It?s productivity, not metrics

There?s been an impish robot question skittering around Wall Street and Broad Street for a couple of years now. Investor?s Business Daily (IBD) was the latest to call to ask about it.

Over the past 18 months or so, IBD has been preceded by CNN Money, Barron?s, The Wall Street Journal, The New York Times and Fox Business calling with the nearly identical need to know about robots that each thought was really strange.

That question goes something like this: Robots are headliners in every media under the sun, are on the minds of most everyone most of the time, and are said to be the global future of work and the bane of human jobs, yet how come the equity markets snub robotics by investing minuscule amounts in these supposedly high-flying vanguards of the so-called next Industrial Revolution?

Good question.

IBD?s Robotics Stocks Still Don’t Compute; Few Exist was the result of that phone chat.

Not to be glib, my first remark was simply: “I don’t think Wall Street has gotten the memo on robotics.”

?Most investors have only vague ideas about robots and they have 50 years of understanding information technology.”

It?s true, I think, that we?ve had a half century to follow information technology (IT) from house-size mainframe computers to pocket-size gizmos that are orders of magnitude more powerful and handier to use for nearly everything.

Today, Wall Street understands, almost on a visceral level, the IT ecosystem of investments and how to turn a profit navigating myriad IT opportunities within it.

The overlooked fact is that the robot has now become IT?s newest form factor, as with, for example, smartphone technology now tumbling into robotics at a record pace.

By 2025, processor power will be 32 times greater than today, according to Moore?s Law, doubling every two years. And our robots will show the effects of a decade under their IT overlord.

From invention to adoption

Today, that process is well under way as robots move from the ?invention stage to the adoption stage,? which is how Standard Chartered?s John Calverley likes to call it.

Robots are digging in as the next general-purpose technology, or GPT, like electricity, computers, and the Internet before them.

Behind this adoption phase for robotics is a single driving force: productivity. Some call it the ?new? productivity.

We?ve been writing about it for some time now. See “Forecast: Advanced Industrial Robots to Power New Wave of Productivity.”

Basically, according to the U.S. Bureau of Labor Statistics, productivity has tumbled from a high of 4.3 percent in 2000 to just 1.7 percent during 2007 to 2014.

That?s way not enough in the face of ecommerce, the devastating churn in logistics and amid overstretched, fragile supply chains, and the incipient pressures from advanced manufacturing, the cloud, and the Internet of Things.

U.S. manufacturers got the memo; they are adopting automation, especially robots, at a double-digit pace, says CLSA America?s Jeremie Capron. The goal is to increase productivity to meet the new demands on their doorsteps. We call it the ?new? productivity.

This is the same memo that, I feel, Wall Street missed.

As in follow the money, follow the ?new? productivity, and everything else makes sense, especially the robot question.

See also Financial Times: Productivity: It?s a drag
“In the medium term, productivity growth is the most important driver of prosperity. Its weakness in recent years lies at the heart of why advanced nations have remained in a low-growth rut since the financial crisis even as unemployment has fallen.

“New data from the Conference Board think tank show that average labor productivity growth in mature economies slowed to 0.6 per cent in 2014 from 0.8 per cent in 2013.”