Good afternoon, good morning, and good evening to those of you participating from elsewhere than here in Stockholm. We welcome you to today's third quarter report presentation by Atlas Copco, and also in conjunction with that, of course, the customary conference call. We will do it like we normally do. We will start with our CEO, Mats Rahmström, giving his comments to the quarterly report and the outlook, and then we will move on to the Q&A session later on. Without any further ado, I welcome Mats to do just that.
Thank you, Hans Ola. I also like to take the opportunity to say welcome to everyone. Looking at the result, you might say that we are not so good at predicting the future, we will try to spread some light over the quarter and explain a little bit what we've been up to during this quite good quarter. Starting with orders received. Very good performance from the service teams in all Business Areas, continue to grow. It is of great importance for us that they appreciate the products that we bring to them. Of course, more and more of those products, we also connect our products over time. Large compressors, we have spoken about at the earlier calls, that continues. It's both the gas and process, and the bigger machines from oil free especially.
That is very successful, mainly driven by new products, penetration into new markets as well. Semi. When we look at the semi industry, I talk about the key account segment in the marketplace, and we can see that a number of big orders have been booked with us during the quarter. That came in above our expectation. If we look a little bit at the underlying demand from our customers and activity levels, we can start with call it general industry. If you then take the Industrial Technique, general industry divisions, you take the industrial labs and Compressor Technique, you can look at in Vacuum Technique, you can look at industrial vacuum and also scientific. There we can see if we bundle those together, then we can see that activity level is flattish or slightly negative in some parts as well.
That's a little bit what we see in the marketplace in this quarter. The only thing that is clearly negative, I must say, is the auto trend that we also talked about earlier, and there we can see a slowdown in investments. Someone need to turn their phone off. I know who it was. Looking at the numbers a little bit. If you start with the BA, you can see it's supported by currency, of course, but it's one of the best quarter, if not the best quarter we have had. I think it's a really stellar performance by the teams working in Atlas Copco globally. Revenues, you can see it's SEK 26.7 in principally, so really building up, and that's also record level for us, and it's the first time now that we are on the ruling 12 months on above SEK 100 billion.
6% organic growth on orders and 4% on revenues. The margin, 22%. Now I think I've taken it step by step to introduce to you that we do invest more in R&D where we see opportunities to secure organic growth for the future. We do take the opportunities with digitalization, especially connectivity, quite seriously, and we make sure that we have that core competence in-house. We have done a number of acquisitions. We have pure cost as well, but Hans Ola will later on try to help you and break it down a little bit by BA as well. Return on capital employed, 32%, and a good cash flow. Help you a little bit to understand the markets. Our biggest market is Asia. As you can see here, it's 36% of our business.
You can see a very strong performance for the quarter. That is, you would think maybe it's the number of vacuum orders that we received in semi, but it's also Compressor Technique, very strong, and also Power Technique delivers good in Asia right now. The only thing where we see a negative trend is Industrial Technique, mainly linked to auto sector in China. Latin America, we have growth for all the business areas in that region, so very positive. North America, you come to somewhat more of a mixed picture. You see strong compressors, strong vacuum, and then more flattish on Industrial and Power Technique. Last, I would say Europe.
This is where we, in volumes, can see less activities, and sequentially, if you start looking at the different countries, we can see slower activities and a sequential decline as well. Yeah, you have the growth parts. We are now four quarters with growth, and it could be easy to say, well, this is the best quarter, but it is driven by the large compressors. It's driven by service and semi. Then, a very positive signal to us. The more based-on-general-economy segments is a little bit more flattish. I'm not going to stay so much on this, but since I talk about the result, we also like to give you the bridge with very clear on the currency. You can see it is still very positive for us, and it's mainly the strengthening of the US dollars versus the krona.
If you split up the business, a couple of quarters I've said that Power Technique has been the star performer for us. I think they've done a good job this month as well, but there's a seasonality in the business. We can see now a little bit that bigger rental companies, both in Europe and Americas, are little bit more cautious with their investments, looking at the capacity that they already have. Compressor Technique, of course, for me, one of the strongest divisions or business areas and good profitability. They continue to grow. That's very, very positive, and the same, of course, goes with Vacuum, now we build up in semi. Industrial, then, clearly down, and it's mainly driven by auto, which also pulls along a little bit the tier 1, tier 2 type of industry supporting out in many regions.
