Tech

Chris Bryant is a Bloomberg Gadfly columnist covering industrial companies. He previously worked for the Financial Times.

For all the noise around Alphabet and Amazon's push into robots, the business of building our future overlords is a remarkably concentrated one.

Overlords Consolidated
Four companies account for two-thirds of industrial robot sales
Source: company data, Macquarie Research estimates

Four companies -- Germany's Kuka, ABB of Switzerland and Fanuc and Yaskawa Electric of Japan -- account for about two-thirds of global industrial robot sales, according to Macquarie Research. Handily, their machines come in distinct colours: Kuka's are orange, ABB white, Fanuc yellow and Yaskawa blue.

Of the four, Kuka has rewarded shareholders best, generating a total return of 600 percent since 2010, according to Bloomberg data. Revenue is on track to hit 2.9 billion euros this year, almost three times the figure for 2010.

Much of this growth has been organic, but CEO Till Reuter, a former lawyer and investment banker, has also made sensible bolt-on acquisitions, including the 550 million-euro purchase of Swisslog, a pharmacy and warehouse logistics specialist, that have helped lessen the company's dependence on the automotive industry, which still accounts for about half of total sales. 

Kuka's lightweight robots enable humans and machines to work side by side in production, without the traditional safety cage required to protect the human from the automaton. It's also tried to make its robots easier to programme.

That all makes the German company confident it will hit 4.5 billion euros of annual sales by 2020, a compound annual growth rate of more than 9 percent.

Kuka's market capitalization now exceeds 3 billion euros. That's 25 times estimated 2016 earnings, about the same multiple as Fanuc, which was this year the subject of a campaign by activist investor Daniel Loeb to return cash to shareholders.

Even after Kuka boasted a 20 percent year-on-year jump in robotics orders in the third quarter, only four of the 29 analysts that cover the company rate it a buy, according to data compiled by Bloomberg.

Kuka is facing threats: Volkswagen, which accounts for as much as 10 percent of Kuka's annual sales, is embarking on a cost-cutting scandal following the diesel emissions scandal.

Robots Rising
China is driving forecasts for sales of multi-purpose industrial robots
Source: International Federation of Robotics

Competitors such as Estun, Siasun and Efort threaten to seize market share in China. That market could also become tougher if Chinese investment spending slows further. (Fanuc cut its full-year earnings forecast in July, citing slowing sales in China). Finally, there is the hard-to quantify threat posed by the robotics ambitions of deep pocketed companies in Silicon Valley.

So why Kuka's rich valuation? Takeover speculation is helping. Last year Voith, a German engineering company, purchased a 25 per cent stake in Kuka, describing it as a strategic investment. The stake is sufficiently large to prevent another would-be acquirer from seizing control of Kuka's cash flow. That seemed to dash speculation Kuka could become a takeover target for Siemens, which unlike ABB lacks robots in its automation portfolio, or another buyer from China or Silicon Valley.

Yet in August, Midea Group, a Chinese household appliance maker backed by billionaire He Xiangjian, disclosed it had taken a 5 percent stake in Kuka, becoming its third largest shareholder. (Separately, Midea agreed two joint ventures with Yaskawa that month).

The following month, Swoctem, the investment vehicle of German entrepreneur Friedhelm Loh, said it planned to acquire further voting shares in Kuka over the next 12 months, adding to its 9 percent stake.

Loh and Hubert Lienhard, Voith's CEO, both sit on Kuka's supervisory board -- and their plans for Kuka's future ownership structure are still opaque. But other investors making the robotic assumption they will receive a takeover premium could yet be disappointed.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Chris Bryant in Frankfurt at cbryant32@bloomberg.net

To contact the editor responsible for this story:
Edward Evans at eevans3@bloomberg.net