LDN - Business

Sweden's SKF to shift automation into higher gear as markets flag

[September 19, 2019] By Johannes Hellstrom

GOTHENBURG (Reuters) - Swedish engineering company SKF aims to use a demand slowdown to its advantage, its chief executive said, stepping up an automation program that has already sent capital expenditure soaring.

SKF, which supplies bearings to automotive and industrial markets, has automated manufacturing at a string of plants, but the bulk of its 94 factories still need to be tackled.

"There has been a long period where we have had to fight to keep up with the high demand in some factories, and you can't rebuild plants in a situation like that," Alrik Danielson told Reuters.

"So it's clear that some of these activities will accelerate now."

The world's biggest ball-bearings maker, which supplies the likes of carmakers Tesla and Volkswagen <VOWG_p.DE> as well as wind turbine makers, in July posted its first quarterly decline in organic sales since 2016.

That pause to years of sharp growth was accompanied by a forecast for slightly lower demand year on year in the third quarter, with stable demand for its industrial business and lower volumes for automotive.

Danielson, at the helm since 2015, has pushed a revamp of the factory network, cutting the number of plants, moving manufacturing to better match customer demand and investing in automation, bringing job cuts in their hundreds on affected assembly lines.

The Gothenburg-based company, the products of which are found in most machinery with rotating parts, expects 2.8 billion crowns ($288 million) in capital spending this year, up 50% from 2016.

Danielson said that higher future investment is being considered and lauded the payback on previous projects.

"I have to say that the returns on these investments are very good, so I am not worried about that."

SKF has previously automated parts of its production in Gothenburg as well as at its plant in Schweinfurt, Germany, and a U.S. factory at Flowery Branch, Georgia, among others.

It has already flagged plans for a new factory in Xinchang, China, while slimming down in Bari, Italy, where it would build an automated production channel.

The automation of one production channel in Gothenburg in 2016 left 20 workers to run a process that had previously required 100 workers.

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SKF CEO Alrik Danielson poses for a picture at SKF headquarters in Gothenburg, Sweden September 11, 2019. REUTERS/Johannes Hellstrom

While the simple hammer would have been much in evidence previously, the switch to automation has brought lower lead times, higher quality and greater flexibility. This, in turn, means SKF can remain competitive on cost for smaller, custom-made orders. WAIT-AND-SEE MARKETS

Many of SKF's markets are in a wait-and-see mode pending more clarity on the U.S.-China trade war and the outcome of Britain's planned exit from the European Union, but a pent-up need for technology investments could act as a cushion, Danielson said.

"Sure it's weaker, and we have said that, but it is not a disaster by any means. My feeling is that it is largely wait-and-see (markets) currently," he said.

Danielson added that the changing technology landscape, with automation, electrification, sensor and analytic tools also encourages investment to capitalize on new business models.

"What's very interesting is that the rapid technology change provides an underlying incentive to invest," he said.

"Even if you sit in your boardrooms and are not investing in capacity, you know that you need to modernize your plants to remain competitive."

Many analysts have questioned SKF's ability to defend its margins when demand is weakening for a business that has historically been sensitive to cyclical downturns.

Danielson counters this by pointing to far higher margins last year than in the company's peak years before the financial crisis.

"I am convinced that we are much better prepared to handle demand swings today than we used to be," he says.

(Reporting by Johannes Hellstrom; Editing by Keith Weir and David Goodman)

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