According to MarketLine, the global electric equipment market is expected to expand 4% per year from 2010-2015 and is expected to reach $220 billion by 2015. The economic downturn affected the industrial equipment industry, but with the recovery and increase in economic activities, the demand for industrial products has boosted. Housing recovery, high orders from auto companies, and the growing manufacturing sector are the main drivers of this growth. Let’s discuss three companies, which are growing in this technologically advanced equipment industry.
Gaming consoles to drive HDD segment
The pre-orders for both these gaming consoles have already crossed all levels. HDD is an integral part of gaming consoles, and Nidec Corporation (ADR) (NYSE:NJ) commands 75% of the global market share in HDD. The total spending on gaming consoles is expected to increase by 5% annually from $24.9 billion in 2012 to $31.2 billion in 2017. Therefore, Nidec Corporation (ADR) (NYSE:NJ) expects to sell around 280 million units of HDD in the second half of 2013 up from 162 million units in first half of 2013.
Nidec Corporation (ADR) (NYSE:NJ) is continuously focusing on its Appliance, Commercial, and Industrial Motors, or ACIM, segment. It acquired ASI, Kinetek, and Avtron in 2012 to cover major global regions in preparation for changing energy efficiency standards worldwide.
Korea has already introduced IE3 efficiency standards in 2012, and South Korea, Japan, and the EU will implement efficiency standards in 2015. The new efficiency standards provide good sales opportunity for high efficiency motor manufacturers.
Right now, Nidec Corporation (ADR) (NYSE:NJ) lags behind the top four Japanese motor manufacturers, but with the acquisition of ASI, it expects to boost its market share. It occupies 10% of the total Japanese manufacturer’s induction motor volume, which is expected to grow by 10% year-over-year in domestic shipments and 15% year-over-year in exports from 2013 onward.
Water-heater market on the way of recovery in North America
It is expected that with every 1% increase in residential replacement sales, the U.S. water heating market will grow by $1.2 billion annually by 2015. Therefore, water heater sales will pick up in the second half of the year, and A. O. Smith Corporation (NYSE:AOS) expects residential heater sales to increase by 200,000 units this year. Additionally, the EPS is expected to increase from $1.61 in 2012 to $1.81 in 2013.
The Asian market continues to be a priority for A. O. Smith Corporation (NYSE:AOS), which is planning to invest $40 million – $45 million in order to cater to the local demand. Chinese and Indian markets are growing at a rapid pace due to urbanization and increasing per capita income. A. O. Smith Corporation (NYSE:AOS) wants to increase its penetration and visibility in both these markets.
In order to achieve profitable revenue growth, it closed 300 under-performing stores in the first quarter, and it is planning to open the same number of stores in upcoming areas by partnering with major distributors in China.
Though Indian business generated only about $25 million of revenue in 2012, it grew over 30% year-over-year. The Indian water filtration market is approximately $400 million, and it is expected to generate modest profit from 2014. A. O. Smith Corporation (NYSE:AOS) expects revenue from both markets to be $775 million by 2015 from $470 million in 2012.
Loss of production to hurt revenue
REGAL-BELOIT CORPORATION (NYSE:RBC) faced a major setback when one of its largest motor customers decided to close its production of compressor platforms and source it through a third party. REGAL-BELOIT CORPORATION (NYSE:RBC) used to provide electric motors to the compressor platforms. This will result in the revenue loss of $15 million in the second quarter of 2013 and $40 million in revenue to REGAL-BELOIT CORPORATION (NYSE:RBC) over the next four quarters. Although management is looking for possible opportunities to offset this loss in the future, analysts are not very optimistic about it.
Conclusion
The recovery of the economic condition and housing industry is a boon for these industrial companies. Nidec Corporation (ADR) (NYSE:NJ) will increase its revenue from the rise in HDD sales and will continue to expand its share in electric motors.
Recovery in the US market gives hope for A. O. Smith Corporation (NYSE:AOS) to increase its water heater sales. While Asian markets are still under penetrated and will take time to contribute significant profits. I recommend buying both these stocks.
The closure of its HVAC plant and loss of its largest customer will hurt REGAL-BELOIT CORPORATION (NYSE:RBC)’s revenue. Unless REGAL-BELOIT CORPORATION (NYSE:RBC) takes some concrete expansionary plans, I recommend holding this stock.
Shweta Dubey has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Shweta is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article 3 Equipment Manufacturers to Watch originally appeared on Fool.com is written by Shweta Dubey.
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