Industry is changing. Analog is being replaced by digital. Guesswork is becoming obsolete. Digital transformation is obliterating hit-or-miss.
Just look at BMW. The German luxury car maker detailed in a Dec. 1 corporate blog post how it uses cutting-edge digital technologies to coordinate its supply chain, automate factory floors and boost workers’ productivity.
This a big trend, with larger implications for investors.
Digital transformation does not get the fanfare of self-driving cars and smart cities. For one thing, it lacks simplicity. And the benefits aren’t immediately obvious.
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Autonomous vehicles and smarter infrastructure offer safer transportation and a dramatic increase in leisure time. This is a trade-off most people would gladly make.
But automated factories? Those elicit a much different reaction. Workers fear robots because their arrival often leads to fewer jobs for their human counterparts.
Often, but not always …
The MIT Technology Review listed all the recent research on job losses due to automation. The January 2018 report shows there is no consensus. Predictions are simultaneously devastating and optimistic.
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In 2017, McKinsey & Co. forecast that 800 million jobs might be automated by as early as 2030. Another study from Gartner, an IT research firm, showed 500,000 jobs might be created.
A “net positive”: The World Economic Forum predicts that, by 2022, robots will displace 75 million jobs but create 133 million new ones around the world.
Regardless, automation is coming. The process is well underway. There is no turning back.
BMW is considered a worldwide automation leader. Connecting its factory floors to supply chains and the corporate intranet has been a long-time focus. Now, powerful cloud computing networks and robust, artificially intelligent software suites make it possible to push the envelope.
Digital transformation allows BMW to understand the movement of 31 million parts from 18,000 suppliers, in real time. Workers are notified of upcoming tasks on their smart watches, while fully autonomous robots carrying supplies whisk by. Truck trailers guided by lasers sidle up to docks, where they are loaded and unloaded by another team of robots.
Everything is linked to the network. Pieces fit and work together seamlessly in a larger ecosystem by sharing and exchanging data.
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These factories are not far off in the future. They are here now, and becoming more prevalent every day as manufacturers are forced to embrace digital transformation, or die.
Over 50% of the companies in the Fortune 500, according to analysts at McKinsey, have been acquired, merged or forced into bankruptcy since 2000. In their place, disruptive enterprises like Amazon.com (AMZN), Box (BOX), Square (SQ), Uber and Airbnb have prospered.
All these firms have digital transformation in their DNA.
They aren’t the only ones …
Given the existential threat, large enterprises are desperately seeking expert partners. Analysts believe the addressable market in manufacturing alone will reach $3.7 trillion by 2025. This is creating a once-in-a-generation opportunity for investors.
PTC Inc. (PTC) makes predictive analytics software tools. The Massachusetts company bet its future on the promise of networks of connected things way back in 1998, when company software engineers began tinkering with internet-based tools for product lifecycle management.
The big idea was that products should be designed with inception, engineering design, manufacturing, service and, ultimately, disposal in mind.
At the time, it was a radical idea. Today, internet-based software suites are more the rule, rather than the exception.
And guess who’s using PTC? That’s right, BMW …
In 2017, PTC announced a major contact win from BMW. Its PLM suite, Windchill, takes the guesswork out of real-world execution. And ThingWorx, its comprehensive Internet of Things tool, will help BMW managers get their data collection, security, analysis and implantation strategies under control.
That means products will get to market faster, and cheaper.
And it’s not just cars that will speed off the assembly line …
PTC’s ability to help companies boost manufacturing productivity, thanks to its best-in-class software, also led to a partnership with Deloitte.
And now, the Big Four professional services firms will promote PTC products to their large portfolios of enterprise clients seeking digital transformation.
These days, that is every business.
Big trends often get obscured by shiny objects. The prospect of self-driving cars and smart cities can be blinding. But digital transformation is bigger, and it is happening right now. The best way for investors to participate is PTC.
Shares trade at 33.3x forward earnings, for a total market capitalization of $10.4 billion. That is only a fraction of its chief rivals, Adobe Inc. (ADBE) at $122.5 billion, and Autodesk (ADSK) at $31.6 billion.
And while the stock is up 42.3% thus far in 2018, it is not expensive given the size of the market for digital transformations, and PTC’s leadership. Shares are buyable on pullbacks.
Jon D. Markman
P.S. Speaking of the trends that are transforming technology and, in turn, our world, my new book — “Fast-Forward Investing” — is listed as the No. 1 New Release in Business Finance on Amazon. I tell you all about how AI, self-driving cars, robotics and other technologies are reshaping our lives. Click here to check it out.