Businessweek Archives

Slow Boil For Abb In The U.S.


International International Business

SLOW BOIL FOR ABB IN THE U.S.

While scouting the U.S. for acquisitions in the late 1980s, ABB Chief Executive Officer Percy Barnevik couldn't help noticing the 30- to 40-year-old boilers still in service at many American electric utilities. It seemed to be a rare opportunity for the newly formed Swiss-Swedish ABB Asea Brown Boveri (Holding) Ltd., the result of a merger of two European engineering companies. Barnevik went on a spending spree, paying more than $2.3 billion in 1989 for Combustion Engineering Inc. and Westinghouse Electric Corp.'s electrical-transmission-equipment unit. He aimed to have a one-stop shop ready to do business once the utilities started buying again.

Five years later, those utilities have even older boilers, and the massive capital-spending boom has yet to materialize. Indeed, money-losing Combustion Engineering is proving to be a much tougher turnaround than Barnevik expected. Since 1989, ABB has shed some $700 million in businesses that were part of the two acquisitions, and employment has fallen from about 40,000 to 25,000 through layoffs and divestitures. Corporate staff has been trimmed substantially, and factory space has been pared.

Now, Barnevik is reworking his U.S. turnaround strategy. With new management in place, he is pushing exports to a strengthening global market and cranking up sales of industrial and transportation equipment. He is clearly counting on better performance. Although ABB does not release results for individual businesses, profits of the U.S. operations still suffer from the overhang of debt used to finance U.S. expansion. "The U.S. results are decent," says Barnevik, "but they are still below the group standard and need improvement. I'm impatient. I would like to see faster progress."

PLAIN SPEAKING. Worldwide, ABB's bottom line is looking better as a result of the $2 billion-plus it has spent on restructuring in the past five years. Net income for the first six months mf 1994 rose 31%, to $322 million. Although revenues were roughly flat, at $13.1 billion, for the period, new orders showed an uptick of 3%.

But Barnevik's impatience shows in the objective he has set for managers: a 10% net return on sales. In the U.S., reaching that goal is the job of Robert E. Donovan, who took over as head of ABB's $5.6 billion Americas operation earlier this year, after a one-year stint running ABB's U.S. power-plant business. He's a far cry from his predecessor, German-born Gerhard Schulmeyer. For starters, the 52-year-old Donovan is an American--and a West Point graduate to boot. A nuclear engineer, he's a veteran of the power business, having joined ABB in 1992 from Foster Wheeler Corp., a major boilermaker. Donovan is also a plain-spoken fellow whose leisure pursuits include hunting, fishing--and in earlier days, beekeeping. In fact, Donovan has written two books on the outdoors.

That's quite a change from Schulmeyer, a former Motorola Inc. executive who concedes he is more at home with computers than boilers. Schulmeyer has returned to Germany to head Siemens' computer subsidiary, Siemens-Nixdorf Information Systems. "I wanted to run a company on my own," he says.

Donovan may be just what ABB's North American operation needs. The company, based in Stamford, Conn., relies on the clubby yet fiercely competitive power market for two-thirds of its annual revenues. "It is an industry that places a lot of weight on personal relationships," says Donovan. "I've kind of grown up in the business."

With sales in the U.S. still spotty, the real mother lode for ABB's North American operations may prove to be the export market. When ABB bought Combustion and Westinghouse, total exports for the combined companies represented no more than 12% of sales. Today, that percentage has more than doubled, and the goal is to raise it to at least one-third of total U.S. sales.

In the world market, ABB is in ferocious competition with the likes of General Electric Co., Westinghouse, Siemens, and Mitsubishi for orders from Asia and other rapidly developing areas. But some industry watchers believe ABB's combination of strengths in boilers and turbines and its range of technologies could prove unbeatable in such contests as the current bid by ABB's U.S.-based nuclear unit for a $2 billion order to build a 1,350-megawatt power plant in Taiwan. In the past two years, ABB has snagged important contracts in China and South Korea.

Right now, ABB's nonutility businesses are doing the heavy lifting. Record demand for industrial robots and paint-finishing equipment, are resulting from an upsurge in U.S. car production. The electrical-transformer business is picking up because of rising housing starts.

TILT TRAIN. ABB is also starting to make some headway in the long-sluggish U.S. rail market. Last year, it won a $285 million contract for commuter cars in the Philadelphia area. And ABB is leading a consortium that includes GE and Raytheon Co. to bid on a $400 million contract to build high-speed Amtrak trains for the Washington-Boston corridor. ABB's X2000 train is designed to tilt as it moves, so it can run on existing rail bed rather than the dedicated track required by other high-speed trains.

There are even some bright spots for ABB in the moribund U.S. electric-utility industry. A new gas turbine, designed in secret by ABB's European researchers but built in the U.S., won a pioneering order last September from Jersey Central Power & Light Co.

Overall, Barnevik now has his North American operations in just the position he envisioned back in 1989. Reaching that goal has cost him and his company plenty, but his dream of building a global electrical-engineering powerhouse marrying European and American technology is finally taking shape.

ABB'S AMERICAN JOURNEY

SPENDS $2.3 billion in 1989 to acquire boilermaker Combustion Engineering and Westinghouse's electrical-transmission and distribution business

SELLS off $700 million in assets and pares payroll from 40,000 to 25,000 over a five-year period through layoffs, transfers, and divestitures

SHIFTS sales push for steam turbines and boilers from U.S. to emerging markets and marries European technology with U.S. manufacturing to launch a new line of highly efficient gas turbines

DATA: BUSINESS WEEKTim Smart in Stamford, Conn., and Gail Edmondson in Paris


Burger King's Young Buns
LIMITED-TIME OFFER SUBSCRIBE NOW

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

 
blog comments powered by Disqus