I'm Andrew Obin, Bank of America's Multi-Industrials Analyst. I also cover industrial software. The next meeting is very exciting. I think, to me, it should be one of the most interesting meetings for the conference. With us, we have Cyril Perducat, Senior Vice President and Chief Technology Officer, Rockwell Automation. We also have Aijana Zellner in the audience, VP Investor Relations, and Market Strategy. I think Cyril has a couple of slides, and then we're gonna go into fireside chat, and then we'll take questions from the audience. Thank you, Cyril.
Thank you, Andrew. Good morning, everyone, and thanks for having me here, Andrew. I just want to start in a couple of minutes with some points about what is Rockwell Automation, so to baseline this for everybody. Rockwell Automation is one of the leading global players in industrial automation and information solution, with especially a very strong established presence in North America that represent 61% of our revenue. We are a global company with more than 50% of our workforce outside of North America and a presence in 100 countries, either because we have local customers or because we follow our North American customers where they are building capacity or new things.
In our portfolio, we have a combination of product, hardware, software, and services. Historically, hardware that now becomes more and more intelligence devices. That's why we named the segment that way, as represent roughly 50% of our portfolio. We have had a very strong focus, both organically and inorganically, to grow our information solution business in particular. We are diversified in term of the end market that we cover. The starting point and the history of Rockwell Automation has been with discrete industry like auto, tire. More and more and over the years now, we have a very strong established position in hybrid industries. Pharma, food and beverage, life science will be typical of this.
We have also in different part of our portfolio, a strong established presence in the process industries. One element in a minute to speak about our model, we have different product platforms. Those product platforms are not end market-specific. They are horizontal to the different segments and geographies that we address. Our business tends to be very global by nature, so there are less products that are specific to a geography or a very limited number of them. We are doing right now to move around this. One move is to say from those product platforms, our customers are asking more and more to deliver outcomes to solve some very specific problem.
I met a customer a while back that ask us, "We want to increase in North America our capacity by 20% without adding a lot of people. How do we do this?" That typically is the type of project that we will have to activate all the different part of our portfolio, software, hardware, services all together to build solutions that address some vertical needs. We are productizing those solutions. This is what we call industry solutions. Maintenance-related, workforce management-related. Different categories where our approach is not just to wave capabilities in front of customers, but really to say there are problems that we want to be known for as being the best to solve them. And that's where we do with industry solution.
At the same time, because our products are more and more digital, I would say ultimately all our product are digital in one way or another. We are building the digital stack, which we call the digital platform. It's not a product. It's not something that we sell to customers, but that's a common digital foundation of our digital products, and it's very important to enable scale because digital is all about scale. Everybody can do experiment here and there with digital technologies. Doing the same scalable capability across 200 factories for a customer is where challenge is. We are beyond technology, we are really working a lot on our go-to-market acceleration, and I will say in three aspects. Talents.
I will say the transformation of the market overall makes industrial jobs more attractive, but still our customer find that having, finding, and keeping the right talents is challenging. In our case, we have this very interesting value proposal. We have this very interesting attractivity. We are in multiple hubs and multiple position. We are today able to attract and reasonably retain the talents that we need to drive the transformations that I described to you. We do a certain number of acquisitions. The latest ones that we have done will come on the next page is around information solution, data science and AI. We will continue to be on this. We also expand our partnership network.
Those customers that are starting to build new capacity in North America, expanding in North America, they rely on us because we have an established footprint with our ecosystem. We have integrators, distributors, panel builders. We have all the different set of capabilities beyond our own technology, not just to consume technology, but to build the capacities that are needed. Those are three important aspect to accelerate our go-to-market. In term of acquisition, we continue to do a bolt-on acquisition of different size. The latest one we have done is Knowledge Lens in India, and this is about data science, AI, and consulting, which both allows us to address some customers locally, especially in pharma and life science, where they have been historically very strong.
India is, this company is in India. India is a strong market for life science. This also reinforce our global execution capability for digital consulting practice that was built based on the acquisition of Kalypso that was done a little bit earlier. We are really growing those global digital consulting capabilities to support our business. I think I'm going to stop here, Andrew, maybe, and we go to questions.
