www.abb.com Industry:  Electronic Equipment Established:  1883 Headquarters:  Zurich, Switzerland President, CEO, COB:  Joseph Hogan Employees:  120,000 Ownership: Publicly traded on the Swiss Exchange (ABBN) and New York Stock Exchange (ABB) Annual Dividend:  $0.45   Institutional Shareholders 554 institutions own 8.9% of the 2.28 billion common shares outstanding - lower than average institutional ownership in this sector average, 39.6%, and lower than the average of the S&P 500 as a whole, 70.6%.   Products ·   ABB product categories: ·  Cables & Cable Accessories ·  Collaborative Production Management ·  Control Systems ·  Drives ·  Force Measurement ·  Generator Circuit Breakers ·  High Voltage Products & Systems ·  Instrumentation & Analytical USA ·  Insulation Components ·  Low Voltage Products & Systems ·  Medium Voltage Products & Systems ·  Metallurgy Products ·  Motors & Generators ·  Power Electronics ·  Power Protection & Automation Products ·  Reactors ·  Robotics ·  Semiconductors ·  Transformer Components ·  Transformers ·  Turbocharging   In the Field ·  Power transmission order, $550 million, with Irish grid operator – April 2009 ·  Supplying complete power and automation solutions for lift irrigation projects in India – February 2009 ·  ABB designed system used for an underwater cable to connect to a pump motor  on the floor of the North Sea (31 km away) – February 2009 ·  Collaborating with IBM, SAP, EnBW (German utility), Systemplan Engineering, and the Univ. of Karlsruhe to create optimized and sustainable power network to reduce CO2 emissions to close to zero - Minimum Emissions Region (MEREGIO) – February 2009 ·  Ultrahigh-voltage (UHVDC) solution for the Xiangjiaba-Shanghai link in China to deliver electricity to 31 million people, thought to be biggest leap in transmission capacity in more than two decades –  2009   Read more ABB Communications Smart grids make sustainable cities   ElectricNet ABB Showcases Smart Grid Innovations For U.S. Senate, FERC Personnel At Washington, DC Events

In Brief: ABB Ltd.

ABB is one of the Big Four suppliers of “traditional” grid equipment and software, boasting what is probably the broadest product line. Yet as Jesse Berst suggests in “Our View” below, the company needs to step it up in the Smart Grid space and adopt a greater sense of urgency.

Currently the Swiss-based holding company provides performance-enhancing power and automation technologies to utilities and industrial companies. Through its five major divisions (and  approximately 120,000 employees), ABB offers sustainable systems and services for power transmission and distribution, along with automation products and systems for measurement, control, motion, protection, energy management, and plant optimization.  The publicly traded company gets more than half its sales in Europe – where it is a household name akin to GE in the U.S. – and has had early success in China.  Its U.S. operation is steady but not spectacular.

Strengths

ABB enjoys strong legacy relationships with leading utilities.

It is a leader in high-voltage transmission, where it has invested more than $1 billion in R&D. That effort has paid off, especially in China, where it is helping to build out China’s ambitious “interstate highway for electricity.”

Longer-term demand for ABB’s products should come from the aging condition of the energy infrastructure in the U.S. and other developed nations while new deployments are needed in emerging market countries.

Product advantage for ABB lies in the nature of direct current.  Because DC voltage is controllable, it performs better over long distances (25-30 miles or greater) than AC. For this reason, ABB’s HVDC Light is gaining major ground in projects both in the U.S. and internationally in energy infrastructure build-out.  HVDC Light is being used in overhead, underground and submarine applications.

ABB's financials are strong - balance sheet and cash flow generation look good.  With a profit margin of 12.9%, ABB outperforms its peers in the Electrical Equipment industry. During the last year, ABB has done a stellar job deploying both external funding and internal resources.  Serious effort has been directed at cost control, and more is likely.

Challenges

Unlike other competitors, notably GE, ABB has not reorganized to bring its Smart Grid products under a single umbrella. ABB remains divided into separate divisions. If you need products, you go to the Power Products division. If you need a system, you go to the Power Systems division. But what if you need products that tie together into a system?

The company is weak in IT, which is an increasing percentage of every Smart Grid project. It currently turns to partners such as IBM and EDS for that piece of the puzzle. We believe that IT will grow in strategic importance and that ABB is hobbled without a native operation.

It’s also been slow to respond to the demand response trend. Likewise, it is sitting out the smart meter craze. Rather than benefit from utility interest in metering, ABB is content to wait for meters to be installed by others. It then hopes to sell some of its distribution automation solutions to run on top of the metering communications infrastructure.

Some analysts suggest management changes in the last year have derailed the company’s focus.  Former CEO Fred Kindle left in February 2008 due to differences with the board of directors.  The interim chief appointed, Michel Demare, had been the company’s CFO.  By September, Joseph Hogan, former president and CEO of GE's health care business, was on board as CEO.  With leadership in limbo for nearly three-quarters of the year, corporate leadership has suffered.

Our View

Forward earnings expectations have been ratcheting down.  Until the credit crisis is resolved, thereby freeing up capital to back large projects, ABB’s bottom line will continue to suffer.  The implication may be for an explosive burst in orders once the funds are available.

However, we’re not sure that ABB is set up for a rapid growth in orders on the Smart Grid side. It has been very slow to pick up on technology trends to this point. With massive changes about to hit due to new standards and new technologies, ABB’s “steady as she goes” approach may be a handicap during these next few years.

ABB’s strategy is to gradually add intelligence to its current product line, rather than coming out with new gear designed expressly for the Smart Grid. It seems confident that its long-time customers will stay the course and seems to have little fear of disruptive technologies or business models from startups.

We are admirers of ABB’s solid engineering and excellent customer service. However, we have seen too many upheavals in sectors such as telecomm, computing, cable and networking to believe that those qualities will be enough to keep its customers by its side. It would be well served to ramp up its competitive spirit and sense of urgency.