport) US 41% 29% 11% -9% 0% -8% -11% 3% -14%
Invensys (Rail) EU -6% -15% 10% - -
Siemens (Transport)* EU -3% -1% -1% -3% -6% 6% 8% 10% 21%
202
3D Printing - $2.2bn market growing >20%
Source: Company data, Credit Suisse estimates
2009 2010 2011 2012 2013E 2014E 2015E 2016E 2014-2016 CAGR
REVENUES
Systems 332 410 538 618 741 889 1,067 1,281 20%
Materials 218 266 327 423 528 660 825 1,032 25%
Products Total 550 676 865 1,040 1,269 1,550 1,893 2,312 22%
Direct Part 184 260 412 624 780 975 1,218 1,523 25%
Service & Parts 336 392 440 540 675 844 1,055 1,319 25%
Services Total 520 652 852 1,164 1,455 1,818 2,273 2,841 25%
TOTAL 1,070 1,327 1,717 2,204 2,724 3,368 4,166 5,154 24%
REVENUES YoY%
Systems -16% 23% 31% 15% 20% 20% 20% 20%
Materials -8% 22% 23% 29% 25% 25% 25% 25%
Products Total -13% 23% 28% 20% 22% 22% 22% 22%
Direct Part 11% 41% 58% 51% 25% 25% 25% 25%
Service & Parts -13% 16% 12% 23% 25% 25% 25% 25%
Services Total -6% 25% 31% 37% 25% 25% 25% 25%
TOTAL -10% 24% 29% 28% 24% 24% 24% 24%
End Markets
203
Opportunities by End Market
Revenues by End Market % $(mn)
Consumer Products 21.8% $480
Motor Vehicles 18.6% $410
Medical/Dental 16.4% $361
Industrial Machines 13.4% $295
Aerospace 10.2% $225
Academic 6.8% $150
Government/Military 5.2% $114
Architectural 3.9% $86
Other 3.6% $79
Total 100% $2,200
Revenues by End Use % $(mn)
Functional Parts 28.1% $618
Fit and Assembly 17.5% $384
Patterns for Prototype Tooling 11.3% $249
Patterns for Metal Castings 10.8% $238
Visual Aids 10.4% $229
Presentation Models 9.5% $208
Education/ Research 6.4% $141
Tooling Components 4.8% $106
Other 1.3% $29
Total 100% $2,200
Consumer products is the largest vertical today (prototyping)
Functional parts are 28% of the market, but have the highest potential
Source: Credit Suisse Estimates
Source: Wohlers Associates
Source: Wohlers Associates
End Markets
204
Opportunities by End Market
Source: Credit Suisse Estimates
Printing Systems Market 2013 $710
Consensus Growth CAGR to 2016 20%
Printing Systems Market 2016 $1,227
Market expansion from 2014-2016 to meet consensus expectations $517
Market Expansion from 3% Global GDP Growth $66
Market expansion from 2014-2016 needed from Penetration Growth $451
Industrial Markets
2013
Penetration
2016
Addressable Market
2016
Penetration
2014-2016
Market Expansion
Aircraft Engines 0.5% $1,406 6% $80
Automotive Components 0.0% $52,672 0.3% $164
Healthcare 9% $2,495 14% $118
(A) Sub-total $362
** Addressable market represents total industry capital expenditures spent on manufacturing equipment to produce end-use parts
Consumer Market
2013
Penetration
2016
Addressable Market
2016
Penetration
2014-2016
Market Expansion
(B) U.S. Market 0.06% $175,500 0.12% $105
** Penetration measured in terms of U.S. Households
** Addressable market assumes 120mn U.S. Households and $1,500 ASP
(A) + (B) Subtotal - Market Expansion from Penetration Growth within End-Use Part Manufacturing $467
% of consensus growth forecast 103%
Aerospace, Automotive, Healthcare, & Consumer - % of Total 3D Market Today 50%
To grow 20% a year until 2016, the market for printers must expand by $517mn we think this is possible just from a few key end markets
End Markets
205
Aerospace & Healthcare key growth drivers
Aircraft engines are a large growth opportunity
As are various areas of healthcare
Source: Credit Suisse Estimates
Source: Company data, Credit Suisse estimates
Aircraft Engines Aircraft Engines
Global Sales & Capex 3D Opportunity for End-Use Parts
Global OE Sales $18,000 3D Market Aerospace Today - Total $300
Global AM Sales $23,000 % related to Aircraft Engines 75%
Global Sales 2013 $41,000 % related to Printing Systems 50%
Growth CAGR to 2016 7% % related to Manufacturing (vs. Prototyping) 5%
2016 Sales $50,227 3D Market Aircraft Engines Today - Printing Systems for End Use Parts $5.6
Implied Penetration 0.5%
Industry Capex / Sales 4.0%
% of Capex for Manufacturing Equipment 70% Theoretical Penetration by 2016 6%
Manufacturing Equipment Opportunity Today $1,148 Market Size in 2016 $86
Manufacturing Equipment Opportunity 2016 $1,406 Market Expansion 2014-2016 - Printing Systems $80
3D Healthcare Market Today (2013E) - All In (Printers, materials, parts, service, etc.) $470
% Printing Systems 50%
Healthcare Printing Systems Market Today (2013) $235
($mn)
Global
Sales 2013E
2014-2016
CAGR
Global
Sales 2016E
Capex /
Sales
% of Capex for
Manuf. Equip.
