Stock Smarts: Adapting To The Fourth Industrial Revolution
New technology is ushering in a fourth industrial revolution and with changes in the economy, adjusting your investments is crucial.
The world is changing at a rate that most of us cannot comprehend. It’s been called the Fourth Industrial Revolution and, like those that have gone before, it is ushering in new technologies, creating new forms of wealth, and costing some people their jobs.
Klaus Schwab, founder and executive chairman of the World Economic Forum, described it in an article published last year as being “characterized by a fusion of technologies that is blurring the lines between the physical, digital, and biological spheres”.
He wrote: “The speed of current breakthroughs has no historical precedent. When compared with previous industrial revolutions, the Fourth is evolving at an exponential rather than a linear pace. Moreover, it is disrupting almost every industry in every country. And the breadth and depth of these changes herald the transformation of entire systems of production, management, and governance.”
It’s happening everywhere we look. Robots are building cars and mining copper. Biotechnology is being used to create miracle drugs. We’re seeing 3D printing used to build everything from precision tools to entire buildings. Artificial intelligence is advancing at an almost frightening pace. Driverless cars are almost here.
The realities of such rapid change are at the core of the forces that brought Donald Trump to power. Mr. Schwab describes it as “a job market with a strong demand at the high and low ends, but a hollowing out of the middle”.
One of them is ABB Group, a Swedish-Swiss company based in Zurich that trades as an American Depository Receipt on the New York Stock Exchange under the symbol ABB.
ABB can trace its history back to the late 19th century, employs 132,000 people worldwide, and ranks at number 286 in revenue terms on the Fortune 500 list. The company is a world leader in robotics, industrial automation, clean energy, and software development. It is the world’s largest builder of electricity grids, a leading maker of electric car infrastructure, and a manufacturer of solar power equipment.
ABB has an active presence in Canada. Last month it opened a $90 million state-of-the-art Canadian headquarters in Montreal. Campus Montreal, as the company calls it, houses the company’s North American Centre of Excellence in E-Mobility. It will support the development of “environmentally friendly, energy-efficient transport networks, including electric buses and trains, and will bring together transit operators, power utilities and engineering experts to address challenges related to building smart cities and sustainable mobility solutions for Canada”.
The company recently reported first-quarter results that showed a 45 per cent year-over-year increase in net income to $724 million ($0.34 per share, results in U.S. dollars). Revenue was $7.85 billion, up 3 per cent in constant currency terms, while cash flow from operating activities was ahead 102 per cent over last year, to $509 million.
However, orders were down 3 per cent from a year ago (9 per cent in U.S. dollar terms) due to fewer large orders (over $15 million) in the company’s Industrial Automation and Power Grids sectors. The order backlog at the end of March was $23 billion, down 2 per cent (1 per cent in U.S. dollars) from the same time in 2016.
Potential investors need to recognize that this is a mature company that will not display the growth characteristics of new high tech companies like Apple, Facebook, Alphabet, Amazon, etc. However, it’s significant that the best results in the quarter came from the Robotics and Motion Division, which saw a 7 per cent increase in orders (comparable currency) and a 5 per cent jump in revenue.
The company continues to grow by acquisition. In April, it bought Bernecker & Rainer (B&R), an Austrian industrial automation company for a price rumoured to be about $2 billion. B&R has annual sales of about $600 million.