That could go, for example, for Germany, where you have a very strong auto sector. Interesting with CT to start at orders received. Same here, of course, it's supported by currency, still to give the 7%, I think it's really outperformed themselves. It's a mixture of demand, which I touched on already. Also very good that I think it's the most developed service business that we have, still they find different ways to grow the business, which is very encouraging. I think that they like our programs. Continued good profit margin at 23.5%. On the innovation side, on the bottom, I like to highlight something that I think the drive for environmentally friendly products, we can see that's being very present in Europe, U.S., it's not been in such a big demand in Asia.
Now we can see that that is also coming around, they start to ask for more environmentally friendly products. Now we also start to introduce products that are significantly more developed in terms of energy efficiency, I think also these customers will be willing to pay a premium for these type of products. You can see that we made an acquisition during the quarter. The company is called Eurochiller, it's in principally process chillers for the industrial market, that is a segment that we find interesting. In vacuum, look at the bar. I mean, it was a fantastic quarter. They really outshined our own expectations in the semi, which we think was fantastic. That was really up. You can also see that here we also see continued service offers.
Semi, we have good programs in place, also the industrial service product is developing in a very positive way. Of course, now we have installed even more equipment out there or will, which will drive also the service for the future. Almost 25% operating profit, I think that's quite good as well. Then you have the new products for the scientific segment, which is positive. Industrial and scientific, there we see a slowdown in activity levels among our customers. I still remember 2008 when I was responsible for Industrial Technique, we had the auto trend was weak at the time. Now we can see, of course, that it's declining, I think they're holding up quite good anyway.
You can say there is a lot of uncertainties in the marketplace, but some of the things that we have to deal with right now is that now we have the fourth quarter with decline in production globally, and you can see clearly that there is some sort of consolidation in the Chinese market. The rest of the world, I think, is down like 7%, and they are more down like 16%. Our sales it's not so coordinated to production levels. It's more on the CapEx and new products that they put into the market. A lot what holds up this now is the investments in new technology and electrification. That really helps us during this time as well. The daily business is much slower, but the product business is still there for us.
With the acquisitions we have done over the last seven years, then, they are actually quite a good position. When we see a lighter body in white, for example, then you have the riveting technology, you have the dispensing and the fluid technology. Very good position for someone to come to us, to one of our innovation centers to learn more how to build a light vehicle, for example. We have a good position there. That also goes for battery packs around the world. Strategically, spot on, but it is a more challenging market right now. Power Technique, they have had quite a fantastic performance in relative term in growth rate, also developed profitability over the last quarters. Still good profitability, but you can see that the organic growth is coming down then.
As I said before, what we see, we have not seen a real slowdown in the construction market, but we have seen in the channel of rental that they are more cautious, and they have not placed the orders that they did previous year, in principle, quite early then. If you look at this then, on the groups, just the confirmation then where we are at right now, and maybe Hans Ola, I should hand over to you to help out a little bit here.
Take a few borrow me that one.
Got this one.
Thanks a lot. That helps me. Let's look a little bit below the operating profit that Mats already have commented on the income statement. What is not there, but let's say between operating profit and profit before tax, we have the financial items. Now running at SEK 65 million in this quarter is, of course, significantly lower than last quarter. Perhaps it's important also to remind a little bit that type of yearly rate of SEK 300 million negative in interest cost was not long time ago, SEK 600 million-SEK 800 million per year. There is a contribution both from what the market is giving by constantly lower or maintaining very low interest cost, but also some restructuring of our own loan portfolio.
That's where I see it going forward, somewhere close to this number, perhaps not exactly SEK 65 million, but somewhere SEK 250 million-SEK 300 million in yearly negative. That's the financial net. We move down a little bit more to the taxes, we are again, a little bit lower effective tax rate than last year. I think this is coming closer now to what we see coming in the forward-looking statement or in the forward-looking quarters. One of the reasons is that Belgium, for example, being an important country for Atlas Copco, is in the process of gradually taking their corporate income tax level down to more level with the rest of Europe, so to speak, and they have done that in two steps. That's why I think 23.5%, 24% is achievable going forward in that.
