May 20, 2015      

What took so long?

Haven’t we all been waiting for Universal Robots to get swept up in the M&A binge that’s been ramping up in the co-robot space? Really, what took so long?

Most recently, it was ABB grabbing up an inventive little guy like Gomtec; then rushing out its own YuMi (formerly Frida from 2013) at the Hanover Fair this April. KUKA, on the other hand, zeroed in on and snagged Swisslog.

Ever since last June when Automatica 2014 raised the curtain on thousands of square feet of exhibition space exclusively devoted to innovative robot arms and mobility from mostly new, no-name providers, the big cats of robotics must have gulped incredulously at having been so out-innovated, and then quickly went on a shopping spree for capabilities that they could never create for themselves.

It’s a spree that’s racing to full on and won’t end anytime soon.

Just the sight of Universal Robots’ low-cost UR10s on the BMW and Volkswagen production lines must have raised the collective blood pressure in boardrooms of industrial robots makers everywhere.

Disruptive upstart

Universal Robots is a young (founded in 2005, and profitable since 2010) diminutive, three-product — UR5, UR10, and the most recent UR3 — Danish robot maker that was founded by three pals from the University of Southern Denmark in Odense: Esben Ostergaard, Kasper StOy and Kristian Kassow, now more than likely three of the world’s most newly-minted, high-tech millionaires.

Universal Robots reinvented the industrial robot, and since 2005, people who make things or store things or ship things have taken a distinct liking to UR’s brand of collaborative, safe-to-be-around, fast-learning, adaptable, efficient, and low-cost robot arms.

The low cost is especially attractive: a UR5 goes for $30,000, while KUKA’s LBR iiwa robot arm costs nearly $200,000.

Zurich-based Finanz Nachrichten reports that collaborative robotics is a $100 million segment of the industrial robotics market growing at more than 50 percent per year. Further, that Univeral Robots’ 2014 share of that market was more than $38 million, which puts Universal not only as market leader, but also sole owner of more than one-third of the entire space.

Admittedly, $100 million co-robot market isn’t whopping by any means, but a business growing at 50 percent a year most definitely is.

It must have dawned on Ostergaard sometime soon into 2014 that Universal Robots had a huge acquisition target painted on its back, and that it was just a matter of time until the titans of M&A noticed, tracked his company and then swooped in with an offer that no self-respecting Danish engineer could possibly refuse.

At a price in excess of $285 million, Universal Robots sold for three times the entire market take for collaborative robots in 2014.

At the massive Subcon tradeshow (Bangkok, May 13-16), I asked UR’s Thai representative, Enrico Sielaff, a transplanted German engineer, the acquisition question, which he quickly pooh-poohed as utterly preposterous.

He’d just sold a UR5 to the Thai-German Institute, and was pumped at the prospects for the UR line in Thailand.

The next day, when we exchanged emails about the sale to Teradyne, he was a bit crestfallen. “I’m kinda disappointed,” he wrote back to me. “I think it’s under value[d] and after visiting their production, I don’t know what they need further capital to work the business. It should be basically self-running since the product is that good.”

Just in the nick of time?

Ilian Bonev, the sagacious Canadian roboticist at Montreal’s Control and Robotics Laboratory, sees an interesting downside to Universal Robots’ robot arms that point to the possibility that the sale of Universal Robots may well have been made just in the nick of time.

Yes, Bonev admires Universal and its product line: “I now have no doubt that the UR5 is by far the most intuitive industrial robot out there. I can’t believe no one has thought before of developing such a simple robot user interface.”

However, he said they are not perfect, not all that safe and are easily imitated. He cites the Swiss MABI Speedy 10 as a credible competitor.

Bonev also cites China’s Smokie Robotics, a startup headed by Prof. Jindong Tan from the University of Tennessee, with its OUR-1 (Open Unit Robot-1) version of Universal Robots’ UR5. The OUR-1, manufactured in China, sells for $15k — half the price of the UR5!

The real question looming up before the continued success of the UR product line: can Universal Robots maintain the market share (over 30 percent) next year or two years from now, or longer?

Teradyne is expecting max effort from Universal through 2018, and has anted up an extra $65 million in incentives to the small, 200-employee robot revolutionary.