Excellent. Do you wanna
Okay.
Yeah. You know, I as I said, I think the story is actually Rockwell's story tends to be very simple but also very complex. This conversation can last a minute.
Nothing is very simple.
Right. Or we can speak four hours. I think the first question is gonna be quite open-ended. As I said, we can probably speak for four hours about that. How does the company like Rockwell grow its digital capabilities, right? Specifically, maybe we can talk about going forward, what are your key priorities in software? For me, and I know I keep hammering at this question, can you discuss differentiated software strategy within key industry verticals? Specifically, I think what I was thinking is how do you build your software presence organically and through M&A across your portfolio with things like Cognite, Plex, CUBIC, as sort of examples of building out, filling out the white spaces in your portfolio.
If I answer to this in details, there will be no chance for any other questions.
That's fine with me.
We can try.
Yeah, yeah. That's fine.
Okay. Where do I start? Where do you want me to start in all these segments of?
I know. As I said, look, I think you represent not a change, but a big evolution, you know, to Rockwell's approach to technology and digital strategy in general. Just maybe you can outline your vision-
Mm-hmm.
for growing Rockwell's digital capabilities over the next three to five years.
Okay. First I want to highlight the starting point. You know, when we speak about digital transformation in the context of our industry, even if digital transformation means different things today, the history of Rockwell Automation is a lot about digital transformation. You know, when you look at about the capabilities that we have built using open network technologies on the factory floor versus proprietary technologies, building an ecosystem around software where you can extend with partners that use our development environment to build solutions. It's not like the journey started when people started to speak about digital transformation. Those are new elements to digital transformation. The cloud, AI, the edge, new software architectures that are emerging. We are just amplifying and accelerating this.
I think one of the central thesis and ideas that we are developing at Rockwell Automation is the evolution of automation from something that is about repeating tasks in a very reliable, straightforward way. This is what we are known for. That's what automation is about, to really this idea of industrial autonomy. Not industrial autonomy necessarily in the sense of building lights off factories that have no workers and everything, but really visualize this in the same aspect as autonomy for electrical vehicles in for cars. It doesn't mean that you will have tomorrow cars that will drive on the road by themselves, but things about assisted safety, active safety, other things.
Being able to provide in process the right level of optimization by bringing more data, more information solution, more AI in the process, so that we have industrial processes that are not just doing stuff, but that are learning, adapt, and improve continually. Technology partnering with people, I think that's super important, so that you empower people to drive business outcome in shop floor, which has other consequences like making those job in the shop floor more attractive. We are combining organic investments with inorganic investment. I can give you two example in that regard. The core of what Rockwell Automation do is the integrated development environment that we have, that we have developed over the years, was historically on premise.
We released at the end of last year, the first in the industry cloud-native development environment, it combine it as a cloud element, and then it work with existing solutions that is on premise. Customer value this for collaboration across teams, scalability up, down, all the advantage of the cloud. That was an organic investment multi-project, be the first in the industry to release that to the market, which we did in December. MES, manufacturing operation management, we went for another playbook. There was an actionable target with Plex. We acquired Plex, who was also the first cloud-native SaaS MES on the market. We combine organic and inorganic investment.
When you think about the relationship between Rockwell Automation and software, you need to bear in mind that the vast majority of our development capabilities today are software.
Right.
Already. Whether this is embedded software, what runs in hardware or application software. We are already in a large extent a software company. The bulk of our R&D investment is about software development.
Excellent. Maybe we can talk about going forward as we think about in both organic and inorganic. Clearly sort of building the hybrid model on-prem SaaS.
Mm.
That's a big focus. You know, can you expand on your key priorities in software?
I will say functionally, when you look at the space of software, it's a lot about moving from providing the tools that customer need because of trustability associated to regulated industry, being able to observe trends in process to really develop a software stack that help customers address their complex optimization scenario today, which is multi-dimension and not necessarily linear. Let me explain. When you look at what CEOs are speaking about today, they are speaking about resiliency, sustainability, efficiency. They want to achieve all of this at the same time. Those three things contradict each other. How do you maximize outcome while minimizing energy? You know, you are not going.
