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Morningstar | Wide-moat Rockwell is well-equipped to gain share as automation evolves toward hybrid solutions.

Pure-play Rockwell Automation’s value proposition stems from the versatility of its Logix platform, which is capable of controlling both discrete (automotive, consumer electronics) and process (oil refining, food and beverage) manufacturing. Industry-specific characteristics often dictate whether customers rely more heavily on discrete or process manufacturing, but as factory operators seek to cut costs and drive operating efficiency, the two methods increasingly overlap. A beverage plant, for example, uses sensors and controls to precisely position bottles (discrete) to be filled with a specific mix of ingredients (process). This convergence represents Rockwell’s sweet spot in an industry that has traditionally operated in a bifurcated manner, and represents the source of differentiation that makes Rockwell a strong contender in a fragmented automation market.While Rockwell goes to market as one company offering a comprehensive suite of automation solutions, it reports in two segments. Architecture and software, or A&S, primarily houses the Logix platform, plus the hardware and software that brings the system to life. Logix can be likened to a factory’s nervous system: A central processing unit serves as the brain, which sends nerves throughout the factory floor via wired or wireless networking. Control products and solutions, or CP&S, holds all of the value-added services and components. Custom projects involving Rockwell engineers with deep industry domain experience represent about 45% of CP&S sales; proprietary intelligent motor control drives and other components contribute 40%, and aftermarket services make up the rest.Rockwell’s Ethernet-enabled architecture uses custom applications to bridge disparate systems, allowing incremental software upgrades in lieu of expensive equipment overhauls. This flexibility allows Rockwell to forge relationships with the customers of its competitors, placing the firm in a stronger negotiating position when system upgrades or expansions arise. In our view, these advantages will help Rockwell capture greater share of an estimated $90 billion market as companies seek ever-greater efficiency from manufacturing operations.