Manuf. Equip,
Spend 2016
Penetration
Today
Market Size
Today
2016
Penetration
Market Size
2016
Market
Expansion
Bracing & Support $2,300 5.0% $2,663 5.0% 70% $93 1% $1 3% $3 $2
Hip & Knee Implants $10,863 5.0% $12,575 5.0% 70% $440 1% $4 3% $13 $9
Hearing Aids $5,500 5.0% $6,367 0.5% 70% $22 90% $20 100% $22 $2
Dental $20,000 5.0% $23,153 5.0% 70% $810 12% $97 18% $146 $49
Other Healthcare $1,124 10% $112 15% $169 $56
Total $2,490 9% $235 14% $353 $118
End Markets
206
355
1,816
5,978
24,265
35,508
70,000
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
2008 2009 2010 2011 2012 2013E
Personal 3D Printing Market
Personal shipments have been growing extremely fast
Amazon.com has opened a 3D printing store online Microsoft is carrying printers in their retail stores
Number of CAD designs available for personal download is growing fast
Source: Company data, Credit Suisse estimates
Source: Wohlers,, Credit Suisse estimates
Source: Makerbot
Source: IBM
End Markets
207
3D Printing Players Margin & Earnings Forecasts
28.9%
21.4%
12.3%
54.4%
57.4%
51.3%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
3D Systems Stratasys Exone
Operating Margin Gross Margin
Margins Today
Operating Margin Expectations
Gross Margin Forecasts EPS CAGR 2014-2016 Forecasts
28.9%
21.4%
12.3%
30.2%
24.4%
17.4%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
3D Systems Stratasys Exone
2013E 2016E
Source: Company data, Credit Suisse estimates
Source: Company data, Credit Suisse estimates
Source: Company data, Credit Suisse estimates
Source: Company data, Credit Suisse estimates
53.4%
58.1%
44.7%
55.8%
57.4%
50.0%
30.0%
35.0%
40.0%
45.0%
50.0%
55.0%
60.0%
3D Systems Stratasys Exone
2013E 2016E
29%
33%
44%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
3D Systems Stratasys Exone
EPS CAGR (2014E-2016E)
End Markets
208
Overview of Public 3D Players
Source: Company data, Credit Suisse estimates
Company name 3D Systems Arcam ExOne FARO Organovo Renishaw Stratasys
Ticker DDD ARCM XONE ONVO RSW SSYS
Sales ($MM) 353.6 21.1 28.7 273.4 1.2 525.7 215.2
% sales from AM 100% 100% 100% 100% 100%
R&D Spending 23.2 - 1.93 17.6 3.4 71.3 19.7
R&D % of sales 7% - 7% 6% 283% 14% 9%
Operating profit ($MM) 60.6 2.2 (8.1) 31.6 (9.3) 131.8 17.1
Operating margin 17% 10% (28%) 12% (777%) 25% 8%
Customers / end-market split Automotive, Aerospace,
Technology, Defense,
Education, Consumer, Energy,
Healthcare
Orthopedic Implant, Aerospace
& Defense
Aerospace, Automotive, Heavy
Equipment, Energy/Oil/Gas
Automobile, Aerospace, Heavy
equipment, Law enforcement
agencies
Pharma (100%) Electronics, Motorsports, Semi-
conductors, Food
manufacturing, Print
production, Dental & Medical
Diagnostics
Aerospace, Apparel,
Architecture, Automotive,
Business Machine Products
Consumer, Defense, Dental,
Electronics, Education, Heavy
Equipment, Jewelry, Medical,
Toys
Products sold
SLA, SLS, and PJP Printers
(36%), 100+ Materials (29%),
On-demand Services (35%)
Power recovery System, , Power
Handling trolley, Explosion-
protected vacuum cleaner, Pre-
processing software, EBM Build
Assembler, EBM Control
Software and EBM LogStudio
3D printing machines (54%) 3D
printed parts, materials and
other services (46%)
Portable CMMs, 3D
Documentation products used
for measurement and
documentation of spaces and
objects, 3D laser scanner, 3D
measurement software
3D Human tissues Dental Scanners, Dental milling
machines, Neurosurgical robot,
Neurosurgical implantables,
Raman microscopes, Combined
Raman systems, In situ monitor,
Diagnostic Systems
FDM and Inkjet Printers and
130+ Materials (84%),
Services (16%)
Major Brands Alibre Design, Cubify Invent,
Rapidform, DuraForm,
CastForm, LaserForm, Accura,
VisiJet, Zprint, Cubify,
Quickparts
Arcam Q10, Arcam A2 &
Arcam A1
S Max, S Print/ M Print, M Flex,
M Lab, Orion
FaroArm, FARO ScanArm,
FARO Gage, FARO 3D
Imager, FARO Focus 3D,
CAM2, SCENE, SCENECT
Novogen MMX Bioprinter Renscan, MODUS, REVO,
RMP, LaserXL, Equator,
Productive Process Pyramid,
RLS d.o.o., TONiC, SiGNUM,
RESOLUTE, LaserBridges,
Dental Studio, Neuroguide,