Right.
Slow down a conveyor because it just c ontradict the goal. All this needs information management, data science, but in a way that is productized so that it's usable by the actual talents that our customer have. Being able to productize solutions so that they can be used up to the point that complex things like data science, AI, and other things are almost invisible to the user, but they can benefit from the tool is very important. Then, of course, in term of market coverage, continue in software to develop or design and simulation capabilities organically, inorganically is certainly interesting. Continue to develop what we do in the manufacturing operation management space. MES in particular continues to be important because those dimensions are important to running and optimizing this core process that we describe.
When it comes to control, before you ask me the question because I know you will, I think overall there is a kind of shift of the architectures. We are more and more embracing software-defined architectures.
Yeah.
Versus hardware-defined architectures, not because we believe that our hardware is soon going to become a commodity. I don't believe it is. think about other sectors that have been through those transformation, like networking.
Yeah.
Switch didn't disappear. They are still here. Really in the sense of decoupling the life cycle of the hardware from the life cycle of the software.
That's a great point.
That we can more in a faster way.
Right.
Evolve software, and it could be because of customer needs. Think about security patch.
Right.
It could be because we have additional value to offer to our customers. We can deploy an app in the system and maybe ask the customer to subscribe to that specific app, and then generate annual recurring revenue. We maximize optionality in the architecture, but we also maximize our optionality in term of business model to capture back part of the value that we create with those new outcome-based solutions.
I, and I do find when we talk to investors, you know, it is a complex topic, so maybe you can help us a little bit. You know, I think you sort of explained Plex, how this was your entry into SaaS.
Mm.
MES, I think you sort of were able to leapfrog a lot of your competitors. That's my personal view. You know, other couple of examples, recent, you know, maybe we can talk about Cognite and CUBIC. How does that help you sort of fill out wide spaces in your product map, you know, sort of to give us an indication where Rockwell could go?
Okay. They are pretty different in their nature.
Right. Yeah.
Their goals. When I look at the partnership with Cognite, we are looking at, we are partnering with Cognite to develop what we call an industrial data hub.
Yeah.
We are not in the business of data storage, data lake, and all these things that's more, I will say, the IT capabilities. Customer will choose one or the others. We need to work in any data architecture of our customers at the enterprise level.
Right.
The data architecture at the process level is something that we own, drive, and promote. At the enterprise level, you have a vast area of choice made by customer. What is important with the industrial data in that regard is to say, what we mine and what we transform are the operation data.
Mm-hmm.
The more you go to some enterprise level scenarios, the more those operation data need to be combined with other enterprise data. It could come from ERPs. It could come from some specific enterprise maintenance systems, other. The data hub is really the broker of data that allows to converge those different data source and create new application at the enterprise level. Either we create new application, or we enable our ecosystem to build those applications. Customers might want to build some specific applications that are related to the IP. That's, for me, that's the enterprise side of this overall data and AI equations that we are looking to resolve and with our customers, but as I said, in a very productized way.
I was with one of our customers recently, where we have done a very successful in-process implementation of those data and AI solution I was referring to. Not experiment, not proof of concept.
Right.
Actual implementation in a line. The next question is that how do you do this in one of those factories? This will not work if you need to bring 20 data scientists, do new developments and everything. The ability to productize is absolutely key.
Okay.
That's what we do around Cognite.
Mm-hmm.
Some of the technology we use into an offer called Data Mosaics. This is what we do over off-stack. Productization is very important. CUBIC is a little bit different. CUBIC is really about the envelope and the system around the power control. What CUBIC bring us is new market access, and I mentioned in my presentations that was important. Access to new market, presence in Europe. They have a significant presence in Asia as well, and strong presence in renewable. That's also some of the end markets that we want to be able to address, either because those are combined with the capabilities of our existing customer. We see many customers that are adding-renewable capa-capabilities in their production process.