Yeah, then the earnings per share and return on capital employed and return on equity, you can see there. Here is the profit bridge, of course, as Mats said, there are a number of comments to be made. You remember the format. We take out things that are non-recurring or special. We take out acquisitions and other items affecting comparability, we try to isolate the currency impact on top line and profit, we get the rest, so to speak. This is, of course, not what we are used to see, a negative development from the organic on profit, a contribution on the top line. Basically, you can say we see 3 buckets of explanations in the big picture. One is sales mix. The other one is some extra costs referring to projects that we do internally on supply chain management.
I'll come a little bit more into that. Some on the manufacturing structure. Thirdly, the third bucket is on the continuous investments in R&D. Mats touched upon it, but also digitalization initiatives that is going on in all business areas pretty actively and definitely at a higher level than a year ago, which this is comparing to. Let's look a little bit at the different parts. Compressor Technique has continued just like the others. You could say that R&D investments and much higher IT spend or IT investments due to the needs of the digitalization projects, that is something that affects all four of them. If I isolate the biggest impacts, I think that Compressor Technique is seeing that R&D and IT investments are the ones that make it a little bit lower drop through of profit from their revenue increase.
If you go to Vacuum Technique, as you can see, the effect of the same R&D and IT cost spend is here bigger, but it's also complemented by the fact that we have some supply chain and manufacturing structuring changes going on. We are in the U.S. and in China moving some of the logistics and the manufacturing structure closer to the end customers. That is causing, in this quarter, some more extra costs than we saw a year ago. If we move on to Industrial Technique that show a similar, but perhaps even slightly worse pattern, that the costs have increased and the profit has fallen somewhat ex-currency, whereas the revenue has come. Here we see the largest impact of the four from sales mix. We have a big contribution from projects. You saw the slide that Mats showed on the top line.
We are doing relatively fine considering the situation, but it means that forward-looking projects, electric vehicles, you hear about it all the time, and these kind of things, compared to the more profitable everyday recurring business type of income. I think there is where we see the big impact on the margin. Obviously they also continue to do investments in R&D and digitalization initiatives quite a lot. Finally, Power Technique, which contrary to the orders received, they grow their revenues compared to last year quite nicely, and they also get some profit through there. I think the only negative there would be that's a slightly negative mix in that drop through. Otherwise, that gives you a little bit more background to the profit development.
On the balance sheet, one thing that everybody noticed is that we have a balance sheet that is much, much larger than we have had a quarter ago, and also almost a year ago now in December. We have to remember though that this is reported in Swedish krona. Only the fact that the dollar and the euro and every currency in the world basically, has increased versus the krona. That gives us SEK 6 billion more in assets just by the translation effect from the start of the year. Obviously also some of the bigger acquisitions like the Brooks one is affecting intangible assets and all the other assets as well, of course.
We move on from there to the cash flow, I think we are pleased to see that the operating cash flow, which is taking basically everything into account, except for company acquisitions and divestments, is increasing. It was a few quarters ago that we started to have negative comparisons, now we have turned it back. One major contribution is of course the higher profit, in that lies a few non-cash items as well, which has, to a certain extent, a little bit of a compensation here. Liabilities in other liabilities, which is not interest-bearing loans, have increased quite a lot in Q3. If I put them together with Q2, the effect on the working capital is rather normal, I would say.
We had a little bit of a distribution of working capital effect between Q2 and Q3, and that I think means that I'm pretty confident that we are seeing a relatively normal development over here. With that, I think I'll just leave it to you to decipher or to explain the final two slides.
What the guide is between Q3 and Q4, talking about a little bit what we see among our customers, activity levels, number of quotations. This is a little bit what we bring into when we discuss it internally, and this time we said that's somewhat lower. We come from a very strong quarter that we are quite pleased with, being very successful then with semi, the larger compressors and service and specialty rental. It's still so that the underlying demand among a lot of our customers that we can see that this is a little bit softer. There is no way of hiding that the protectionist sanctions that we have, and Brexit is not so positive to the picture for people making investments in their operations.