StreamLine
uPrint, Mojo, Objet, Dimension,
Fortus, Solidscape, Eden,
Connex, RedEye paid parts,
MakerBot
Geographic sales split based on LFY
Americas 61% 30% 27% 40% 23% 54%
EMEA 24% 57% 30% 37% 35% 30%
Asia 15% 13% 43% 24% 39% 17%
RoW / Other 3%
Total 100% 100% 100% 100% 100% 100%
Europe 24% 57% 30% 35% 30%
End Markets
209
Other Sector: Defense End Market
Outlook for US defense spending
Source: ICAO, IATA, Rheinmetall
End Markets
532
553
571
586
598
611
622
633
644
656
668
532
526
505
503
515
527
538
550
561
572
583
532
526
505
490
478
466
454
445
454
463
472
400
500
600
700
FY11A FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
DoD Base Budget Request - FY12 FYDP (CAGR +2.3%)
The CS Mid-Case Scenario
The Boiling Frog Scenario
Outlook for global defense spending
USA
49%
Western
Europe
21%
E & C
Europe
5%
Other
8%
China
6%
Non-China
Asia
11%
Regional Split of Global Defense Spending
210
Other Sector: US Defense End Market
DoD Defense Budget Fiscal 20012015 (USD bn)
Source: CS Estimates, SIPRI
End Markets
Government FY ending September 30 GFY10 GFY11* GFY12 GFY13 GFY14 GFY15 GFY16
CS Projected FY12 FYDP 530 540 553 568 584 593 602
Projected Growth (Nominal) 1.9% 2.4% 2.7% 2.7% 1.6% 1.6%
CS Projections of Eventual Budget Reality 530 540 553 542 531 520 510
Nominal Growth 1.9% 2.4% -2.0% -2.0% -2.0% -2.0%
note: FY11 at $540 could just be run rate final 7 months, actual spending would be closer to $533B due to CR for five months
Visibility on 2012 Budget request - $13bn cuts made,
taking base budget from $566bn to $553bn.
Confirmed $65bn of additional cuts over subsequent
4 years
Restructured JSF production schedule (slower) and
moved STOVL development back. Funding for
second engine maintained, but Gates remains
opposed to it longer term
Cancellation of a number of programs limited
effect on EE/MI exposure
Reiterated rotorcraft focus (+ve for V-22/TXT and
UTX/Sikorsky) and ISR investment, which favors
TXT and HON
Change in Secretary means potential top line
pressure remains likely in the longer term, and if
Democrat, could be further downside to current cuts
32
42
62
81
108
45
71
90
113
130
0
20
40
60
80
100
120
140
FY'12 FY'13 FY'14 FY'15 FY'16
JSF Planned Buys Under President's Budget - FY'12 (U.S. Only)
JSF Planned Buys Under President's Budget - FY'11 (U.S. Only)
Revised JSF Production Schedule CS Estimates
211
Other Sector: Defense End Market Tracker
Defense earnings commentary to date
End Markets
Date Company Direction End market Comment
4/29/2014 MTU Aero Defense We expect military sales to decrease by 10%.
4/23/2014 Boeing Defense
Turning to Defense, Space & Security, the President's FY15 budget request demonstrated solid support for major Boeing programs, including
KC-46 tanker, B-22 Apache, Chinook, GMD, NASA's space launch system and commercial crew, along with satellite programs.
4/23/2014 General Dynamics Defense
The story for the quarter is about the order book, particularly in defense. We ended the quarter with a total backlog of $56 billion, up
approximately $10 billion over last quarter, with particularly impressive growth in combat systems backlog...The big story here is the large
international order that finally came through. The revenue in this business group is holding up well in this difficult environment.
4/23/2014 Northrop Grumman Defense US budget environment continues to be challenging.
4/22/2014 Lockheed Martin Defense
We are reaffirming our guidance for both orders and sales as our first quarter results were in line with our expectations. As I mentioned earlier,
sales are expected to grow sequentially throughout the year while orders are heavily weighted towards the second half of the year and especially
in the fourth quarter similar to what we experienced last year.
4/17/2014 Allison Trnsmission Defense
Defense end market net sales were down 40% from the same period in 2013 and 3% sequentially principally driven by previously contemplated
reductions in US defense spending to longer-term averages experienced during periods without active conflicts.
