Robotics sector continues to enjoy strong opportunities


After close to two years of wrestling with the consequences of a global pandemic, it is clear that some industries have been hit hard, while others have sought to rapidly adapt to new business realities.

For certain sectors though, these unconventional conditions have actually gathered momentum behind their strategic models – it hasn’t been all plain sailing, but robotics has shown resilience and adaptation throughout the last two years.

The pandemic dramatically changed the behavior of consumers and businesses, and as a result, there has been a marked increase in demand for robotics and automation equipment in several important end markets. One such area is warehouse automation, as individuals have become ever more demanding, insisting on rapid and reliable delivery – something which can only be done with significant technological support.

Robots supporting such logistics had been on the rise pre-pandemic and the pace has accelerated further because of COVID-19 – as more people shop online. Companies that had previously been slow to embrace e-commerce are now having to step up their investments in automated warehouses to support this demand.

Inflation and other expanding opportunities

Notably, rising inflation continues to be a major source of debate and the current backdrop of rapid wage inflation being witnessed in parts of the global economy is presenting large labor challenges - an issue currently very prevalent in the warehousing and logistics space. Fundamentally when labor cannot be appropriately sourced, or when the cost of labor is increasing, it can make investments in automation more attractive. As the economics of adopting automation become more compelling, coupled with technology improvements that broaden the range of what can be automated, we see demand for automation equipment sustaining.

But labor shortages and wage increases are impacting many other parts of the economy outside of warehousing. According to the Bureau of Labor & Statistics there are around 11 million jobs openings in the US. This high level of job openings indicates that companies are trying to source employees but are struggling to find them. In many industries, labor scarcity presents an opportunity for automation to help ease these pressures, particularly in areas like manufacturing - and we see this being a key driver of automation demand while these issues persist.

In addition, the pandemic put national healthcare systems worldwide under a lot of stress and governments have recognized that healthcare infrastructure has seen under-investment for a long time. We believe that as governments review healthcare provision post-COVID-19 there will be a large focus on technology and efficiency – and two areas that may benefit are digital health and robotic surgery.

The market for robotic surgery is already considerable –– and it boasts a wealth of innovative firms such as market leader Intuitive Surgical whose robots performed more than 1.2 million surgical procedures in 2020 - expected to grow 27-30% in 2021, or smaller companies such as Globus Medical, which focuses on musculoskeletal implants that provide spine care solutions for patients.*

Long-term structural trends remain intact

Notwithstanding the challenges of the global pandemic, the robotics sector is a disruptor, still in its infancy. For example, the global annual supply of industrial robotics worldwide shipments of industrial robots sits at 435,000 units and global industrial robot market size is over $55bn usd.

Increased industrial activity and strong order books for industrial robotics companies may bode well for a continued recovery in 2022. While recent growth has been led by China, which recovered earlier than other markets from the impact of the pandemic, there are signs of potential strength broadening into Europe and Japan.

Elements of pent-up demand are also coming through following the US-China trade war of 2019/2020. There were signs of this recovery at the end of 2019 and in early 2020, before COVID-19 put companies’ investment plans on hold. If this demand does start to materialize, it could signal a more prolonged period of higher industrial activity and capital expenditure.


Asian Expansion

According to the latest annual report from industry trade body, the International Federation of Robotics (IFR), there are now a record three million industrial robots operating in factories around the world – an annual rise of 10%1 . Despite the impact of COVID-19, some 384,000 units were shipped globally in 20201 . In addition, last year saw the market for professional service robots hit a turnover of US$6.7bn, a 12% rise.2

Asia remains the world’s number one market for industrial robots. Almost three-quarters, at 71%1 , of all newly deployed robots last year were installed there. IFR data shows that China grew by 20% with 168,400 units shipped – the highest level ever recorded for a single country. 1 The operational stock reached 943,223 units, a 21% rise, and it is anticipated the one-million-unit mark will be broken when we get the 2021 data1 . Overall, the IFR forecasts that global robot installations will have increased by 13% to 435,000 units in 2021 – surpassing the record achieved in 2018.1

From a regional perspective, installations in North America are anticipated to rise by 17% to almost 43,000 units while in Europe they are predicted to grow by 8% to nearly 73,000 units1 . In Asia, robot installations are expected to surpass 300,000 units and add 15% to the previous year’s result1 . In addition, almost all Southeast Asian markets are expected to grow by double-digit rates in 2021, according to the IFR.

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Diverse investment opportunities

There are two primary reasons why we believe the robotics sector’s high expansion rate can potentially endure –shifting demographics and evolving technology. We believe aging populations and falling numbers of working-age people are driving the need for robotics. This is well documented in Japan, and also in China where manufacturing labor costs have risen– so it is becoming increasingly important to introduce technology to bring down costs. Essentially labor costs are rising - particularly for low-value, repetitive tasks that younger generations do not want to do. At the same time, robots are becoming cheaper and more flexible; as working populations contract,. it provides huge potential for further robotics adoption.

In terms of technological advancement, we are still witnessing improvements in software and the introduction of vision systems, meaning the range of tasks that can be automated is rapidly expanding. This in turn may open vast new parts of the economy to automation in a way that was not previously possible; new technologies have significant growth potential in markets such as food processing, electronic products and general manufacturing.

In addition, the development of advanced sensors and microprocessors over the last decade has also allowed the introduction of collaborative robots, which can work alongside people. Meanwhile, the rollout of 5G will connect industrial machines and factories in a way that we haven’t seen before. We believe the potential applications of 5G to become increasingly apparent over the next three to five years.

Another area is the electric vehicles (EV) sector. EVs are starting to get more interest from consumers as the costs of the vehicles come down, battery technology improves, and individuals focus on environmental trends. Simultaneously, a key feature of post-COVID-19 economic stimulus programs is an investment in environmental technologies, which is also supporting the EV industry. Huge investment is required to manufacture cars and batteries, and companies are spending significant money on technological investments for models years away from mass production. In our view, the prospects for companies supplying equipment such as industrial robots, lasers and vision systems are markedly improving.

2022 and beyond

The robotics sector we believe is hugely diverse and continues to expand, feeding into several key areas including surgery, machine vision, warehouse automation, autonomous vehicles and many more. Looking ahead, we continue to believe that we are in the early stages of the robotics industry’s evolution, and a significant variety of drivers underpin its future.  

And as we go further into 2022, inflationary pressures and supply chain challenges will likely carry on having an impact on company operations as well as labor shortages in certain parts of the economy, contributing to rising wage pressure, which should further bolster demand for robotics. 

Ultimately robots and autonomous systems have the potential to bring about significant economic effects; one analysis estimates that boosting robot installations by 30% could add an extra $4.9trn per year to the worldwide global economy by 2030.

Given the huge range of companies involved in robotics, from manufacturing components to end-users, it remains a vast universe.

*All stocks mentioned are for illustrative purposes only and should not be considered as advice or a recommendation for an investment strategy. All company information can be found on their websites and is accurate as of 31 August 2021.

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