The rise of robotics
Today robots are rapidly changing multiple aspects of how we live and work. Advances in technology mean that robots are now not only capable of performing highly sophisticated and delicate tasks but are also able to work safely alongside people, helping to drive efficiency and boost productivity.
Significantly, while we are still in the early stages of this disruptive trend, its long-term potential is evident to a growing number of equity investors. And, with an opportunity set that spans the full market cap spectrum, robotics is increasingly being recognised as a viable investment and potentially superior growth area of the market.
Company investment in robotics across the market cap spectrum
Many mega-cap companies have been investing heavily in robotics and automation. In 2012 Amazon purchased the privately-owned warehouse robotics company Kiva, in a bid to materially improve its delivery speed.
Elsewhere in the small-cap space in 2015, Teradyne, a leading supplier of test equipment for the semiconductor market spent $285m acquiring Universal Robots, a Danish company that is one of the top providers of cobots – robots that work alongside people.
Given the current pace of expansion, it is expected that the global robotics market will grow by 10-15% a year, until 2025.1 It has also been estimated that bringing manufacturing up-to-date with the latest robotics-related technology should result in cost-saving opportunities of more than US$500bn.2
Recipe for success?
There are a number of factors bolstering the sector’s outlook. Robots have become more affordable and easier to programme, offering more precision, reliability and efficiency meaning that they are an increasingly attractive option for all manner of sectors.
In addition, working-age populations across many countries, including for example, China and Japan continue to shrink, a trend that is arguably turning robots and automation into a necessity. Ultimately robotics is becoming increasingly ubiquitous and we believe will help revolutionise industries worldwide.
Healthcare and robotic surgery
Within the healthcare sector, the market for robotic surgery is growing sharply. This technology offers many advantages for both patients and hospitals, including more precise surgery, which in turn can lead to a lower risk of infection and faster recovery times.
Intuitive Surgical (ISRG), a $30bn company specialising in the design, manufacturing, and marketing of the da Vinci surgical robotic systems appears to be enjoying something of a dominant position in the sector and over the past two years has witnessed its average annual growth reach some 13%. The Da Vinci robots performed over 750,000 surgical procedures in 2016 and we believe this is set to grow going forward as adoption of robotic surgery continues to gain traction and the range of procedures for which robotic surgery is applicable continues to broaden.
Transport and the driverless car
The robotics industry has been making inroads into the transportation sector for some time. But robots no longer just help to manufacture cars, they are increasingly becoming more vocal backseat drivers and, as it has been widely documented, will soon move into the driver’s seat via the increased usage of vision and sensor systems. Teams at Waymo, Alphabet’s self-driving car division, drive more than 25,000 autonomous miles each week, largely on complex city streets in the US. The fleet has self-driven more than three million miles so far and that’s on top of the one billion simulated miles driven in 2016 alone. And, with each mile, the firm collects more data and experience, enabling it to continue to learn and improve the driving process.
We expect the adoption of advanced driver assistance systems (ADAS) in automobiles will continue to rapidly rise and become more capable, helping cars become more intelligent. German group Infineon is a global leader in supplying semiconductors and should be well positioned to benefit from the demand of the superior electronic systems going in to modern vehicles. Currently the company’s products are sold to a number of major automobile manufacturers including BMW, Renault and Tesla. In addition, the firm’s focus on creating more energy-efficient solutions is likely to prove positive for the €22bn firm.
The onset of robotics will likely prove to be a boon for many factories, helping them to drive further efficiency and productivity. One particular group, at the smaller end of the market cap scale is vision technologies firm Cognex.
The $8bn Nasdaq-listed corporation, creates vision systems used in the automation of manufacturing and logistics facilities.
We invested in the firm in 2015 as we started to see more sophisticated vision systems become increasingly incorporated in the manufacturing and assembly processes. Cognex’s vision technology boasts a wide range of applications – from guiding robots manipulating car parts, to ensuring safety seals on pharmaceutical products are present. The firm has reported annualised average sales growth of around 14% over the past three years and it boasts an encouraging pipeline, as its business moves into new sectors.
Overall, given the pace at which the industry is expanding, and is expected to do so in the future, we anticipate that the robotic revolution will continue to unfold at an accelerated rate over the coming decades.
Tom Riley is fund manager at AXA IM