In June 2018 we saw that Rockwell Automation (ROK) made a $1 Billion investment into PTC that will give Rockwell just under a 9% ownership interest in PTC. I decided to wait to look at this. Now here is the time for a review eight months later.
I have made initial snapshots (all separate links) on Schneider Electric, Bosch, GE, Siemens, ABB, Alibaba and Baidu to look a little deeper at their platform offerings. I still have to dig into Azure and AWS sometime but this partnership of a leading software provider in the IoT space and Rockwell, dedicated to industrial automation takes precedence, as my primary focus is on platforms and ecosystems in business IIoT.
Rockwell had not responded up to this point in a strategic way to the very strong pushes, led by their largest competitor, Siemens on IIoT platforms. Siemens has been building their Mindsphere offering in their own unique purposeful ways.
This move and partnership between Rockwell and PTC might change the game significantly. PTC will be supplying a real IIoT backbone of platform components and are rapidly delivering an integrated industrial digitalization solution.
Slapping $1 billion on the table really does potentially transform both businesses.
Rockwell Automation in June 2018 made this equity investment that gave them a 9% investment into PTC. The aim is within this partnership to leverage both companies resources, technologies, industry expertise, and market presence and will include technical collaborations across the organizations as well as joint global go-to-market initiatives. Is one the winner?
At present both believe this is a marriage of equal value and opportunity, a real partnership of shared need, in my opinion. If they can deliver on their claims of “being comprehensive, innovative and integrated solution providers” then they do have a real competitive positioning that shifts the dynamics of the IIoT platform providers.
My summary of A platform can’t stand alone, with my round up of platforms in 2018 gets into some of the shifts that will occur in 2019. A platform needs activity, it requires connections, it needs to be part of an Ecosystem, it needs a whole community of vested parties, bringing something to the platform partly to make it work and perform. PTC and Rockwell have made a major step in this direction.
The combination of PTC’s ThingWorx connectivity platform, data orchestration, and ROK’s deep connectivity into Industry really brings Industrial Automation platforms to life. They claim they will offer an unmatched integrated information solution and have been refining the suite of services that are potentially a match for any competitors chasing the IIoT space. The combination of Analytic foundations (PTC) and Domain Expertise (ROK) brings enterprise-wide visualization closer to reality.
Reality means the delivery of increased productivity, heightened plant efficiency, reduced operational risk, and better system/machine interoperability. Their combined focus is on “the connected enterprise” where visualization and augmented reality is significantly emphasized.
So they have pooled ROK’s Factory Talk analytics and MOM platforms with PTC’s ThingWorx their industrial platform and the industrial connectivity from Kepware and Vuforia, PTC’s augmented reality solution.
Visit FactoryTalkInnovationSuite to get a better feel of what this is providing in design, operation, maintenance potential with the innovation suite powered by PTC. They are claiming the combined effect as the most comprehensive and innovative software portfolio in Industry.
Eight months down the road what seems to be happening.
Firstly PTC
PTC has been very highly focused on a real business transformation. They have been radically moving from the past, more traditional CAD and PLM sales model, focused on perpetual software licenses into a more “modern” cloud-focused subscription-based revenue model. In recent months this has impacted their income statement as they have been making this transformation. Instead of focusing on constantly chasing big lump sum payments as licenses are perpetually reviewed so this switch aims to smooth out their revenue.
PTC has been accelerating their transition by offering these subscription models for core solutions and critically their Thingworx platform. It has not been an easy road and still is having very high top management attention, with reporting losses or recently reading their investor transcript they are struggling with some tough deal slippage. This is signaled by their CEO, Jim Heppelmann, in these Qtr 1, 2019 results, reading the transcript
For PTC this QTR 1 was the final last-time buy opportunity across all of our geographies and therefore, they are claiming this earnings call should be the last time we discuss subscription mix in a meaningful way going forward. PTC is constantly looking to getting large deals across the finish line in the Americas and Europe, so the slip deals worry creates headaches.
Also, they undertook a major revamp of a go-to-market realignment and finally there is a softening of the overall macro environment is giving greater uncertainty. It is these headwinds that are affecting Industrial companies worldwide at present.
The push of PTC on CAD/LM/SLM has some very formidable competitors in Siemens, Dassault. Aras and AutoDesk and they are seeing significant technology challenges to keep customers happy and advancing in technology solutions
I have focused a little bit more on this short-term range of issues as the value of Rockwell’s investment into a strategic decision will become increasingly important. It will shift PTC significantly to ‘hone’ their platform for combining with ROK to attract across more clients.
Rockwell to understand this partnership and fully integrate it into their FactoryTalk platform are currently targeting their 400 top accounts that are in the large clients in Automotive, Oil, and Gas, Pharmaceutical, Chemical, Mining, and Materials. If these move onto the FactoryTalk IIoT platform they will deliver to both companies very big deals. Getting under this “apple picking” ROK has around 35,000 accounts, along with PTC’s 25,000 customers does give a very significant universe to make the connected enterprise story really work for them. I wonder how the competition will react; Siemens and GE especially?
Rockwell has a similar story of struggling with its revenue growth.
There is a view that Rockwell has been slow to respond to offer a more comprehensive IIoT technology set of solutions. Arguably this partnership should resolve this but it might take some time.