Maybe on top of that, the activities in Middle East now, with what's going on in Saudi and also of course in Turkey, is not positive for our business. On the other side, we will try to continue to push really focused approach to our customers, where we talk about the value generation for them. This is really in our sales thrust today. The resilient model of being resilient and how we work with things. We just take home the agility model that we do a lot of scenario planning. It's difficult exactly to predict what will happen, but to have a readiness is extremely important for us in the management team of Atlas Copco. Still we can see that it's a little bit of a softer market that we operate in.
We will run a capital markets day in the U.K., November 26, with a clear focus on Vacuum Technique then, since it's the base, but we will also bring in Compressor Technique to that discussion. You can register, I think we have 100 seats available, and I think there are some 72 that are booked right now. If you'd like to learn more, then you're more than welcome to join us here.
Great. Thank you, Mats. We are ready for the Q&A session. I think we do as we normally do, we alternate between here and Stockholm live, and then the telephone conference. Let's start here in the room. If we have one question and a microphone for Anders, I see that, yeah.
Okay. I start with the vacuum business and about cyclicality and the very strong differences in order intake from quarter to quarter. Could you describe a little bit why this very strong upturn and what we could expect going forward?
What we see is that it's still, if you separate the business that we gave right now, technology versus capacity, we have seen still, if I start on the negative, it's not so much capacity investments. We can still see that the utilization in the fabs is around 80%. It's not bad by any means, but it's been hovering around that for quite some time. You can also see the pricing. It had a little bit of a positive jump when we had the Korea, Japan discussion on gases, but then the pricing is not turned up really yet. I would say this is technology investments from the main players, and I think many of them like to protect their position in the future.
At the same time as the traditional main players are upping their investments in technology, we can also see a very determined semi industry in China that is marching orders. They're really building up a competent team and investment in good factories. The business is coming from the traditional players, technology and new investments in China to build a new industry. Going forward, we have not seen that the capacity will shift so that they need more capacity in the coming quarters. It's more that we're going to go after and continue to go after the same type of businesses.
Thank you. If we have one more question in the room, otherwise we turn. Okay, we take the telephone conference then, the first question. I hope that everyone can be as disciplined as Anders Roslund was here to stay with one question. Then we'll try to circle back when we have exhausted the first questions. Thank you.
Our first question comes from the line of Klas Bergelind of Citi. Please go ahead, your line is now open. Oh, I stand corrected. We're going to first the line of Guillermo Pena of UBS. Please go ahead.
Good morning. It's Guillermo Peigneux from UBS. I guess a question on Vacuum Technique. I was wondering, you referred to the key accounts, and I was wondering how much of a business first go to your key accounts, and if you are also selling to vendors, if at all at the moment. Then second, on the same topic, Vacuum Technique. You mentioned new product technologies, and I guess EUV is something that you've been talking about for some time on the new lithography systems. I wonder why Europe is not there in your statement as one of the regions that was coming up from previous activity levels. Thank you.
Did you pick up on the first one? Let me start.
Oh, could you repeat, please, the first part of your question?
Yeah. I guess this question is on the key accounts, right? How much of that is just going to the OEMs, to the semiconductor companies versus the vendors into the semiconductor market?
Yeah, in our case, of course you have the machine builders, and they are part on the list on major customers for us, and then you have the recognized brands in logic and memory. We don't differentiate that, but we follow the top 10 accounts and maybe top 20, but that makes the majority, and there is no change in pattern there. EUV, you might refer to some other reports, and it's not a huge impact on the result for the quarter. I would say it's principally on a normal level for us. We see that successes with EUV is positive for our future.
Just to further on that, when we say key accounts, we include both OEMs, as you say, Guillermo, and what Mats refers to as the builders of the tool itself. They are both important and big customers, but we don't disclose or differentiate specifically in the numbers on that.
Thank you so much. Just can I confirm that you said that EUV stayed at a normal level through the quarter?
That is correct.
Thank you.
Yep. Great.
Thank you so much. I'll stay back in line.
Thank you. Do we have another one on the conference call, please?
Our next question comes from the line of Klas Bergelind of Citi. Please go ahead. Your line is open.
Yes. Thank you. Hi, Mats, and also Klas Bergelind, Citi. Just want to come back to VT. Obviously, EUV is no big change over the quarter, but you have strong demand in China, you have tech upgrades. You're outgrowing the market on these upgrades. Does this also mean that the backlog mix is now improving for invoicing further out? Can we see an improved drop-through in the ahead on these upgrades? Are they better margins? I'll start there.