It could be solar, it could be steam recovery, it could be fuel cells, it could be hydrogen, maybe soon. Many different things. The ability for us to integrate renewable energy in a process and have the technology to do this, including on the hardware side, is important. That's what we do with CUBIC.
Did Cognite have a specific industry focus at the time when you acquired it?
Like many in that space, it started with asset-intensive industries.
Right.
As a consequence, oil and gas. By the way, through Sensia-
Right.
We are in partnership with SLB.
Right.
SLB is also a partner of CUBIC.
The idea you can take a Cognite capability that sort of grew up in oil and gas, help your oil and gas.
Yeah, because of.
also-
Exactly.
take it horizontally.
The fundamental equation, which is to be a data broker, a data aggregation transformation API layer for data...
Right.
It's critical on the value point of view for oil and gas and asset industry, but it's important-
Right.
All across the spectrum in different shapes and forms.
How can you sort of take CUBIC and, you know, because clearly that helps you enter into a specific end market, but can you also take those capabilities and expand them across.
Because I believe because CUBIC productize the envelope and the architecture of the system.
Yeah.
Because of their size and their scale, they are focused on some industries.
Mm-hmm.
The synergy with Rockwell is to use the same core technology and expand and bring it to other market and other geographies.
Got it. No, this is, this is very helpful. Thank you. You know, look, I mean, I, I think we are at BofA Corp big believers into. You know, I think I'm on the record saying we're probably gonna have the best CapEx cycle of our professional lifetimes. You know, you are sort of guiding for very strong organic growth, you know. And maybe just to think about how do you think about scaling your R&D and SG&A costs, right? How do you think about scaling things up in an environment where there is structural upswing?
Mm.
You can argue cyclical, structural, but how do you think about investing for growth?
Okay. Well, we are investing for growth. I think it's part of any R&D portfolio management discipline to say there are things that we have been doing, because we have been always been doing it, that we need to stop, and we need to maximize the investment in the new area. You know, I can just take a simple example. What I do as the Chief Technology Officer, investment in four area in fiscal year 2023: cybersecurity, data science and AI, industry solutions, and digital platforms that I was mentioning. We are allocating the resources. We put our money where our strategy is. That's what we do today. We are both organically and inorganically prioritizing this new frontier or this direction that I was mentioning.
Right.
Where we want to go. This implies that we need to optimize our portfolio overall, we are a growing profitable company. We have the means to execute our strategy.
I guess the question, the broader question, right, in the world, we sort of analyze the price cycle. If you look at capacity investments, and I guess software has grown a little bit faster-
Mm.
It was like fairly anemic growth, right?
Mm.
I think it's easier to manage growth. When there is very little growth-
Mm.
It's a lot easier, I think, to optimize for margin, and you can sort of-
Mm.
Margin of safety is greater.
Mm.
As the world sort of accelerates, do you need to sort of change the way you think about investing internally?
Mm-hmm.
Sort of step it up? how do you make sure that, you know, the company, and I know that's sort of not your area, but.
Mm.
CTO, how do you think about sort of the company keeping operating leverage?
Mm.
Right, as the world is accelerating so you don't, you know. Maybe if the revenue grows by, you know, let's call it 11%, you know, what you're guiding, 11%-15%, how does your sort of R&D and SG&A not go up 15%-20%?
Mm.
That's what I mean.
I think maybe a short detour to your question, but I think it will answer. All those transformation is digital related.
Mm-hmm.
Software related, I think it's very important to have the discipline to partner with the right companies.
Mm-hmm.
Not to try to build organically and internally every single
Right.
-that you could imagine a need for the role. The nature and the profile of R&D investment is changing. We partner with Microsoft. That's one that I mention quite often. I just mentioned Cognite. You asked me a question about Cognite.
Yeah.
Being careful about not trying to rebuild capabilities that are not differentiating. I think it's not necessarily about if you say we need to have this amount of growth, we can sustain that growth only if we have the same amount of R&D. We have leverage because I think we need to gradually shift our R&D investment to what is really our core differentiating IP.
Mm-hmm.
