Robot Graduates

“You want to build robots or sell robots.”

Photo: Ann H. Source: Pexels

That was the advice I heard for young people a few years ago, and at the time it sounded a lot like the “plastics” comment from at beginning of the 1967 movie “The Graduate,” where a neighbor tells Dustin Hoffman’s character that he has one word of advice, just one word. That word, in the mid-60s, was plastics. There was a great future in plastics. Thousands of jobs and billions in corporate investments would be devoted to plastics. Hoffman’s neighbor was trying to give him some helpful career-shaping guidance.

Times change, and that word, for the past few years, has been robots. Everyone has been captivated by their versatility, their ubiquity, their intelligence. Robot makers and designers and programmers have been lionized in the business press, and the expectation has been that we would only need more diverse and more capable and numbers of robots.

Only it doesn’t always work out that way. In Germany, a mid-sized industrial robot maker named Kuka received a partial buyout offer from the Chinese appliance maker MIdea. Midea isn’t well known in the US, they don’t sell their goods here and their shares don’t trade on our market. But Midea has a $50 billion market cap and employs 100,000 people. They wanted to expand their robotic offerings, so they bought 80% of Kuku. Seemed like a gathering of titans: robots, China, consumer electronics. Kuka’s shares soared.

But trees don’t grow to heaven. China’s economy slowed, there were cultural and management issues with the merger, and competition is growing. Thousands of robotics firms have sprung up in China in recent years. Germany’s recession hasn’t helped, either. Kuka’s sales fell 7% last year and their profits fell 70%. The shares, after rising from 15 to 250, have of course collapsed.

Kuka stock price in Germany. Source: Bloomberg

The tale is cautionary. Just because you’re in a hot industry serving a hot market with a hot product doesn’t mean your business or investment is inevitable or invulnerable. Management still needs to execute its strategy and adding capacity in a slowing economy may not be good for your investors or your workers. Kuka has been laying off staff to improve profitability.

In “The Graduate,” Dustin Hoffman rejects his neighbor’s advice to go into plastics, just as college graduates at that time were rejecting the plastic, conventional culture of the ‘60s. In its plans for a robotic future, Midea’s optimistic acquisition of Kuka almost seems “coo-coo” in its projections.

Douglas R. Tengdin, CFA

Charter Trust Company

“The Best Trust Company in New England”

By |2019-03-29T09:12:09-04:00March 29th, 2019|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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