Is Industry 4.0 the New Dotcom Boom? Part II

By John Slater, Partner and Team Leader, Advanced Manufacturing and Automation; and Jorge Maceyras, Principal, FOCUS Investment Banking LLC

Like the internet before it, the automation boom is gaining steam as costs come down and the technologies become more approachable for the average business. Here are just a few of the rapidly advancing technologies that have primed the coming explosion in automation:

  1. additive manufacturing;
  2. AI;
  3. augmented reality;
  4. autonomous vehicles;
  5. collaborative robots (cobots);
  6. cyber security;
  7. industrial Internet of Things (IoT);
  8. machine learning;
  9. robotic process automation
  10. sensors;
  11. vision systems; and
  12. industry 4.0.

The stage is set and interest is building. The world of automation is ripe for a spark to catch the imagination of the financial community, like the 1995 Netscape IPO which marked the start of the dotcom boom. Soon we will see a major capital investment boom that will transform the economy in ways we cannot yet foresee.

Much attention is being given to flashy digital technologies that will certainly impact the future, such as self-driving cars. However, more practical applications of digital intelligence are well under way and the technical support industry that enables them is gaining steam.

While more robotized manufacturing facilities will be built, such as Tesla’s fully robotic GigaFactory, much of the early action is in retrofitting existing industry with digital sensors, AI and automated control systems (industrial IoT and industry 4.0) to make existing production more efficient.

While much existing hardware is significantly depreciated and perceived as economically obsolete, the advent of robotic process automation and wireless sensor device retrofits, designed to work with and supplement existing user interfaces, promises to extend the useful life of the tried and true systems and processes.

With the addition of robots for routine and repetitive work, or to achieve precision and speed in areas like quality control that far exceed human capabilities, manufacturers can extend the useful life of existing plants, and in the process, save, not destroy, jobs.

While we are not yet at a dotcom level of investment, the factory automation sector is booming. Deployments of industrial robots languished during the 2000s at a little over 100,000 units per year, but began to explode in 2011. The International Federation of Robotics expects deployments to hit 400,000 units annually by 2018. The M&A market is beginning to take notice.

In April ABB acquired B&R Automation, the largest integrator of factory automation solutions with revenues of $600m. The other blue-chip manufacturing and hardware bellwethers are not standing still, as evident in recent mega-cap M&A deals such as Siemens’ $4bn acquisition of Mentor Graphics for integration into its digital factory division, Cisco’s announced $125m deal with AI company, Mindmeld, and Ford’s announced $1bn investment in Argo AI in February 2017. Overall, the acceleration of corporate participation in industrial IoT deal share (from 17 percent in 2012 to 31 percent in 2016, according to CB Insights) has been dramatic.

In the meantime, entrepreneurs are not waiting. In April 2017, tens of thousands of business owners, engineers, plant managers, consultants, and prospective entrepreneurs converged on McCormick Place in Chicago to attend Automate 2017 and two related shows highlighting supply chain and food processing automation. More than 1,700 exhibitors presented their wares. They sensed a gold rush coming and wanted to be part of it.

While it would be foolish to predict a repeat of the 1990s stock market bubble, it seems clear that the coming decade will see explosive growth in many of the products and services needed to support the automation of a wide range of endeavors, creating vast new wealth for successful innovators.

At the same time, it is reasonable to assume that many companies and even whole industries will be left in the dust by the introduction of these transformative technologies, just as the record companies were upended by the introduction of digital downloads and music streaming. It is going to be a wild ride that will leave few aspects of human activity untouched.

*Part I of “Is Industry 4.0 the New Dotcom Boom?” appeared in the July 2017 FOCUS newsletter.