Robotics in transition

Robotics in transition

by Pininvest Analysis

Industrial Robotics on pininvest.com

  • 9 constituents
  • 45.0% 1y performance
  • 28.5% volatility
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A Czech writer Karel Čapek (1890-1938) was the author of R.U.R., a play which premiered on Jan. 25 1920, a hundred years ago, set in a fictional factory where artificial people, called roboti (robots), a word derived from the Czech 'robota', which means 'forced labor', were made of synthetic organic matter

A hundred years on, the World Robotics 2020 Industrial Robots report published by the International Federation (IFR) – updating global robot installation as of end-of-year 2019 – estimates total installed stock at 2.7 million units, excluding consumer robotics such as iRobot vacuum cleaners

The latest IFR report highlights a drop in global installation in 2019 – by 12% – to 373 200 units, following 6 years of uninterrupted growth (CAGR of 11% since 2014)

Industrial robotics - today by far the largest segment in automation (at $13.8 billion for 2019) - might be moving 'sideways' in more mature markets on a slower growth path

Professional service robotics - in medical applications, in warehouse logistics and potentially in a wide range of service support functions - can be expected to take the lead

The transition may be slow as some of the largest economies, such as India and even China, are still pursuing industrial modernization - giving ample time to  consider investment strategies in the wake of the service build-up 

With the invention of the word, robots, in Čapek's creation  of R.U.R., did not belong in a world of mechanical automation, as we know them in our contemporary understanding

Created as artificial biological organisms, Čapek's robots rebelled under their subservient status and conflict flowed from human profiteering

Original Czech edition -  credit U. of California, Berkeley

Opening vistas of prescient societal tensions – a theme the author revisited in 1936 with another science fiction classic - War with the Newts – in a darkening world of brutal national-socialist dictatorship, Čapek’s out-spoken anti-fascism comes as no surprise

The annexation of the Sudetenland by Germany after October 1, 1938 – following the Munich Agreement of the previous month, which enacted the relinquishment by France and the United Kingdom of the guarantees given to Czechoslovakia – was to confirm Čapek's premonitions, less than three months before his premature death (Dec. 1938)

 

Besides the name, there is little to relate contemporary robotics to Čapek's  science fiction - except maybe for the fact that human ingenuity projects our imagination in unexplored fields, in an effort to foretell the future

The Czech author's clearheaded warnings ended in tragedy, but sober anticipation has lost none of its edge 

This is how crowd psychology - undue enthusiasm or disaffection - projects warnings of no less relevance in the investment sphere than in social and political drama 

The growing importance of robotics and the shifting emphasis of its true potential are a case in point



Underlying trends

The forces which powered the robotics industry are not (yet) significantly altered

The automotive industry was – and remains – the industry’s most important customer with almost 28% of total installations, at 105 400 units still a substantial drop over the previous yeas (2018 – 125 500 units)

Unsurprisingly, demand by the industry – and by automotive part suppliers – puts a very small number of countries at the top in terms of robot installations and number of robots per 10 000 workers

With 5.5% of global installations (20 500 units), Germany stands out as fifth largest robot market, driven mainly by the car industry and the country ranked third by installations per 10 000 workers – 350 (as of 2019) up from 322 in 2017

At 13.5% of total (49 900 units), Japan, second with 364 units per 10 000 behind South Korea , has one of the highest levels of automation – a trend which the Japanese industry will be compelled to pursue with its aging work force

At close to 11% of total (40 400 units), the US does not entirely reflect its industrial potential if the 2019 density is a fair approximation – with 228 installations per 10 000 (against more than 350 in Germany and in Japan)

 

Supported by the second largest industrial client base, Korea is different

Reflecting the country’s dependence on the electronics industry, Korea’s 2019 installation, at 7.5% (27 900 units) maintains the country in the top tier (at more than 855 units per 10 000)

 

At 37.5% of total installations (140 500 units), China remains by far the most important market for the robotics industry