No, I think if you follow the pattern for our development going up and going down, it's most likely that you will see that a semi development for us is positive, and I think I leave it with that. I don't know if you want to add something else, Ola.
No.
All right. Can I squeeze in just one follow-up on, Ola, you talked about one of the reasons for a bit slower drop-through is R&D and IT owing to digital. Do you think the drop-through over time in Atlas should be lower than the 25%-30% that we're typically used to? I.e., do you see the need to ramp R&D to a new higher level, or is this just a couple of quarters? Thank you.
It's, of course, extremely difficult to pinpoint how long this will be, as take digitalization, for example. It's not something that is a quarter's job or even a year's job. It's a continuous investment, both in the infrastructure part to enable all the tools of sales and marketing automation, better web presence, online sales, all these kind of things. It's a combination of pure IT and a lot of people, of course, needed to do these kind of things. We have no formula to calculate how that will affect, let's say, drop-through going forward. I don't think that you should take this quarter as proof that this is what you will see also going forward, as little as you should have taken it as a proof three quarters ago when Vacuum Technique and Compressor Technique had 40%, 50% drop-through or whatever it was.
Yeah.
No, I don't think that you should make very big changes to the previous statements, no.
That is an important strategic decision that we made in the digitalization, and that is that it's in principle not technically difficult to connect your product, and you can gather the data. Then you can have the option then to give that data to an external party, say, "Can you help us with analytics? Can you draw conclusions? When will things fail?" et cetera. We have taken the approach here that, and we will continue to invest in that to say, "Okay, so is that the new core competence, or should it be outsourced to someone else?" We believe it's such an important part of our future growing service, for example, that we said we're going to have the analytics team and this new competence in-house, and that goes for all the business areas.
It's not in payback over a couple of quarters, but for us to take that strategic decision, I think, is extremely important. I feel very, very comfortable with that decision as well, that we own the understanding of data, and we can actually build that into R&D, but also in terms of service products for the future. For me, it's a little bit just more than numbers for quarter to quarter.
Sure.
Yeah.
No, of course. Makes sense. Thank you.
Great. Can I just check whether we have found a question here in Stockholm? It seems to be exhausted. We go further to the conference call then.
Thank you. Our next question comes from the line of Max Yates of Credit Suisse. Please go ahead. Your line is open.
Thank you. Just my first question is around services in Compressor Technique. Have you seen anything from customers suggesting there's a real takeoff of uptime contracts, whether there's been a step change in the way that customers are servicing their compressors? Would you say it's more a continuation of the gradual trend of these contracts pushing more into the installed base? Is there any step change in the way you're seeing customers service their compressors?
I think that we have more than 120,000 connected compressors today. What we do with the data is, in principle, if they have a service contract with us, we have four analytical centers around the world where we, day by day, monitor the data and see what happens. Uptime contracts being discussed, I would say it's not a significant part of our business today. It's an option for us. If you know the data, understand the data, you can predict or prescribe even what will happen, of course, then you can with comfort take on that challenge in the future. It's not significant for us today. What we do with the data is that we drive, in principle, service contracts.
If you drive the service contracts, you of course, secure original parts in the maintenance, and you secure more contracts, and you help the customer by being very proactive, and we see something that goes wrong with that compressor room. Normally, we actually see that before the customer do, and that is something that they see as very positive, get that phone call because they want more uptime, and if we can then schedule a service call. For us, securing service contract, making sure that we have more uptime than customers, this is mainly the content today, but not so many uptime contracts as such where they pay for that.
Okay. Thank you. Just my follow-up question would just be on acquisitions and M&A. Obviously, semiconductor-related companies have all, I think, become more expensive. Valuations have gone up on a lot of the assets. Should we expect the sort of acquisitions that you make over the next 12 months to be a continuation of building out vacuum and semiconductors, or do you think it's realistic to think that we might see another leg or another division of Atlas Copco start to be created if assets in that space have become a bit more inflated and expensive?
You look at vacuum, I will say in the semi, with our market position there, if we would buy more of the same, there would be limitations to that. If we do something more similar like we did with Brooks, that's a new technology that we can bring to the market and take that technology and use our presence globally, that we can do. I would say there is more opportunities geographically product, on the Industrial and scientific.