4/17/2014 GE Defense
Military equipment orders of $421 million were up 44%, driven by demand for CT7 engines. Military service orders were up 18%, driven by spare
parts up 19% on strong demand for T700 spares.
4/17/2014 Rockwell Collins Defense We've now had time to comb through the details of the US Defense budget and I'm pleased to say that our programs have fared pretty well.
-
=
+
-
=
-
+
=
212
Other Sector: Healthcare Vendor Data, commentary
End Markets
Healthcare earnings commentary to date
Philips (MS)
Siemens (TH)
Danaher (D+M)
GE
(Healthcare)
Toshiba
Mindray
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
0% 4% 8% 12% 16% 20% 24%
2
0
1
3
R
e
v
e
n
u
e
s
2013 EBIT Margin
Order Growth (YoY%)
Company (Division) Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14
GE (Healthcare)* US 7% 4% 3% 6% -2% 1% 2% 2% -1%
Philips (Healthcare)* EU 7% 4% 6% 4% -5% 7% -2% -1% 2%
Siemens (D)* EU 4% 4% 5% 2% 0% 1% 4% 1% 3%
Siemens (TH)* EU 1% 2% -3% -1% 4% 2% 10% 4% 1%
Sales Growth (YoY%)
Company (Division) Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14
Danaher (D)* US 1% 5% 3% 4% 3% 3% 4% 3% 6%
Danaher (L&D)* US 2% 5% 3% 7% 3% 5% 6% 4% 4%
GE (Healthcare)* US 6% 3% 3% 2% -2% 0% 1% 0% -2%
Mindray US 21% 23% 18% 20% 11% 15% 15% 17% 9%
Philips (Healthcare)* EU 9% 7% 7% 4% -1% 0% 0% 4% -2%
Siemens (D)* EU 3% 6% 5% 2% 0% 1% 4% 1% 3%
Siemens (TH)* EU 5% 8% 4% 1% -1% 4% 5% 1% 5%
Date Company Direction End market Comment
5/7/2014 Siemens Healthcare
Healthcare new orders and revenues rose on a comparable basis. And that upward trend was also driven by business in Europe. The
development of orders and revenue was solid at Diagnostics as well. Both grew 3% on a comparable basis.
4/22/2014 Philips Healthcare
US Healthcare CapEx is expected to be flat for 2014 with an uptick in IT and down for diagnostic equipment. Healthcare construction is expected
to remain flat through the remainder of 2014.
4/17/2014 Danaher Healthcare
Life Sciences platform had a good start to the year. Core sales increased mid single-digits with all major geographies contributing to the growth.
AB SCIEX core sales grew high single-digits as strength in the clinical and academic markets drove double-digit growth. Dental had an
outstanding start to 2014 as the investments we've been making in new product development helped drive excellent top-line and operating
margin performance. Reported and core revenues grew 6% representing the segment's best quarterly performance in three years.
4/17/2014 GE Healthcare
Orders of $4.2 billion were down 1%, driven by the US, down 4%, offset by continued strength in emerging markets, which were up 10%. China
was up 13%; Latin America was up 10%; and the Middle East was up 47%. Europe was also strong, up 4%. Equipment orders of $2.3 billion
were flat. Service orders were $1.9 billion. They were down 2% in the quarter.
+
=
+
=
213
Network Power trends
Other Sector: Network Power Vendor Data
End Markets
Emerson (NP)
Delta Elec
(Power Supply)
Eaton (Elec
Total)
Eltek (Valere)
Schneider (IT)
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
6% 11% 16% 21%
2
0
1
3
R
e
v
e
n
u
e
s
2013 EBIT Margin
Order Change YoY
Company (Division) Geo Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14
Eltek (Valere) EU 4% 5% 1% 5% -4% 15% 6% 1% 22%
Emerson (NP)* US -3% -5% -11% -2% -7% -3% -2% 4% 5%
Sales Change YoY
Company (Division) Geo Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14
Delta Electronics (Total) TW -4% 1% 5% -3% 1% -2% -1% 15%
Eltek (Valere) EU -2% 6% 0% -11% 0% 3% 20% 2% 1%
Emerson (NP)* US -3% -4% -3% -2% -4% -5% -3% 2% 1%
Schneider (IT) * EU 7% 4% 3% -1% -2% 1% -2% -2% -3%
214
Vendor Market Shares
End Markets
Business Jet OEMs (Global Mkt Share)
Company 2009
Bombardier 20%
Cessna 33%
Dassault 9%
Embraer 14%
Gulfstream 11%
Hawker 11%
Other 2%
Total 100%
Elevators and Escalators (Global Mkt Share)
Company 2009
Otis (UTX) 25%
Schindler 20%
