ABB LTD will be Looking to Emerging Markets for Growth
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ABB (NYSE: ABB) provides power and automation technologies on a global scale to utility, industrial and commercial clients. The technologies or systems measure, control, protect, and optimize power in plant operations across various industries. Unfortunately the company will continue to be a bearish prisoner and move with the markets that most of its clients are in.
Utilities Select Sector SPDR (NYSEMKT: XLU) is an exchange traded fund that provides investment results that correspond with various utilities like: electric, water, gas, and diversified utility companies. It has not fared well as a whole. It peaked in early March and has been moving down in a ‘peak & valley’ formation since then. This gives an indication of what the industry as a whole is like and how it affects ABB LTD. With the unseasonably warm weather the U.S. had last winter, the use of electricity was at a minimum. In return, the revenue of the utility companies is not as strong and the money that would be used for services ABB provided also is affected. This is one reason the stock continues to have bearish tendencies. As you can see, it mirrors the utility industry.
ABB is not the only company struggling with this challenge. Siemens (NYSE: SI) is bearish and its earnings for the first quarter of the year are off by 57.34% from a year ago. They have an energy division that focuses on power plants and system technologies for efficiency. Rockwell Automation (NYSE: ROK) also competes with ABB and Siemens in control systems. Its chart looks the same as the other two companies and has had its latest earnings estimates for the second quarter of 2012 revised down. These companies—along with ABB are subject to the larger industries and how they are being affected by the U.S. economy, weather, or other effects.
Growth will take Place in the Global Emerging Markets
If ABB LTD is going to increase its revenue, it will likely be from the emerging markets where expansion continues to take place. It is true that China decreased its predictions of future growth, lowering expectations from 8.9% to 8.3%. But even at that level, there is still expansion.
ABB will need more contracts in the emerging markets to offset U.S. declines this year. They signed an agreement for $100 million to work with Rio Tinto in Australia. Rio Tinto is expanding its iron ore operation due to increased demand from emerging markets economic growth. Iron Ore is in demand so they need to increase production. For this to take place, they need more power—increased electricity and better efficiency from its existing operations. ABB comes in with the technology to raise the voltage level of its existing 17 distribution substations.
Another example of this would be in India where ABB will be working with Delhi Metro Rail Corporation Ltd to provide solutions to increase power for the proposed Jaipur metro rail network. This is where ABB is an expert. They will be responsible for design, installing, and commissioning the power infrastructure of this (East-West) corridor that will serve 8 stations.
The U.S. economy is recovering—slowly, but recovering. The decrease in energy usage last winter hurt ABB revenue in the U.S. as well as its competitors. If it is going to turn itself around in 2012, it will be done by looking for other alliances in the emerging markets, not from revenues produced in the U.S..
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