Okay. Thank you very much.
We continue to work off the list of questions from the conference call.
Yeah. Our next question comes from the line of Gael de-Bray of Deutsche Bank. Please go ahead. Your line is open.
Yes. Good afternoon, everybody. The question I have is on the gross margin. I noted the gross margin was down 100 basis points this quarter, despite the positive organic revenue growth. Could you comment around that, please, and specifically could you discuss the pricing strategy you have, whether there has been any tactical pricing concessions on your side to gain share and perhaps the extremely positive market, well, volume development you've benefited from and the market penetration you've shown this quarter? Thank you.
I will start, but then I will hand over to Hans Ola to break it down for a little bit. When it comes to pricing, we see ourself as market leaders in many of the segments where we operate, and we are really keen on selling the value to customers, so we are not giving in easy on pricing. Instead, constantly, we continue to develop the products and making sure that we have a sales force that can explain the return on investments for customers, and that is becoming a more vital part in all our segments. Of course, working with some of the bigger customers in the world, in the auto industry or the semi industry, of course, everyone is asking us, "Okay, how should we do this in a better way?" Nothing has really changed.
I would say that our role is to make sure that the customers see the real value of our products. Pricing, I would say, is something that we really are keen on keeping and making sure that the customer pay for value.
Well, the key point of the question was perhaps price. That was exactly what Mats explained. If you look at the margin erosion, as you call it, from last year to this, in spite of the revenue growth, I think I can go back and refer again to the slide that we covered on the so-called profit bridge. Again, I can say that there were three main buckets, if I call it that, of explanation, whereas the largest impact compared to last year was the sales mix. Secondly, there is also an impact from restructuring. Well, it's not huge restructuring, really. There are structural changes going on in a couple of the business areas. I mentioned Vacuum Technique specifically, trying to move both supply chain and manufacturing even closer to the end customers. That involved, in their case, in the U.S. and in China.
On top of that, these continuous investments that Mats explained very well is part of our strategy and what we really need and want to do. Those are quite much larger this quarter compared to the third quarter last year. It is an ongoing investment that has also affected, to a certain extent, Q1 and Q2. We will see more of that, of course, but it might have been a bigger effect in Q3 versus last year than would be in a normal quarter.
Okay. That's great.
Thank you.
Thanks very much.
Thank you.
We have a couple of questions.
Our next question
Yep. Yeah, go ahead, please.
Okay. Our next question comes from the line of Andrew Wilson at JPMorgan. Please go ahead. Your line is open.
Hi. Good afternoon, everyone. I just have a broader question around the digitalization and the investment that you're making there, which we obviously talked about. Can you give us an idea of how you feel, from a competitive position, you're positioned? Is this investment to catch up some of your peers and seeing things that you feel like you need to close the gap, or is this basically you investing in an area ahead of your peers, which you think is going to make a difference in terms of market share? I'm just trying to get a sense of the kind of push and pull on that investment.
Digitalization, right?
Yeah.
If you look at what we do for our customers in terms of connectivity, I see an opportunity to leave competition a little bit behind, and that's why we like to have this as a core competence and to really invest in it. There, I think we compare to peers, we are quite up and leading in most areas. When it comes to customer engagement, you can tell webpage, market automation, social selling, things like that, then I would say that we don't benchmark so much with industrial peers. We try more to look at what goods look at outside in the consumer world, how can we be that kind of company.
When it comes to our own operation, we are really pushing this internally as well to see how can we use digitalization to the benefit for our operation and logistics. There I would say that it's quite a lot of learnings, but also impact already in a number of areas. I think the number 1 for us is in service and connectivity. There I think that we are ahead of many of our competitors.
That's great. Thank you.
Next question, please.
Our next question comes on the line of Ben Uglow of Morgan Stanley. Please go ahead. Your line is open.
Good afternoon, everyone, thank you for taking the question. My first question was to get some sense of what you're seeing in China at the moment. Have you seen less customer hesitancy than you were seeing last quarter? I think you kind of called it out last time. During the quarter, have things become more stable? As we move into 2020, what are the kind of conversations you're having with customers? I'm particularly interested obviously on the auto side, but also Compressor Technique. I guess I'm thinking about what is the run rate you're seeing in China at the moment? Could it potentially be getting better?