Thyssen Krupp 13%
Kone 11%
Mitsubishi 9%
Hitachi 7%
Toshiba 4%
Other 11%
Total 100%
Lighting (Global Mkt Share)
Company 2009
GE 4%
Philips 11%
Siemens 12%
CBE 2%
Other 71%
Total 100%
HVAC (Global Mkt Share)
Company 2010E
Carrier (UTX) 11%
Daikin 10%
Trane (IR) 8%
York (JCI) 6%
Emerson 4%
Lennox 3%
Goodman 2%
Other 55%
Total 100%
Cutting Tools Global Market Share
Company 2009
Sandvik 20%
Kennametal 11%
Iscar 9%
Seco Tools 6%
OSG 4%
Mitsubishi 3%
Other 47%
Total 100%
Source: Credit Suisse Research
Fire (Global Market Share) Security (Global Market Share)
Company 2009 Company 2009
Tyco 11% Tyco 11%
UTC 11% Secom 8%
Siemens 6% UTC 6%
HON 7% HON 5%
Others 65% Others 70%
Total 100% Total 100%
215
Vendor Market Shares
End Markets
Wind (US Mkt Share) 2009
GE Energy 40%
Vestas 15%
Siemens 12%
Mitsubishi 8%
Suzlon 7%
Clipper 6%
Gamesa 6%
REpower 3%
Acciona WP 2%
Nordex 1%
Total 100%
Locomotive Manufacturers (Global Mkt Share)
Company 2010 YTD
Bombardier 12%
Siemens 10%
Alstom 10%
China Rail (S) 7%
China Rail (N) 7%
GE 5%
EMD 1%
TMH 2%
Vossloh 2%
AnsaldoBreda 1%
Other 44%
Total 100%
Wind (Global Mkt Share) 2009
Acciona 2%
Alstom 2%
Dongfang 5%
Ecotcnica (Alstom) 1%
Enercon 9%
Gamesa 6%
GE Wind 13%
Goldwind 7%
Mitsubishi 2%
Nordex 3%
Others 11%
REpower 3%
Siemens 7%
Sinovel 9%
Suzlon 6%
Vestas 15%
Total 100%
Gas Turbines (Global Mkt Share)
Company 2009
Alstom 14%
GE Licensee 1%
GE 41%
Hitachi 1%
MAPNA 2%
Mitsubishi 6%
Other 8%
Pratt & Whitney 3%
Rolls Royce 4%
Siemens 17%
Solar Turbines 3%
Total 100%
Steam Turbine (Global Market Share)
Company 2008
Alstom 28%
Siemens 17%
GE 15%
Mitsubishi 8%
Others 33%
Total 100%
Machine Tools (Global Market Share)
Company 2009
Amada 6%
Gildemeister 6%
Mori Seiki 3%
Okuma 3%
Other 82%
Total 100%
216
Vendor Market Shares
Robots (Global Mkt Share) Process Automation (Global Mkt Share)
Company 2009 Company 2009
Yaskawa 20% ABB 20%
Fanuc 18% Emerson 17%
ABB 13% Yokogawa 8%
Kuka 10% Invensys 4%
Kawasaki 10% Honeywell 7%
Staubli 2% Rockwell 2%
Other 28% Other 41%
Total 100% Total 100%
Source: Credit Suisse Research
Source: Kuka, 2007 annual report
Automotive Robots PLC
Company 2009 Company 2009
Kuka 18% Siemens 31%
Fanuc 18% Rockwell Automation 22%
Kawasaki 13% Mitsubishi 14%
Yaskawa 13% Schneider Electric 9%
Nachi 10% Omron 7%
ABB 5% Moeller 2%
Other 25% Other 15%
Total 100% Total 100%
Source: Kuka, 2007 annual report Source: Control Magazine
End Markets
217
Pricing tracker
Recent corporate commentary on pricing
End Markets
Date Company Direction Comment
5/7/2014 Siemens
-
On the price pressure- There hasn't been any changes to our views in that regard. So what we have been telling you in the past is that for
Energy and for Healthcare, we see pricing being very tight in the market. Price erosion may well be in the area between 3% and 4%, and for
Industry and for Infrastructure & Cities, that figure would be rather below 2%.
5/7/2014 Alstom
-
Pricing pressue in wind and grid.
5/6/2014 Emerson
=
We thought from a price cost standpoint that we'd be pretty much neutral this year. Our net material inflation as the economy has been
weaker, or actually our net material inflation's got more negative and so right now, we are definitely green from a slightly positive green, so
we're probably going above the line. I would expect that that will hold for the rest of this year, and then we'll start going in We're in pretty
good shape from a price cost standpoint finishing this year and going into 2015, so I like where we are right now.
5/1/2014 Textron (Cessna)
+
We feel good about the fact that pricing has firmed in the used market and we feel good about the fact that pricing is incrementally better in
the new market as well.
5/1/2014 Kennametal
=
A little pricing effective January, we put in for Industrial. Nothing really on the Infrastructure side. And I think a lot of the competitors probably
did the same thing in January. So that's the first one.