Maybe more than technology, the real challenge for Universal Robots might well be that of time.

innovator

A small, inventive company with an ingenious product, but still building out its global sales and marketing infrastructure, may not have enough time before competition and price close in to take its market away.

Is it the old Henry Ford story: Soon after the first Model-T rolled out of his Piquette Plant in 1908, Ford had over 300 auto competitors gunning for him. That’s Universal Robots’ dilemma: a classic bit straight out of Clayton Christensen’s Innovator’s Dilemma.

Christensen “demonstrates how successful, outstanding companies can do everything ‘right’ and yet still lose their market leadership — or even fail — as new, unexpected competitors rise and take over the market.”

Universal needs a powerful, good friend to offer up opportunity and time: enter Teradyne.

Is it now Teradyne’s dilemma?

Without naming names, Clas Nylandsted, chairman of the board of Universal Robots, said, “Among all the suitors, we chose to seek a common future with the very right one.”

And that suitor and ultimate buyer in the deal, Teradyne, a company that Bloomberg describes as producing automatic test equipment, especially semiconductor test products and services for wafer level and device package testing, certainly doesn’t fit the profile of a mover and shaker in the robotics industry at all.

The deal money in the Universal Robots acquisition by Teradyne was very large — eye-openingly large — for the likes of a test equipment maker to pay for a youthful robot maker. A cool $285 million net of cash for the acquisition plus another $65 million if certain performance targets are met through 2018.

Teradyne (TER:US) reported 2014 sales of $1.65 billion, up 15 percent year over year. Net income rose 23 percent to $266 million.

The $285 million was a cash only transaction using offshore funds.

Great pluses for Universal Robots are that Teradyne has a global sales infrastructure, marketing, and advertising all ready to go. Add to that Teradyne’s big-hitter customers — all manufacturers who might need a robot or two — like Samsung, Qualcomm, Intel, Analog Devices, Texas Instruments and IBM.

Then too, as Mark Jagiela, CEO of Teradyne, said of the deal: “This acquisition complements our System and Wireless Test businesses while adding a powerful, additional growth platform to Teradyne.”

Within the swirling universe of advanced manufacturing, the industrial Internet and Internet of Things, and smart industrial collaborative robots, the need for system’s testing is paramount. Teradyne could well become a pioneer in such testing, especially with Universal Robots’ IP and brainpower acquired in the sale — even if Teradyne eventually unloads the robot manufacturing end of the business.

Wall Street’s mixed reviews

According to Investor’s Business Daily, the deal was both praised and panned. Here’s a bit of the commentary:

Pacific Crest Securities analyst Weston Twigg praised the deal.

“We like the announced acquisition of Universal Robots, and we buy into the idea of revenue synergies as Teradyne attempts to introduce collaborative robots to the electronics industry,” he said in a research note Wednesday. “A successful acquisition could drive our estimates moderately higher over the next two years.”

Twigg rated Teradyne stock as overweight with a price target of 22. Teradyne stock already was trading near 21, up 1.5% in afternoon trading in the stock market today.
UBS analyst Stephen Chin said the acquisition is a good use of Teradyne’s offshore cash. But he said the deal appears expensive. To pay it off, he said, Teradyne will need Universal Robots to show continued annual growth of 50 percent to 60 percent.

Chin rates Teradyne stock a buy with a price target of 26.

But Craig-Hallum analyst Christian Schwab called the Universal Robots acquisition ill-advised. He cut his rating on Teradyne to hold from buy and reduced his price target to 22 from 24.

“We believe a more meaningful dividend and (stock) buyback program would be a better use of the company’s capital,” Schwab said in a note.

Citigroup analyst Atif Malik, who has a neutral rating on Teradyne, was also downbeat.

“Universal Robots is the leader in collaboration robots, or cobots, which work alongside workers to automate labor intensive tasks like packaging, gluing, painting, polishing and assembling parts,” Malik said in a note. “We view the cobot market size of about $100 million as small and fragmented with growth and low barriers to entry likely to attract both large and small competitors (Fanuc, ABB, Kuka, Rethink Robotics, etc.).”

Most significant here is the comment from Citigroup’s Malik; it bears repeating: “Low barriers to entry likely to attract both large and small competitors (Fanuc, ABB, Kuka, Rethink Robotics, etc.).”