No, I think to start with, among the people in our organization and the customers, there is a big concern about the protectionists and tariffs. That is a big uncertainty for our customers. Should they or should they not invest, and where should they invest? Should the footprint be in China, or do they need to be somewhere else? Of course, we have not seen a solution to that. In general, though, we can also look at the Asian companies exporting to other Asian countries. Just with the pure size of Asia, I think it's predicted to be close to 50% of the global GDP in a few years' time. You can see that the export in between Asian countries over the last 15 years have gone from 5%-20%. I think they're building their own industry.
For us, it's extremely important to be present with technology, manufacturing, logistics, and sourcing there. Otherwise, I don't think you'll be competitive over time. That is also what we see in the CapEx on the bigger compressors, that if someone are determined to enter something, they're going to do something. That has continued even throughout these uncertainties. The one negative I would say is more of a general industry and also the auto sector, where they have quite a significant drop in production volumes, and I think the government have tightened up a little bit, the opportunities. This is a little bit what we see, and then the full speed ahead when it comes to the semi side of things. You could see an equipment boost for us, at least in a couple of years, and it was a little bit slower.
We have the few good quarters as well. I think it depends. The next investment is probably more linked to the success they have with the development of the memories that they're mainly in today. It's not so much logic.
That's fair enough
on the semi side.
I guess I had a question on semi. I think we're all trying to figure out the same thing, which is how kind of organic or underlying is the order intake. I guess maybe I can sort of address it a different way. If I look at the pickup in orders and think about it in USD terms sequentially, for the sake of argument, it's $100 million, $120 million. Is that coming from two or three large customers, or is it a much more broad-based effect? If we look at that big improvement, it's a fantastic number on the orders. Is this something that's down to two or three big accounts, or is it actually more broad based and underlying than that?
Back to you, Meyer?
Yeah. Semi.
I would say it's, as I tried to say a little bit earlier, there are American investments. We do see the China investments. We see a little bit movement in Korea. In general, they don't need much more capacity at this point. Pricing is not up, so I don't think it's a general trend shifting upwards. I would say it's more a number of key accounts that have invested, but it's the same key accounts that we talk about in every quarterly report. There is no big change or any big shift.
I think I heard you talk ongoing sequential growth, but we have to remember when you see 21% growth, that if you looked at the chart that Mats showed in the handout on Vacuum Technique, we are comparing with the absolute lowest quarter on orders.
.. last year, third quarter. Of course, you have to look at that in order to understand the growth number per se. The height is also pretty good compared to. Swedish krona has inflated the numbers, of course, just as we have said many times. It's a little bit of comparing with, as some of you will remember, when we stood here a year ago and talked about Q3 orders, which were surprisingly low at that time. We have to keep that in mind at least, I think.
That's great. Thank you very much for your time.
Next question, please.
Next question. Our next question comes from the line of Alexander Virgo of Bank of America Merrill Lynch. Please go ahead.
Thanks very much. Good afternoon, gentlemen. Just a quick one. I wondered if you could expand a little bit on the order volumes on the small and medium-sized compressors, which I think, as you highlighted, remained pretty flat year-on-year despite weaker underlying activity. I wonder if you can sort of attribute that or give us a little bit more color on that, as to why you think that's held up. Perhaps in the same answer, you can talk a little bit about IT and auto. I know you said that or you called out that auto is a little bit weaker, I guess you've also talked in the past about the resilience of that business because of the development of EV capacity and the new technologies that you're bringing to market for that.
Perhaps you could talk a little bit about those two businesses in more detail for us. That'd be helpful. Thank you.
If you think about the industrial compressor stance in terms of size, most are oil injected at the time, spread throughout, in principle, all industries that you can think of, also that in our presence is that is also the case globally in Americas, Asia, and Europe. It's just that the investment climate and activity level among those customers, if that's then driven by the uncertainties or not, but this is what we see, and I cannot make it more colorful than that.
Right. I don't know. I think we normally refer to that business as a type of GDP/industrial production lookalike type of thing. If activity slows down like we see revisions on those two parameters globally, that's normally what we also see in the demand for those small and medium-sized industrial compressors.
Could you repeat the question on electrification? I'm not sure I followed what you wanted to.
