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AutoGuide and the Robotics Strategy
Teradyne has built its business on automatic test equipment for electronics, which still accounts for 75% of the US$2.1 billion revenue that the company took in during 2018. Looking into the long term, this is a mature market that is unlikely to yield significant growth in the future. As a result, the company has decided to embark on a series of acquisitions for key industrial robot startups.
With the acquisition of mobile robot developer AutoGuide for US$58 million, electronic testing company Teradyne now has four major robotic vendors brought under its wing;
For comparison, Amazon purchased Kiva Systems for US$775 million in 2012 and Shopify recently bought fulfillment developer 6 River Systems for US$450 million, suggesting there is a higher valuation placed on mobile robots for e-commerce fulfillment than there is on intralogistics for manufacturing at this time.
AutoGuide was considerably cheaper than the acquisition of MIR and is at a much more nascent stage of development. When MIR was bought, it had achieved revenues of US$12 million in 2017. By contrast, AutoGuide hit US$4 million in revenue for 2018. The fleet size is also considerably smaller. MIR has thousands of units deployed across the globe. AutoGuide hopes to ship 80-100 robots in 2019 and is planning to scale up to 200 for 2020. Despite being at an earlier stage of development, AutoGuide offers something MIR cannot, which is the automation of heavy-payload specialized vehicles like pallet stackers, tugs, and forklifts.
What is more, AutoGuide achieve this through one vehicle base, which is designed to be highly modular and is thus customizable to preform different tasks, with the time taken to change a pallet tracker to a forklift taking as little as four hours to complete. Modularity is built into the entire AutoGuide technology stack, with seamless integration into various management and execution systems as well as Programmable Logic Controllers (PLCs), and with plenty of options regarding customized reporting packages and access to specialized applications via Application Programming Interfaces (APIs). They do not rely on ROS for their architecture and have a bespoke vehicle traffic solution based on 2D-navigation.
Much like UR and MIR, AutoGuide will be monetized primarily through reselling via distributors. The company has also built a strategic partnership with system integrator Heartland Automation and, though solely focused on the American market at present, they plan to enter the European market in 2020.
Although annual revenue of US$261 million was up 54% from 2017—including MIR’s and Energid’s results—it was about US$20 million below ABI Research’s ambitious target for the year. Softness in China and the European automotive sector moderated UR’s growth rate to 38% from the 72% level achieved in 2017.
As can be seen by the chart below, automation is still a peripheral part of the company’s business as far as gross revenue goes, but it is becoming more important with every investor meeting. Industrial automation represented 2% of all revenue in 2015 but 12% of revenue in 2018. Teradyne hopes that its automation unit will post revenues exceeding US$1 billion in 2021.
Such predictions would likely have been qualified following 2018. While this was a successful year of growth at 54%, the US$261 million haul was US$20 million short of what had been expected. This was due to a decrease in UR’s growth from 72% to 38% in 2018, primarily as a result of declining optimism in the automotive supply chain and general uncertainty about manufacturing growth worldwide. However, MIR did perform well and maintained strong growth throughout, growing 54% from US$6.5 million in quarterly revenue in Q3 2018 to US$10 million in Q3 2019.
Overall, MIR has performed better UR since it was acquired. This is unsurprising given its smaller fleet size, but the fact that MIR has weathered economic uncertainty better suggests autonomous mobility is a safer bet for avoiding stunted growth than collaborative systems. In 2018, MIR represented 9.2% of industrial automation revenue for Teradyne. For the first three quarters of 2019, it has represented 14.3% of industrial automation revenue. With the acquisition of AutoGuide, Teradyne’s reliance on the cobot market will be diluted further and the company will transition to a more comprehensive robotic technology provider.
Of course, industrial automation remains only a part of Teradyne’s business. Its main market is still semiconductor testing, with system and wireless testing being peripheral businesses. As seen below, automation revenue has grown from 2% of total revenue in 2015 to 12% in 2018 and will be over 13% in 2019.
This trajectory likely means that Teradyne will not reach its stated goal of a US$1 billion automation business by 2021. However, with the acquisition of AutoGuide, the company has all the competencies necessary to strengthen its position in intralogistics for manufacturing, in which it is the dominant AMR actor. Importantly, Teradyne has been an early mover in both AMRs for material handling and cobots and is moving faster than most players in these respective markets.
Challenges abound, and while Teradyne is gaining more traction in Asia, it is still reliant on the performances of markets in the United States and Europe, the Middle East, and Africa (EMEA). Regardless, the company has effectively achieved a significant pivot from a mature industry (testing) with little prospect for growth to a major automation player. This is an initial success in a longstanding bet that robotics can supplant testing as the chief source of revenue, and can elevate the company’s importance in global manufacturing.
Teradyne’s strategy centers on building a strong ecosystem around its companies. UR has the largest number of distributors of any cobot company, and the UR+ platform allows for seamless integration with different software and third-party hardware developers, in effect making the diverse and fragmented market that is articulated robots revolve around UR. Likewise, with MIR, third-party developers are building modular solutions to customize and build upon their robots, as emphasized by Nord Modules and ROEQ.
So far, Teradyne’s strategy has been largely successful. It has stolen a lead in cobots and will hold close to 50% of the market for the next few years before competitors begin to scale. Teradyne is also among the most advanced in AMRs for manufacturing. That said, the slowdown in growth in 2018 and 2019 is evidence that the challenge of maintaining its position will exceed the challenge of having gotten there to begin with.
There are many actors targeting the same spaces. UR has seen off former cobot rivals like Rethink, but now has to contend with more successful businesses like Techman Robot, Doosan Robotics, and Precise Automation. Meanwhile, MIR has been challenged by Fetch Robotics, the stalwart Automated Guided Vehicle (AGV) developers, and Autonomy Solution Providers (ASPs) that are automating a wide range of form factors. AutoGuide may have a unique modulatory value proposition, but they have to compete with the more established Seegrid and Balyo when it comes to autonomous fork lifts and pallet stackers. While the former has recently racked up two million miles of operations, Balyo has developed a strong partnership with both Amazon and major material handling Original Equipment Manufacturers (OEMs). Whilst AutoGuide is deploying 80 robots in 2019, Seegrid has deployed close to 1,000 in total and has claimed 200% growth in 2019—a significant sign of momentum.
American and European companies have, for the most part, led the development of first-generation AMRs, but their competitive advantage is narrowing. ROS middleware, soon to be succeeded by ROS 2.0, is democratizing the ability to deploy mobile robots with natural navigation (with many caveats relating to the ease of use), and hardware proliferation in China and the rest of Asia is translating into increased pressure on Western vendors to stay ahead in technology. With both challengers in foreign markets and the proliferation of open-source solutions, Teradyne and all other developers of mobile robots need to nail down their competitive advantages, whether they be related to technology or operational expertise.
We know Teradyne has been a bright spot in the robotics industry for the last four years. Now, it has to retain market share and reinvigorate growth after missing some initial targets for its automation business.