investing amid iot-enabled disruption in manufacturing€¦ · the impact of the internet of things...
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The impact of the internet of things (IoT) is the ability to leverage real-time
data to drive real-time decisions that can bring broad-based economic
benefits to companies and consumers. Manufacturing is going through
an extended IoT-enabled automation refresh cycle. This is likely to change
the traditional global industrial automation vendor landscape as they
have to offer new software capabilities in order to be successful in the
changing marketplace. The MFS capital goods and technology sector
teams did a global cross-sector analysis to assess the impact of IoT-
enabled automation in manufacturing and its investment implications.
Impact of real-time information and analytics
Exhibit 1 shows an example from rail operations. Using a continuous
data feed from a physical system (a locomotive and its environment), a
digital model can be built to simulate live operations, to the extent where
the “digital twin” can optimize the locomotive’s journey by controlling
speed and braking. The result can be significant savings from the efficient
operation and predictive maintenance of the physical system.
Implication for industrial automation and software companies
In the context of “smart factories,” IoT-enabled automation has led to
a dynamic landscape for incumbent industrial automation vendors as
they seek to offer integrated hardware-software solutions for industrial
customers, i.e., manufacturers. To do so, vendors are either building or
buying software capabilities, or partnering with software companies or
doing all of the above. Their manufacturing know-how is a key advantage
over potential new entrants. Pure software companies are also entering
the industrial automation space, and their business models are evolving.
A change from traditional licensing models to subscription-based
models can bring better customer insights to drive product offerings, but
whether this will be acceptable to industrial customers is yet to be seen.
The demand from industrial customers for universal, open standards
in industrial infrastructure — a change from today’s proprietary, closed
architecture — is likely to change the profit equation for existing vendors.
June 2019
Investing Amid IoT-Enabled Disruption in Manufacturing
Exhibit 1: IoT-enabled rail operation and predictive maintenance
Source: Adapted from GE, "Digital Twin for the Railway Network," 2018.
Digital twin for a locomotive■ Through life cycle: design, build, testing■ Live, continuous learning: continuous IoT data feed
to the model to simulate live operations■ Scalable: component-level to system-level to network-level
Use cases■ Route optimization■ Predictive maintenance■ Track inspection■ Minimizing human error
Rail operation and predictive maintenance… …achieved through a digital twin
Physical AssetDigital Twin
A Learning Digital Model
f(x)Transfer Function
Automatic control of throttle and dynamic brakes
~ 100MGallons fuel saved
~ 200MAuto miles run
~ 7,500MLocos installed
Trip optimizer
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June 2019
The views expressed are those of MFS and are subject to change at any time. These views should not be relied upon as investment advice, as securities recommendations, or as an indication of trading intent on behalf of any other MFS investment product.
Open standards allow factory systems, supply chain, and customers to communicate seamlessly and realize
the full benefits of IoT-enabled automation. The industry is likely to move in this direction despite resistance
from existing vendors.
Conclusion
The traditional industrial automation landscape is changing from an IoT-enabled automation refresh cycle,
and the winners and losers are still in the making. Investing in this space requires a global and cross-sector
view of industrial automation to determine who will benefit from these trends. It is clear that new profit
pools are being created as IoT is incorporated into factories (and elsewhere), offering a broader investment
opportunity set for active research and management. Our global research platform generates critical insights
that help us continually test the investment theses for our industrial automation holdings and spot emerging
opportunities in software and other cutting edge technological areas such as machine vision and robotics.
To learn more, please read our white paper on the subject here.
Authors
Thomas P. Crowley, CFA
Equity Research Analyst
Bradford J. Mak
Equity Research Analyst
CV Rao, CFA
Equity Research Analyst
MFSE-IOT-BLOG-6/1943347.1