Tuesday 11 December 2018

The firms that will win in battle of man vs machine

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John Lynch

It's all of 21 years since the American computer giant IBM pitched its brightest piece of technology, a couple of stacks of artificial intelligence (AI) which it called 'Deep Blue', against the reigning world chess champion Gary Kasparov in what was then the world's most famous 'man vs machine' challenge.

Kasparov's defeat was hailed as the arrival of the AI revolution. Manufacturing would never be the same, we were told, while education and healthcare would be transformed.

The robot revolution hasn't happened at the pace predicted two decades ago but it is coming, rapidly.

Today's level of computer power, big data, improvement in sensors, vision technology and speech recognition is sending out real threats to many professional jobs in, for instance, medicine, law, insurance and finance.

The current demand for robots is three times greater than 10 years ago. Last year, global sales were up 20pc, with industry robots accounting for $10bn (€8.2bn) and consumer robots $3bn (€2.45bn), as 300,000 robots were sold.

Interestingly the range and type of robots is no longer welding cars or lifting heavy loads. A sign of the change is a Panasonic factory with the assistance of robots has been producing two million high-end TVs a month, with only 25 employees.

The surge in robot sales has seen the emergence of four major suppliers, two Japanese, Fanuc and Yaskawa, a Swiss/Swedish concern ABB and Germany's Kuka AG. The rise in robot demand has coincided with a jump in their share prices. Kuka made the news last year not because its robots were building Tesla and Porsche cars, but for its €4.5bn takeover by the Chinese appliance company Medea, which hopes to build small mobile robots for the home and consumer industry.

However, the German government was unhappy with the takeover. While it has a right to block any non-EU company from acquiring more than a 25pc stake in any German entity, it is limited to public order being endangered or national security. A little late in the day, Ms Merkel's cabinet approved a directive to probe future deals, seeking a more aggressive push back against outside investment in sensitive sectors.

Japan's Fanuc is the world's leader in robots. The group has a market value of $50bn, annual revenues of $6bn, net profit of $1.7bn, employs 5,500 and has operations in 46 countries. The group's robots assemble and paint cars in China, construct complex motors in Asia, make electronic components and sort and package pills worldwide. Its output is reckoned to be the most reliable, least expensive and easiest to repair on the market. Its share jumped 40pc in 2017.

Japan's second robot manufacturer, Yaskawa Electric Corporation, has more than 150 robot models for welding, assembling, coating, material-handling and packaging. Global robot sales last year were €1.2bn, up 20pc. Its main market is Asia, which accounts for almost 75pc of its sales. Its shares doubled last year.

ABB, meanwhile, is the second largest robot producer in the world. Recently it introduced a robot with two arms and flexible hands that will automate most industrial processes. The group also has an alliance with Microsoft to further develop its AI robot offering. ABB is of the opinion that robots will push productivity up 30pc and lower labour costs 20pc in the near future.

While ABB shares are showing an increase of less than 20pc, an alternative investment strategy might be an EFT focused on robotics and automation like Robo, which has outperformed the market.

While people have been predicting robots will take over the world since the 1930s, it is now nearer than ever. Business consultants estimate 30pc of tasks in 60pc of occupations could be automated.

An added problem will be multinationals re-shoring their operations. This is a reversal of the 20th-century policy of transferring operations to lower labour cost and tax-attractive countries (including Ireland). In the future, AI robots will make it attractive for corporations to return to their original base.

Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned.

Irish Independent

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