Software's Where It's At

Honeywell recently announced that Dave Cote is retiring after 14 years at the helm and will be succeeded by Darius Adamczyk.  In the announcement Mr. Cote states, "Scanning & Mobility and Honeywell Process Solutions are software-based businesses with advanced offerings that blend physical and digital capabilities, and they serve as benchmarks for where the rest of Honeywell is heading. Darius’ deep expertise in software will open new growth paths for all of our businesses, which are blending Honeywell’s advanced software programming capabilities with leading-edge physical products and unparalleled domain expertise in a wide variety of industries."  This is a very interesting statement because it recognizes a crucial shift in automation. When we think of automation we normally think of hardware; DCS, PLC, sensors.  However, most of the innovation in the industry is happening in software. This aspect of automation innovation has not escaped the attention of ExxonMobil and has led to culmination of it's open automation initiative.  IIoT, cloud, analytics, edge computing have far more to do with what is provided from a software aspect than from a hardware aspect.  This is not to say that hardware has no value.  In fact if you were to check the balance sheets, you would find that the large automation companies earn more revenue on what we consider hardware, and something has to host the software. ARC believes the Mr. Cote's focus on software is well-founded based on technology trends in automation. Again, most product differentiation in the automation marketplace has little to do with hardware at all. Instead, is about the software running inside. Understanding the software lifecycle and software sales cycle is critical for automation businesses to stay relevant for the foreseeable future.