The true arrival of the digital manufacturing era, expedited by the COVID-19 pandemic, shaped decisions made by aerospace and defense (A&D), industrial products (IP), and chemical companies during 4Q20. Understanding the crucial need for digital transformation, companies undertook multibillion-dollar acquisitions, launched new digital offerings and connected their installed base to create differentiated solutions that support changing business models.
The 4Q20 Advanced Manufacturing Quarterly (pdf) analyzes the top themes discussed by the leaders of 33 advanced manufacturing (AM) sector companies (including those from the A&D, IP and chemical subsectors) during public earnings calls with analysts in January and February 2021.
Themes that stood out:
1. Change in financial outlook
As COVID-19 vaccines become more widely available, many companies are forecasting a return to pre-pandemic activity levels sooner than they predicted in 3Q20. However, 2021 is still likely to be a transitional year rather than a return to normal. Capex-driven sectors, such as heavy machinery, are also witnessing positive demand with expectations to reach pre-COVID-19 levels much earlier than stated in previous quarters. However, commercial aerospace remains subdued, while defense and space are observing robust demand owing to healthy budget allocations from various governments. Emerging regions, such as Asia and Latin America, are witnessing much higher growth in key end markets, especially automotive and consumer electronics, thus driving momentum.
2. Business reorganization or restructuring
This is a continuing trend over the past several quarters. In 4Q20, AM companies continued to consolidate manufacturing facilities and office footprints, and lower headcount to reduce costs. Less business travel provided a tailwind. Many companies also witnessed cost improvements through structural changes, including decentralization of business units to improve accountability and ownership, and material cost savings through supply chain programs. These programs are enabling AM companies to become more resilient to external disruptions and fund other growth initiatives, such as bolt-on acquisitions and financing for R&D.
3. Product design and innovation
The COVID-19 pandemic has expedited many years of digital transformation, with manufacturers actively undertaking digitization of existing products and launching connected offerings. Many are connecting their large installed base to Internet of Things (IoT) platforms and supporting the launch of 5G and modern networking technologies for space equipment. Products enhancing safety and well-being, such as air filtration systems and touchless interfaces, are witnessing a robust demand. Energy-efficient and sustainable products, such as connected HVAC, refrigerants with lower emissions and recyclable packaging, are being increasingly deployed as end consumers look to meet their decarbonization targets.