Well, I was just trying to understand because the Industrial Technique exposure to auto is typically more on the CapEx side of things. We've obviously seen a number of other companies talking about CapEx slowdown in the auto industry as well, but I think you talked about it historically with a little bit more, in the context of greater resilience because it's CapEx driven, not production driven. I think because we have started to see CapEx-driven investments falling away in auto as well. I wondered if that's something we should now be starting to think about in a little bit more context for IT rather than, I guess the resilience you talked about in the past. I guess I'm just trying to understand a little bit about the customer behavior, customer decision-making, in that business, given how reliant it is upon auto CapEx.
Yeah. Somewhere 60% of Industrial Technique is correctly linked to auto in one way or the other. What we do see this quarter is that the operational budgets, the daily spend is down. What I tried to communicate was that, in the past, we could have China building up a new industry in auto, but this time we see the shift into more electrification. I think the most recognized brand is, of course, Tesla. When that takes off, and now we see in principle all OEM having quite an ambitious plan to really deliver more models if that's fully electric or combination of electric and so on. This is a little bit what holds things up right now, and I think that's something very positive.
On top of that, in 2008, 2009, then we were an assembly company in terms of nutrunners and screwdrivers. This time the changes to mixed material in the body in white helps dispensing because they use mixed material in the bodies, and also the Henrob and the self-pierce riveting and the flow drill business. It's a little bit better balanced, and we also strategically then position ourself that if it would have been only dependent on the old traditional business, then I would be standing here being quite concerned. Now with battery packs, for example, using all our technology that we offer, and that's quite positive for us, and that balance a little bit the number of tightenings that will disappear in the form of the engine bay and so on.
I think when Henrik does the presentation, he says that, "Well, it's an equal opportunity for us in terms of size," but on the other side, the old business we already had, and now we need to go out and win the new dispensing business around the battery packs and other application for mixed material, for example. It's clearly so that all these changes, if it's footprint, if it's a new line, that drives our business. Just the number of cars produced over a short period of time doesn't impact us that much.
Okay. Thank you.
Next question, please.
Our next question. Our next question comes from the line of Andreas Koski of Nordea. Please go ahead.
Thank you very much. Can I ask on FX and currency movements? It looks like I need to recalibrate my model a bit because currency movements had a much larger impact on both growth and earnings than I expected. I wonder if you could give some guidance for the fourth quarter if FX rates stay unchanged from here?
Starting from the final part of your question, I forgot to say that we don't see a very big difference compared to Q3 over Q3 when we look ahead. That is a statement perhaps that we might have to revise if the Brexit negotiations and whatnot continues like they do with a little bit of weakness on the dollar in the last couple of days, perhaps. By and large, if I take where we ended Q3, I would say it would be somewhere in the same realm. Perhaps not as big a bridge as we had in Q3. I don't think that you have to recalibrate totally, but a quarter where certain businesses are doing very well.
For example, Vacuum Technique is very much dependent on the US dollar, so you might have a little bit of differences between the quarters, but it should not be a big thing, Andreas, I think.
Yep. Okay. Then secondly, just on your balance sheet, which is very strong, and you could easily distribute extra cash to shareholders going into next year, just wondering how you are thinking about that. Would you like to keep the cash on the balance sheet to be prepared for large acquisitions, or could they be distributed to shareholders?
Mats can repeat what our main priority is.
Go ahead, Hans Ola.
I said that many times, of course, you remember it, Andreas, as well, that first priority is growth. Then when that is satisfied, whatever we can do, there is a constant review of the balance sheet from the board. It's done every quarter but definitely at the end of each year. The answer is the same as always. Yes, we are very proud that we are financially strong. Then exactly what that will lead to depends on the opportunities that we see in the next quarter and the coming quarter after that, et cetera. It's an ongoing evaluation of what to do. It's a board decision, of course. We can only present the numbers and our view on it. Then we'll see. I might have one question left, or perhaps they got all their answers already and helped us keep the time.
With that, I think we're approaching the hour here in Stockholm and elsewhere. Thanks a lot for participating wherever you were participating from. As Mats said, we keep it on the slide here, the final slide. If you're interested, don't forget to register for the Capital Markets Day that will happen in Brighton on November 26, 2019. Thank you.
Thank you.