4/29/2014 Eaton
=
I would say that in every business there are always pricing pressures. But, no, I would say that at this point we're comfortable with our margin
projection, vis--vis all the cost reduction work and new product instruction we do as well.
4/29/2014 Atlas Copco
+
We think the work we do on the innovation and really the price training and value selling allows us and supports us to keep a positive pricing
effect and that's for sure is an area which we need to work on all the time everyday.
4/28/2014 Alfa Laval
=
We expect very limited positive price effects, no material change to factor results and FX transaction effects are expected to continue to be
slightly negative.
4/25/2014 Sandvik
=
On a group level, we've seen roughly 1% price improvements in the quarter. If you look at the different areas that's mainly driven by
Machining Solutions have seen a positive price progression. I would say in the Mining business, we'd see more or less a stable pricing
environment, so we've not seen prices slipping in the Mining business currently.
4/25/2014 Electrolux
=
In terms of price mix, we expect a slightly positive impact from price mix in both North America and Latin America during the quarter. Prices
continue to be under pressure in Europe, but will, to some extent, continue to be offset by better product mix. We expect raw material cost to
be close to flat in the second quarter as steel prices remained stable, while we will have some on cost for plastics and petrochemicals.
4/25/2014 Tyco
+
The margin, we're getting tremendous execution here not only in executing on new products within all three platforms, we are executing on
pricing and we're executing the productivity initiatives extremely well. That is what is contributing to the margin expansion and that's allowing
us to make the reinvestment while we're continuing to expand the margins as you've seen.
4/24/2014 Schneider
=
Globally for price, I would say that at the Group level, we are experiencing what we were expecting at the beginning of the year. Significant
action taken in the new economies which have been impacted by currency depreciation and, at the same time, on the back of a deflationary
environment and raw material prices which are going down, certainly a situation which is tougher in the mature countries and where price
evolution, like we have seen on H2, will be much more complicated.
4/23/2014 Kone
-
The pricing environment continued to be very intense, particularly in South European markets, but also in some Central North European
markets. And these, again, particularly markets where we have had a prolonged weakness in new equipment.
4/23/2014 Ingersoll-Rand
+
When we think about the price, we've got positive price in both of our segments. Positive in TK, positive in Trane, commercial and res. And
so we feel pretty good about that pricing and, again, direct material inflation, pretty tame in Q1. Probably pretty tame through the first half and
then maybe some noise around seal in the back half of the year.
4/22/2014 Hubbell
=
Price/cost would be neutral for the year.
4/22/2014 Schindler
-
Pricing pressure- It starts to happen and started to happen also modernization, already in 2013, because some of the volumes are shrinking,
particularly in Europe and there we see more price pressure than maybe in the past. Also in service, I would say in certain markets price
pressure has rather increased over the last 12 months, particularly in the Southern European markets where we have really low economic
development. Some positive signs maybe in North America that the price pressure seems to ease in Northern America.
4/22/2014 Philips
-
We see that many emerging economies have impacts from the currency devaluation making import of healthcare equipment more expensive
and uncertainty is reigning. This means that some projects are either postponed. We do not see specifically that it is causing additional price
erosion. On price erosion, we continue to see the regular 3% to 4% on a moving annual total basis, so we don't see a significant uptick of
price erosion. Of course, we adjust our prices when currency headwinds hit us, whenever possible. So it is more a demand-and-volume
4/22/2014 UTX
=
Otis-We continue to see pricing pressure in most of the markets for new equipment. As you can imagine, China remains the most competitive
of all of new markets. We're continuing to see pricing pressure there. North America, a little bit better. Pricing looks to stabilize at least in
North America. In Europe, well it's Europe. I mean, it's a tough, tough market. So I wouldn't say we've seen an inflection here but I don't think
we've seen any improvement in pricing.
4/21/2014 Lennox
+
We continue to expect $10 million on favorable product mix in Residential in 2014 and we still expect $5 million of net benefit from price and
commodities with a positive $10 million from price and negative $5 million from commodities.
4/17/2014 Honeywell
=
We do expect the pricing challenges to moderate in the second quarter and throughout the year as we lap prior-year declines.
4/17/2014 Dover
=
I would tell you that sort of across the board for Dover, I would label pricing as pretty darn neutral.
4/17/2014 GE
+
Order pricing- O&G:+1.4%, Aviation: +2.6%, Healthcare:-1.5%, Transportation:Flat; Overall order pricing was up 0.4%
4/15/2014 SKF
+
We did not see the level of price increase pre-buy in Europe and North America that we would normally see. Overall, though, I think it was a
solid quarter again from SKF even with negative price mix and currency headwind. We are facing some pressure from our suppliers for higher
prices, but our purchasing cost reduction program is working and we expect a similar development this year as we had last year from our
purchasing.
