Annual installations of industrial robots 2013 – 2018 and 2019-2022 – Figure 1
Source: 'Executive Summary World Robotics 2019 Industrial Robots', International Federation of Robotics, September 2019
Shifts in consumer demand drive investment in automation
As consumers demand increasingly personalised goods and in quicker delivery timeframes, we expect that supply chain operators will look to meet shorter and shorter delivery expectations and smaller batch orders on a larger scale. Traditionally, a factory may have looked to increase their workforce to meet this demand. However, the chronic manufacturing worker deficit is expected to hit 7.9 million by 2030 (see below).
Global manufacturing talent deficit by economy – 2030
Source: 'The Global Talent Crunch, Future of Work', Korn Ferry, 2018
This shortage, and the shifting demand, has meant that many companies could have no option but to investigate flexible automation solutions to survive. At the same time, a confluence of technological improvements has combined to enable robotics and industrial software to meet these challenges. These include:
- Cheaper sensors;
- Better machine-learning algorithms;
- Advances in mobility and cloud services;
- The availability of cheaper processing power; and
- A connected ecosystem of robotics, data and industrial IoT companies.
We believe this has been illustrated in the level of funding into robotics start-ups over the last five years, with $1.2 billion in US venture-capital deals in logistics-focused robotics and automation companies alone since 2015. We believe this has contributed to a rapidly growing number of robotics and software companies focused on the supply chain in order to fill the gap.
A technology that is enabling positive return on investment solutions for rapid order fulfillment, is ‘gripping’ – now set to be the fastest growing warehouse automation technology in the US by c.100% in 2020. This expected growth looks likely to draw interest from both domestic and international investors as companies that specialise in piece-picking robotics grow rapidly in coming years to meet demand. The combination of machine learning software, improvements in force-sensing technology, and easier to program, application-centric solutions have enabled automation vendors to perform tasks that, until recently, we saw as being completed by humans or with extensive implementation services required.
While the companies in this space have generally not yet gained as much scale as those focused on autonomous mobile robots, the technology could be poised for rapid adoption. Investment in this area includes Righthand Robotics, which has raised $34.3 million in funding, Plus One Robotics’ $10.6 million Series A funding and Robotiq’s CAD$31 million investment from Battery Ventures, which DC Advisory advised on.
Digitalising the factory floor
Another factor driving investments in automation is the proliferation of sensors on industrial machines. We believe that equipment vendors continue to add sensors to machines either directly or in the form of vision systems, wearable technology, RFID or from robotic systems that are collecting data as they perform their applications.
These sensors are then generating enormous volumes of data that can be used to optimise production and the broader supply chain processes. As operators try to reconcile this data across multiple, often incompatible vendors and systems, we believe that there is a large opportunity for infrastructure technology providing connectivity and data security across factory and warehouse systems. The predictive maintenance market alone is estimated to be $10.96bn by 2022.
Over time we believe that traditional players will combine with the analytics and software providers – and the lines will be blurred between hardware, software and data companies. Subsequently, we expect to see an acceleration of M&A and partnerships as companies traditionally focused on one portion of the value chain will need to offer a fuller set of integrated solutions. A prime example is the recent factory automation equipment maker, Rockwell Automation’s acquisition of a 8.4% stake in PTC for $1billion as it looked to build on its software capabilities to make smarter manufacturing processes for customers.
Collaborative robotics is hitting a tipping point
The combination of decreasing costs and technology advances are contributing to growth within collaborative robotics. Such advances include:
- Improved software programming techniques;
- New vision, motion and sensing technologies; and
- An expansion in scope and flexibility of robot applications.
While collaborative robots represented approximately 3.2% of the total industrial robots sold in 2018, the annual installations increased 23% from 2017 to 2018 as compared to 6% growth in the total industrial robot market, which could indicate that the market is moving from extensive pilots and testing, to a market with wider, enterprise-scale deployments. These factors contribute to an anticipated increase of the collaborative robotics market in excess of £11bn by 2030 – representing 29% of the total industrial robotics market.
This acceleration is beginning to occur within both SMEs, which accounts for 70% of manufacturers globally, and larger companies. We are seeing robots as a service model gain traction and the programming of applications is becoming simplified through an increasingly developed ecosystem of vendors. The implications of this may be that clear winners will emerge within the various aspects of supply chain automation.