Today, 29th January 2019, Rockwell released its earnings for 1st Qtr 2019, with reported sales up 3.5 percent year over year; organic sales up 5.7 percent. This seems disappointing to me. When you break this down; Architecture & Software quarterly sales were $753.1 million, an increase of 2.4 percent compared to $735.6 million in the same period last year and Control Products & Solutions quarterly sales were $889.2 million, an increase of 4.5 percent compared to $851.0 million in the same period last year.
Siemens in comparison in its Digital Factory Division has been growing faster, although this includes their very strong PLM business, so I feel Rockwell needs a while to get the type of momentum this PTC & ROK partnership should be providing. Yet these earning results of the 1st Qtr offer that the Information solutions and Connected Services did have double-digit growth. This offers a real indicator of promises to come and gives a real indicator of this partnership really working.
The warning that accompanied the results of Rockwell signals what seems to be this headwind on Economic Growth. Blake Moret, the CEO, added, “We see continuing uncertainty due to trade tensions and geopolitical risks. However, forecasts continue to call for Industrial Production growth.” I get the impression the momentum from the partnership is still to happen and should remain attractive if they can convert “promise” into “reality”.
What we should never underestimate the convergence of IT & OT is really hard.
I feel clients are holding back on deciding which platform providers they wish to fully commit to. There has been plenty of talk of “Pilot Purgatory “ where many prospective clients stay in a constant experiment, learning and growing their own understanding of what platforms can provide to them
There is also some backlash on the salesmen’s overpromise, over-sell of what solutions can do, simplifying the problems in some very complicated connections. This applies to all IIoT platform providers. The acceptance is that technology does work but the attention, investment and changes this requires needs greater acceptance and commitment within any board room. There is a doubt they will see returns for a long time and reluctant to change their present operating and business model that any “connected enterprise has to go through. The positioning of solving the IT/OT dilemma is one of the keys to real grwoth and acceptance by the customer, that the solutions offered, goes a long way to solve this problem
Is this inertia or fear of the unknown
So many Boards are seeing greater risk on the horizon as more CEO’s tell of headwinds, possible restricted growth etc. At the Davos WEF meeting of global leaders last week there was some justifiable talk of World risks sleepwalking into the next crisis, Davos report warns.
Global risks are intensifying but the will to tackle them collectively is eroding, as forces across the planet call for “taking back control”, the World Economic Forum warned in its latest report published last Wednesday. The report went on to say: “As more time passes, each of these challenges will further increase the inequality between regions, countries and even generations, further complicating the setting of a new path required to be based on ‘greener’ and more inclusive economies. The backdrop of citizen’s unrest, toxic politics, and weaker economies is fueling pessimism, especially among investors and companies.
The IIoT world looking for transformation through digital is still working through the huge implications of cost related to the 4th Industrial Revolution. I recently asked “Are we learning the lessons of the Fourth Industrial Revolution”
So as Rockwell and PTC are forming this partnership, the economic outlook seems to be eroding confidence. Will the Software and Domain Expertise be enough to “weather the near-term and convince” clients to undertake their platform conversion journey?
To succeed then all the advantages of this partnership need to be fully leveraged
This means delivering on the promise of truly automating technology through the benefits of IIoT, in domain expertise, brand recognition, product solution design and the growing one that needs greater emphasis on product lifecycle management. PLM gets stronger as economics slow down. Clients want to extend out their investments, so legacy becomes a higher topic of need. Does PTC have the same capacity to manage this, like Siemens, Bosch, GE and assumingly Rockwell? Legacy solutions will take on even higher meaning for solution finding.
Secondly, the promise of Rockwell to “bring the connected enterprise to life”, deliver “above average growth” and still deliver “superior return on shareholder investments” still has some current challenges behind it.
PTC states “We’re confident that our workforce realignment activities in the field are behind us now and see several positive tailwinds developing in our business such as our alliances of Rockwell Automation and ANSYS which as they mature could help cushion against a potentially softer demand environment.” Alongside this was the bullish comment from the CEO of PTC “with our subscription transition fading in the rearview mirror and our focus on disciplined cost and portfolio management, we are firmly on track with our plans to transform PTC into one of the premier software companies in the world”
The thing that seems to be in place is the portfolio of offering these two (PTC and Rockwell) have to offer. Solutions in CAD, PLM, Augmented Reality, Connectivity and IoT expertise to offer analytics, MES, Automation, and Industrial Control, Sensors, and Networking.
In Summary
The big question is not they are presenting their combined portfolio, it is how it really works and solves each individual complex problem, client by client. That is the drag, delay and a big problem to solve, and clients really need convincing the solutions offered, not just have a claim but real proof.
Clearly, Rockwell has a heavy dependence on its American business (60- 65%) but I do get a distinct impression the opportunity within PTC and ROK might lie in Asia. Again it all depends on the solution portfolio and how it responds to client needs and their combined abilities to solve these through their combined IIoT platform approach. That emerging story will be something to watch out for,
All I can observe in Use Cases, Apps and demonstrations of success are thin in substance at present, this is for all in the IIoT platform space. This needs radically “cranking up” to build trust, confidence, and belief for clients, demonstrating tailored solutions are working A lot does hinge on getting real trust from clients, unwilling to open their pockets and real belief their digital transformation can be handled successfully. It is not just the platform providers but the significant ecosystem of their partners being organized.
Platform providers have not learned to “dial down” their own rhetoric and become more the orchestrator of the ecosystem that relies on each other to make this transformation happen. There is this new race, once recognized to occupy the Orchestrator position and that is totally different than owning data, software or locking in the systems
Will Rockwell and PTC make even more a different, game changer move, further adjusting their business model into a broader collaborative one?
