ABB Taps Emerging Markets, Guards Cash to Escape ‘Thunderstorm’ By Antonio Ligi Feb. 23 (Bloomberg) -- ABB Ltd. Chief Executive Officer Joe Hogan plans to expand in Brazil and India and remain selective with acquisitions, saying Europe and the U.S. may need more time to emerge from the steepest economic slump in half a century.
The company identified $1 billion in additional savings until the end of this year, underscoring ABB’s reluctance to call an economic recovery, Hogan said. Zurich-based ABB, the world’s biggest maker of power-transmission equipment, will move more jobs to emerging economies, where growth will remain above 10 percent and costs are lower, he said in an interview.
“Right now it’s like we’re flying through a thunderstorm, and you just want to get out the other end,” Hogan said yesterday in London. “I think too much of the world is thinking we’re back to 2007. It’s a natural reflex, but I don’t know if we’re back to where we were.” ABB received more orders from emerging economies than from so-called mature markets in the fourth quarter. Hogan, 52, predicted the majority of the company’s workforce will shift to regions that include India, China and Russia in the next 18 months, from 45 percent now, as ABB scales back its operations in countries such as France, Ireland and Sweden.
The Swiss company joins competitors including Siemens AG, which said on Jan. 26 that it’s not “out of the woods yet,” and that some markets have yet to recover. Siemens, which competes with ABB in areas including power transmission and factory automation, has trimmed expenses by merging plants, cutting back office costs and eliminating 10,000 jobs. Cutting Costs ABB said Feb. 18 that it aims to cut costs by $3 billion by the end of 2010, 50 percent more than previously planned, to meet profit targets as customers remain hesitant to invest. The company aims for an operating margin of 11 percent to 16 percent, a target that will come up for review after next year.
Most of the additional savings will come from better purchasing and sourcing of materials as well as adjusting factories to lower-cost production. Hogan, who joined from General Electric Co. in 2008, said one gauge of productivity he watches is revenue per employee. In 2008, sales for each worker stood at about $291,000. That compares with about $175,000 five years earlier, according to data compiled by Bloomberg.
ABB had net cash of $7.2 billion at the end of the fourth quarter. The reserves has fueled speculation ABB will seek acquisitions as the global recession cut the values of potential targets. Hogan said he doesn’t feel pressure to strike, and that acquisitions may be smaller.
Few Targets “There aren’t a lot of things out there,” he said. “We will look opportunistically at targets.” While ABB doesn’t plan to expand into new business areas, Hogan said the company’s reach in the U.S. and in the rest of the Americas still needs to improve. Hogan said he would let the operating margin temporarily slip below his target corridor to absorb a purchase. The last time ABB spent more than $1 billion was in 1998, with the takeover of Elsag Bailey Process Automation NV for $2.1 billion from Finmeccanica SpA. ABB itself is the result of a merger of BBC Brown Boveri of Switzerland and ASEA AB of Sweden in 1988. The company makes components to transmit and distribute electricity, motors and generators, as well as factory robots. Hogan said ABB’s portfolio is in “good shape” and that he doesn’t intend to dispose of the robotics business, the only division to report an operating loss in the fourth quarter as carmakers scale back investment in equipment. Hogan said he plans to expand robots beyond the automotive industry as the machines become more sophisticated, according to the CEO. ABB created two new divisions this year to help facilitate a better integration of the robotics unit into other areas, the biggest realignment of ABB’s operations yet under Hogan’s tenure. “We have done major surgery and we think the patient is now stable,” Hogan said of the robotics unit. For Related News and Information: Top Stories: TOP <GO> Company News: ABBN VX <Equity> CN <GO> Last Updated: February 22, 2010 19:01 EST