That's not necessarily the IT infrastructure that is behind. I think there are some players in the industry that have tried to be an infrastructure player and provide platform and different set of capabilities for customers, but that's now largely undifferentiated. Many players are providing this. We are more focused on delivering outcomes on those industry solutions and this equation of industry solutions that are based on common, scalable, productized capabilities that scale in the right way.
Another area of debate, right, and, you know, just, you know, the key growth markets, at least near- term, if you look at the data, are semiconductors.
Mm.
EVs. Can we just talk about how should we think about your wallet share in semiconductor manufacturing? You know, one of the I think folks sort of point out, they say, "Well, you know, semiconductors are not that big for Rockwell.
Mm-hmm.
I think you've addressed it on one of some of your calls. How should we think, A, about your wallet share in semiconductor manufacturing? Also, how should we think about your exposure to the entire value chain...
Mm-hmm.
in semiconductor manufacturing?
Mm-hmm.
Maybe we can just sort of unpack that.
It's true that our share in semiconductors is not historically big. We have been in facility management, drive, climate control, what goes around. Now we are more and more in the conveying, transportation, fast-moving. I believe we are successful there because we have a differentiated competitive advantage. We have a unique product that is not just about the way you convey silicon wafers in the plant-
Right.
That is also the way you design, simulate those process, maximize outcome for customers. We are developing more and more capabilities that are relevant for semiconductor manufacturers.
Right.
We are also suppliers of a lot of the equipment manufacturers that.
Right.
-with the equipment process. Yeah, if you have an equipment that is managing the water flow in the process, semiconductor process use a lot of water, there is most likely a pump.
Right.
This pump is going to be powered by a Rockwell drive.
Right.
It's not just the end user power that you see, but it's also different equipments that go into a process where we have different type of capabilities to offer to those OEMs, and we also the ecosystem to support us.
Right.
Because one of the big part of all those semiconductors project is they want to be up and running fast.
Right.
They want to have those capability fast. We don't only have a lot of good technologies, but we have the ecosystem to execute in North America.
Right.
Which I think is very important. It's not necessarily... If you want to go fast, that not necessarily is the right time to experiment a new partner or to experiment with somebody that is a new entrant to the market, but doesn't have the capabilities of Rockwell Automation. We have the advantage of being the established strong automation player in North America for that reason.
As more of supply, sort of semiconductor supply chain moves into North America.
Mm-hmm.
Right? You have very strong presence in North America. Would that incentivize some of the equipment manufacturers, you know? Are you seeing equipment manufacturers who? Right, because incremental capacity used to go to Asia.
Mm-hmm.
As more incremental capacity goes to North America, does it change the calculus for sort of machine builders to work with Rockwell, going forward, given, you know, the user base going forward for that?
This is true beyond semiconductors. This is true for EVs, this is true for other things. For a simple reason, you know, if you have, let's say, OEMs in Europe that might work today with some of our esteemed competitors, as they want to have more business in North America, because North America looks to be a very attractive market for them, they will work with end users in North America. Those end users very often will be close from Rockwell Automation. We help those end users write the specifications of the automation systems that they need to have in their plants.
Naturally, those OEM will come to see us and say, "I want to be competitive in North America to address the needs of end user in North America, so I need to work more closely with you." Naturally, we see those conversations happening.
Another area of investment that we sort of, I think we sort of identified, Devon on my team, like, pulled out for every permit. EV battery plans.
Mm-hmm.
I think there you guys are very excited.
Mm-hmm.
Your conveyor technology. What's the opportunity there? What's the strategy there? Is it fair to think that EVs generally and batteries are a particularly exciting opportunity for Rockwell?
Yeah. By the way, when we speak about batteries, it's not just about North America. Today, we are having customer in Asia that are battery manufacturers. I think the reason it's batteries manufacturing is typically an hybrid process. You mix chemicals and physical parts that you assemble in a certain way. You make a lot of cells, so you have a repeat that is very adapted to automation, and then you move this on fast conveyors, which are the integrated cart technology that we have.
Right.