Close to 30% of robots are manufactured by domestic suppliers, aiming for a 50% China-made market share by 2020, led by companies such as Siasun Robot & Automation (belonging to Chinese Academy of Science), according to the country’s five-year Robotics Industry Development Plan

China’s rate of automation is on a wild ride from a density rate of 25 units per 10 000 in 2013, growing to 97 by 2017 and reaching 187 in 2019

 

Viewed through the lens of regional installations in 2019, the Asian dominance in industrial automation investment is no less revealing

  • Asia – 245 000 – 66%
  • Europe – 72 000 – 19%
  • Americas – 48 000 – 13%

In one sense, nothing changes … as observed in ‘The Trade War of the Machines

The glaring discrepancies between established industrial countries – and their strong challengers – in terms of robots supply and density foretell, in unforgiving light, an industrial future where the geopolitical cards are reshuffled

Governments may well be committed to the revival of an industrial base for key industries in the 'post-industrial' economies of the advanced countries of Europe and the Americas ...

...but robotization tells a different, deafening and insistant, story

 

Transitions – one road and many forks

A massive shift of global consumer demand towards Asia, skewed demographics in aging developed countries and labor cost differentials across the world have defined trend lines during the latest and most intense phase of globalization, since 2000

This thrust for automation across industries remains unaffected, with countries such as India still very much in a ‘catch-up’ phase from a low base

Indian growth is particularly strong  with the third highest volume in Asia after China and Japan, and demand can be expected to remain sizable in industries favored by robotics:

In the automotive industry, India with 85 industrial robots per 10,000 employees is less than a fourth of Indonesia’s density of 378 units and far away from China’s 505 units….

 

Nonetheless, market conditions within the industrial segment and the fast growing segment of ‘professional service robots’ used outside of manufacturing are reshaping the industry

 

Industrial robots manufacturers are facing a transition in the automotive industry from internal combustion engines to electric vehicles and, simultaneously, a slowdown in investments due to the poor market conditions

A slow growth path, unusual for an industry which has enjoyed year-on-year trends exceeding 10 %, is further weighed down by the maturing smartphones market, with electronics the second largest client base for robotics

Global trade tensions and – of course – the inordinate shockwaves of the pandemic – create further uncertainty on the established markets of industrial robots

Following a year of weaker growth (2019) and probably mixed results in 2020, pricing of the major listed manufacturers of the theme ‘Industrial Robotics’ assumes everything will come out right… and soon

 

Professional service robots, the future is arriving

Used outside an industrial setting, service robots are being found everywhere, in promising sectors such as healthcare, warehouse automation or defense

A threefold projected increase—from 2019 to 2023 – in professional service robots installation from 173 000 to an estimated 537 000 may just be scraping the surface…

 

Niche specialties such as medical robots have started gaining acceptance in targeted medical procedures, by providing support to healthcare professionals, a deep transformation no medical device manufacturer can afford to be missing

From the basics such as

  • disinfection services in hospitals, or
  • the usage of robots for performing operations resulting in scanning a patient's vital signs

to advanced functions such as

  • platforms assisting the neurosurgeons robotically by positioning the instruments accurately during medical procedures or
  • surgical procedures such as laparoscopic surgery, heart-thorax surgery, orthopedics and trauma surgery

the potential of medical robotics has been gaining recognition

 

Warehouse logistics have kept pace with the growing share of e-commerce in retail and represent the greatest share of professional service robots today

  • The potential of warehouse robotics was asserted by their reliance on software, wireless connectivity and sensors, contributing to establish a segment of fairly affordable and flexible robots

 

As shown in forthcoming themes, medical robotics may continue to offer opportunities for the investor but the largest medical devices specialists are committed to robotics specialties, limiting the space of ‘pure-play’ companies

In warehouse logistics, technical specifications are more limited in scope and lower barriers to entry will create a more competitive environment, which is why the investor might focus on specialized constituents of the logistical chain, rather than on the robots themselves

Both suggestions will be further discussed in our themes – Medical Robotics & Warehouses Real Estate and Automation