4/2/2014 Acuity
-
We will continue to be vigilant on our pricing posture We continue to experience some isolated pricing pressures in certain markets and
sales channels, such as home improvement and larger renovation projects. As we have said before, we will defend our market position
vigorously from competitors, should they attempt to use price as their only point of differentiation
218
Capex Tracker
Recent corporate commentary on planned capex
End Markets
Date Company Direction Comment
Auto
5/8/2014 Toyota Motor +
We intend to make solid investments in research and development or carry out the CapEx in order to move
closer to sustainable growth.
5/6/2014 BMW -
The CapEx ratio for the first three months of the year stood at 6.8%. We aim at a 2014 ratio lower than last
year, moving closer to our target of below 7%
4/29/2014 Volkswagon =
Our CapEx ratio for the first three months was in line with the prior year. For 2014 we have target out for
the CapEx ratio between 6% and 7%,
4/25/2014 Honda Motor -
The forecast for capital expenditures for FY15 is 650 billion against capital expenditures for FY14
amounted to 726.1 billion.
4/24/2014 GM =
We had $1.8 billion of capital expenditures in the quarter for a total adjusted automotive free cash flow of
$200 million. (Expcted to be 0%-1% increase according to Bloomberg consensus)
Chemicals
4/23/2014 Dow Chemical +
Planned turnaround spending will be up approximately $150 million sequentially, but essentially flat year-
over-year, with the majority of the expense in Performance Plastics, Performance Materials, and Coatings
and Infrastructure. Its higher than second quarter of 2013
Communication
4/29/2014 Sprint +
Capital expenditures of $1.1 billion in the quarter were lower both sequentially and compared to the year
ago period. We expected a sequential decline in CapEx as many of the construction-related
milestones for the legacy network upgrade had been reached as we move into the final stages of the
project. Our capital spend will ramp through the year as we continue to expand LTE on 800 megahertz and
2.5 gigahertz spectrum to enhance the customer experience.
4/24/2014 Verizon +
Capital expenditures in the quarter totaled $4.2 billion, up $548 million with all the increase in Wireless. As
we have previously stated, our estimate for total capital spending in 2014 will be in the range of $16.5
billion to $17 billion.
4/22/2014 AT&T -
CapEx will be in the $1 billion range, but significantly offset by efficiencies with other wireless build plans,
and with the majority of the spend targeted in 2015. Last year capital expenditures were $5.8 billion, as we
took these strong cash flows and invested in Project VIP.
Consumer
4/23/2014 P&G =
Capital spending I don't see going I see it staying in kind of the 4% to 5% range as we execute this
program.
4/22/2014 Skechers + Capital expenditures for the first quarter were approximately $11.4 million
4/17/2014 Pepsico =
We'll continue to drive cash flow through efficient working capital management, and continue tight controls
over capital spending. Net capital spending should approximate $3 billion, which is well within our long-term
target of less than or equal to 5% of net revenue
Energy
5/1/2014 ConocoPhillips =
We had capital expenditures and investments of $3.9 billion. And of note, we plan to spend more capital in
Alaska in 2014 than we've spent there in the past three decades. This increased investment will mitigate
declines in legacy fields and provide growth from new satellite fields into the future. So I think that we're
making pretty judicious capital allocation decisions that balance the short and the long-term growth
potential in the portfolio.
5/1/2014 Exxon +
CapEx we did come in at $8.4 billion. That was down a little over $3 billion from the first quarter of last year.
As we look out across the year, the first quarter is usually lower than the rest of the quarters. We tend to
ramp up across the year, with a little extra in the back half.
4/30/2014 Shell =
NThe capital employed is likely to continue to grow. I think we are investing at levels much higher than our
depreciation rate. So our aim is $35 billion organic for the year. Our current expectation is still hopefully $35
billion for this year. The actual outcome could be a little bit more, a little bit less depending on timing effect.
4/29/2014 BP =
In 2015, we expect operating cash flow to be broadly similar to 2014, before then growing out to 2018. We
also intend to keep capital expenditure in a range of $24 billion to $26 billion per annum over the same
period.
4/29/2014 Valero Energy =
For 2014, we maintain our guidance for capital expenditures, including turnaround and catalyst, at
approximately $3 billion. We expect stay-in-business capital to account for approximately 50% of total
spending and for the remainder to be allocated to strategic growth investments, which are primarily for
logistics and light crude oil processing projects.
4/21/2014 Halliburton =
We continue to expect that our capital expenditures for 2014 will be approximately $3 billion. We also
expect depreciation and amortization to be approximately $2.1 billion during 2014.
4/17/2014 Baker Hughes =
We're still sticking to $2 billion in CapEx for the year. We expect to generate generous cash flow in 2014
and 2015 and keep our CapEx pretty much in line with where we are today.
4/17/2014 Schlumberger -
During the quarter, we spent $864 million on CapEx. We generated $688 million of free cash flow
compared to $127 million in the same period last year. As it relates to full year 2014, CapEx is still
expected to be approximately $3.8 billion as compared to the $3.9 billion we spent in 2013.
