Morningstar | ABB Has a Solid Base to Build Its Industry 4.0 Business but Needs to Step Up Its Software Strategy
ABB has an enviable base of robotics and automation customers that puts it in a solid position for Industry 4.0, or Industrial Internet of Things. Both its robotics and industrial controller (used to program equipment) products have leading market share and enjoy loyal customer bases that would be difficult for competitors to capture. Furthermore, ABB’s electrification products division offers some overlap with other customer segments, such as process industries, that could prove useful in cross-selling the automation portfolio. However, growing demand from Industry 4.0 has meant that ABB and its close competitors have had to refresh their product offerings, acquiring or developing in-house industrial automation components and software. ABB has been slow to refresh its product offering and in some cases has had to turn to second-best choices. With the acquisition of programmable logic controller supplier B&R in 2017, ABB was hoping to gain share in hybrid automation solutions, which combine distributed control systems and PLCs. However, customers using controllers do not change suppliers readily, making it tough for a company like B&R to expand market share, even with the weight of ABB behind it.Moreover, ABB's software strategy lags that of competitors like Siemens and Schneider. ABB has a hybrid strategy for its Industry 4.0 software, offering most of its equipment productivity and maintenance optimization software from its own developed software portfolio, while for design and simulation software, it has a partnership with Dassault Systemes. Without the partnership, ABB would have had to develop the software in house or find an acquisition target, meanwhile losing out on potential near-term cross-selling opportunities. But the partnership structure deprives ABB of the advantage of in-house development, which Siemens and Schneider enjoy from offering similar software developed by their own engineering teams. Industry 4.0 software requires domain expertise, and ABB's engineering expertise gives it insight into its customers’ processes that could be beneficial to the development of design and simulation software.
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