As some vendors win and some lose, we believe that opportunistic acquisitions will emerge. We expect customers to adopt solutions that integrate several vendors through application programming interfaces, each specialising on a key aspect of the value chain, which may contribute to consolidation across these related areas. For example, Teradyne acquired Energid, a developer of robot control, simulation and machine vision software, to ease the programming of applications on its Universal Robots.
Robotics is a global market with Asia as a driving force
Asia is playing a key role in delivering capital to this space (see graph below). Even with political tensions and a global economic slowdown, The International Federation of Robotics has predicted an average of 12% global growth of industrial robots between 2020-2022, with much of this demand being driven from Asia. We believe the shifting balance between the costs and effectiveness of human labour and that of autonomous technologies is creating demand for the implementation of robotics in global markets. We expect this to create opportunities in countries where there are labour shortages in areas that could become automated.
Robot density in the manufacturing industry 2018
Source: 'US robot density ranks 7th in the world', The Robot Report, April 2019
While investment from China into Western companies can face political challenges, we expect China – and Asia more generally – will be increasingly important end-markets for providers of supply chain automation solutions. Further, Asia is home to a growing number of emerging automation technology companies for the manufacturing line, which are attracting investor and strategic attention.
For example, Cognex Corporation, a leader in machine vision for factory automation and industrial barcode reading, acquired SUALAB, a leading Korean-based developer of vision software using deep learning for industrial applications. Similarly, Shenzhen Stock Exchange listed, Nanjing Estun Automation Technology Co.’s, recent $216.44 million acquisition of Germany-based Carl Cloos Welding Technology shows that if interests align with those of the Chinese government, there are M&A opportunities available. Additionally, Chinese appliance maker Midea’s controversial acquisition of German robot manufacturer KUKA (for $5bn in 2016), demonstrates China’s similar bid to move away from reliance on human labour as the source of their differentiation in appliance manufacturing.
We believe these examples lend support to the notion that, though it can be more difficult to complete cross-border deals with China, with the right guidance and interest it can still be achieved, and the robotics market could take centre stage in Asia.
While robotics has existed within the supply chain for decades, we are in the midst of a notable shift – from rigid, fixed systems designed for an old consumer base, to an economy that demands nimbler and more flexible systems. Although humans can do that work, the labour shortage and cost pressures call for an automated, yet still flexible solution. At the same time, technological advances have made robotics a practical solution to vendors serving customers in this new framework.
As a result, there has been significant funding into a diverse set of companies each answering various automation demands in the supply chain. Meanwhile, large incumbent OEMs see this as both a threat and an opportunity.
New technologies, often software-oriented with hardware elements, offer traditionally hardware-centric OEM’s a path towards offering solutions rich in data and software, further differentiating their solution set and mitigating commoditisation. As these new technologies fuel a surge in revenue, this evolution of industrial technology may offer an attractive path to drive growth, which has been scarce within the mature industrials market historically. While equally, we’ve seen defensive acquisitions occurring as new technologies threaten to shift customer demand away from legacy vendors, for faster and smarter manufacturing solutions.
With technology enabling robotic start-ups set to expand as solution providers, many companies that were once small are gaining scale and momentum. Meanwhile, as pilots roll out to full-scale deployments, winners will emerge within a very crowded and complicated ecosystem. We believe that the market is at a pivotal moment, with an acceleration of investment and acquisition activity that will continue to shape the sector in the future.
Therefore, decision makers affected by this acceleration of automation or investors with an interest in the space should:
- Understand the threats and opportunities presented by the rapid rise in robotics;
- Connect with advisors specialising in advanced supply chain technology to make sense of the myriad start-ups and differentiation among them; and
- Keep a global perspective on the effects of emerging trends in robotics as Asia, North America and Europe each house influential start-ups, investors, customers, and potential strategic partners.
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 ‘IMPROVING SMES’ ACCESS TO FINANCE AND FINDING INNOVATIVE SOLUTIONS TO UNLOCK SOURCES OF CAPITAL’, WORLD BANK
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 ‘COGNEX ACQUIRES SUALAB TO ADVANCE ITS LEADERSHIP IN DEEP LEARNING-BASED MACHINE VISION’ COGNEX, OCTOBER 2019
 ‘CHINA’S ESTUN AUTOMATION ACQUIRES GERMANY’S CARL CLOOS WELDING TECHNOLOGY’, THE ROBOT REPORT, AUGUST 2019
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