219
Capex Tracker
Recent corporate commentary on planned capex
End Markets
Rail
4/23/2014 Norfolk Southern =
We'll still expect to have the $2.2 billion capital plan for the entire year, but some of it will shifted later so
some of the money will be absorbed that way.
4/22/2014 Canadian National Railway +
We had higher proceeds from property disposals, partly offset by higher capital expenditures. So our
balance sheet remains strong with debt and leverage ratios well within our guidelines. we were
able to address the increase in the capital expenditures, while at the same time not changing our free cash
flow guidance
4/17/2014 Union Pacific =
We will continue to make smart capital investments that generate attractive returns, by increasing capacity
in high-volume corridors, while also supporting our safety, service, and productivity
initiatives. We invested about $900 million this quarter in cash capital investments and also returned $363
million in dividend payments to our shareholders
4/16/2014 Kansas City Southern +
We established a budget early in 2014 to spend 22% of our revenue on capital. But based on our current
view of growth opportunities, particularly in 2015, coupled with a projected substantial price increase for
new Tier 4 locomotives, we're currently increasing our capital spend to 28% of revenue by ordering
additional locomotives for delivery by the end of the year
4/16/2014 CSX Corp =
Over the last couple of years, we are in the high single to low double-digits growth on the other
businesses. Now, to do that, we have to make the investments necessary to support it. So, that 16% to
17% of revenues that we've held with the last few years, we still think that is the appropriate level, and it will
produce value for our shareholders as we grow the business and the margins.
Tech
4/23/2014 Facebook + We continue to anticipate our 2014 CapEx will be approximately $2 billion to 2.5 billion.
4/16/2014 Google +
CapEx for the quarter was $2.3 billion. This quarter, again, the majority of CapEx was related to data center
construction, production equipment, and real-estate purchases. As I mentioned last quarter during my
remarks, we continue to invest in the long-term and our infrastructure continues to be a key strategic area
of investment for us. Our free cash flow was $2 billion for Q1.
4/16/2014 IBM +
We generated $600 million of free cash flow in the quarter, which is down $1.1 billion
year-to-year. As you can see, our CapEx was up nearly $200 million year-to-year, which includes
investment in additional SoftLayer capacity
4/15/2014 Intel =
We continue to hold our forecast flat for CapEx. We're comfortable with the CapEx we're at to maintain our
business based on the demand we're seeing for our core products
Paper & Pulp
4/30/2014 International Paper + The $60 million higher CapEx we had in the first quarter that was planned
4/21/2014 Kimberly-Clark Corp = We're on track with our capital spending plans to grow our business
EE/MI
5/6/2014 Emerson +
We're increasing our capital spending this year, as you know. We'll be driving close to $800 million of
capital, up from less than $700 million last year, investing in our new products, our innovation, our global
capacity utilization areas, investing in productivity
5/1/2014 Kennametal +
Net capital expenditures were $85 million, compared with $52 million in the prior year; and free operating
cash flow year-to-date was $68 million, compared with $98 million last year. And based on anticipated
capital expenditures of between $130 million to $140 million
4/30/2014 ADT +
Capital expenditures for the quarter were $304 million, with all but $21 million of that investment going
towards new subscriber adds. This compares to $322 million in total CapEx in the second quarter of last
year.
4/29/2014 ROK +
Spending was up about 4% sequentially and about 6% year-over-year, so pretty much in line with our
organic growth...I would expect to see is about a 5% increase in spending year-over-year in a second half.
4/22/2014 UTX +
Capital expenditures were $333 million. That's up 13% versus last year as we continue to invest for the
ramp up in commercial Aerospace. Pressured by the increase in CapEx and working
capital in 2014, we continue to target free cash flow equal to net income from the year.
4/17/2014 GE +
We've allocated capital in a disciplined and balanced way. We continue to invest in plant and equipment to
grow the company globally. And we will continue to bolt-on acquisitions like the three we announced so far
this year. Our target remains $1 billion to $4 billion but we have gone above on opportunistic deals. At the
same time, we plan for about $4 billion of dispositions this year.
Utilities
5/1/2014 ITC Holdings +
We've made good progress on our capital investments, setting the stage for us to successfully
execute on our overall plans for the year. 2014 marks the first year of our new five-year plan, which we
expect to deliver the benefits to all of our constituents. This plan is premised on investing approximately
$4.5 billion from 2014 through 2018 in critical transmission infrastructure.
4/30/2014 Southern Company =
Well, Kemper will change a bit as we push more dollars into 2015 now. And when I think about all the other
companies, nothing has really changed that I'm aware of. Our plan for Southern Power remains. Some of
that is capital for maintenance and other capital for our expansion plan.
4/25/2014 American Electric +
Consequently, AEP will invest $200 million more in the transmission projects that was identified in the
green area of my second-most favorite graph, the transmission graph that you've all seen previously, and
we'll also move $60 million to $70 million of 2015, 2016 spending into this year.