High-tech shift by ABB starts to reap dividends

ABB’s shift from electrical engineering into high-tech services is to continue, with the company’s fastest growing and largest area of business now being automation, according to a breakdown of its 1999 results.

The shift is part of an effort to reposition ABB into markets with high-growth profit margins.

Revenue for the automation division grew by 18% between 1998 and 1999, reaching $8.27bn (£5.10bn). This accounted for 30% of the company’s sales and was followed in importance by another computer-driven sector, building technologies – at 23% of revenues.

ABB’s traditional power distribution and transmission divisions now account for only 14% and 11% of the company’s business respectively.

In the past year, the company’s move away from heavy engineering has seen it sell its 50% stake in train builder Adtranz to its partner DaimlerChrylser. It also hived off its gas turbine business into a joint venture with Alstom.

ABB is also selling its nuclear engineering arm and has completed the sale of its standard cable business.

Margins in automation are around 7% after restructuring and the recent acquisition of Elsag Bailey. But chief executive Goran Lindahl believes that by offering `total solutions’ – products, systems, services and financing – ABB’s automation division’s margins can be pushed to around 15% by 2002.

ABB’s repositioning has had a big impact on the make-up of its staff. Up to 25,000 of ABB’s 170,000 employees are now software engineers.

According to Lindahl, the importance of IT is set to grow: `Maybe in 20 years’ time we’ll only have 25,000 people who are not IT-related.’

The company is investing $100m (£61.73m) in e-commerce over the next three years. Up to 30% of its standard products can already be ordered over the internet.

The company aims to provide real-time pricing on the web, and to offer customer advice on-line, including recommendations for detailed technical specification.

ABB recorded an annual turnover of $24.68bn (£15.23bn) for 1999, up 4% on 1998. Its pre-tax profits were 24% higher than the year before, at $2.31bn (£1.43bn). The company is predicting a year of growth in 2000, particularly in the UK and Germany.