We both have the expertise in this type of industry, even if it's not specifically battery, but the nature of this type of industry, hybrid industry, we know this very well. That's really a sweet spot for us. We have some unique technologies all together to do this. When I look at North America with the Inflation Reduction Act, the amount of incentives to localize battery manufacturing in the U.S. is tremendous. This trigger other projects like in mining, in all the transformations where we are present, so it triggers other value chain elements. There are also very strong incentives in hybrid recycled batteries.
Mm-hmm.
This is going to create the new industries.
Right.
Recycling batteries is a process of making it. You deconstruct the battery, you recover the chemicals, all these parts. We are also very well positioned to help create in North America this industry of recycling batteries.
Fundamentally, what I'm hearing is that you have very strong position in North American ecosystem. Insofar as more stuff is going to be done in North America, it structurally benefits Rockwell in the long run.
That's the good summary.
Yep. Maybe, sort of automation landscape and, you know, we'll sort of talk about, virtualization now then, but how do you think about, you know, sort of more traditional automation hardware versus more complex technology marrying it with things like AI?
Mm-hmm.
Robotics? Clearly, you know, it was sort of written because of the labor shortage.
Mm-hmm.
There is more emphasis on robotics. AI is sort of becoming more mature, probably more use cases on the factory floor.
Mm-hmm.
How do you integrate your more traditional offering with sort of expanding it into robotics and AI?
Maybe I will speak separately about robotics and AI. To continue on what I said earlier about AI. We are really in the business of applied industrial AI, okay. We can rely on partnership for core AI capabilities, Microsoft, Amazon, others. What we do with AI is really at the intersection of software domain expertise and AI. It's really productizing the solutions that is AI-based in order to solve a specific problem at scale that we know how to solve. I can give you an example. One of the developments that we are doing is to embed condition monitoring in drives.
Use the information available on the drive, based on the electrical signal and the tiny variation of the electrical signals, deduct that we have a specific problem with the motor, create a maintenance object that is pushed to the CMMS of the customer, so that the drive is not just a drive anymore. It's part of the overall tool chain of maintenance for customers. We do this in multiple elements.
You know, for me, AI, I don't believe, and I think the more I speak with people across in the industry, I think it's a common belief of everybody, doing AI in industrial processes is not about, I'm going to take a huge amount of data, move everything to the cloud, let's say, create a very complex model that describes the behavior of my plant and hope that somebody is going to be able to use it to improve operation. That's not the way it works. Making small AI distributed across the architecture, making explainable models that work with the experts that all customers have today, those customers becoming more and more rare, is the way to go. It's not replacing the experts.
It's transforming all those tasks of the experts that are repetitive and into something that is integrated into the AI model and maximizing the time that the experts spend on cases that you cannot model well or that are complex or that are corner use cases and everything. We are really looking at distributing AI from devices to control to the edge to manufacturing operation management, but to solve actual problems. Sometime we'll know it's about AI, sometime we won't. You know, like, when you look at your phone to make pictures, you don't think that there is AI processing image in the background. You don't need to. That's the same. AI doesn't necessarily needs to be all the time.
On, on your second question on robotics, 75% of, if I take the example of North America, 75% of Rockwell Automation integrators in Rockwell in North America are robotics integrators. I think the nature of those autonomous operations that I was describing implies that you have coexisting in a factory people, robots, in different forms, robotics arms, AGVs, integrated cart technology, which is another form of robots, AMRs and everything. In order to do this and not have all these being different clusters, like work in isolation, like you have a human being here, you have a robotic arm in a cage here and everything, being able to provide an integrated environment for those integrators that spans all the different capabilities, whether we have them directly as a physical hardware or not.
We don't have robotics arms. We have ICT, we can integrate all the different things that exist across the market. We just announced recently a strategic investment in a company called READY Robotics, a startup, and they do design environment, low-code, no-code, simple design environment in order to integrate robots into automation system. I mentioned that we have released last year our first cloud-native environment for development, while the two will intersect very well so that we can expand the robotics capabilities or the robotics integration capabilities of our development environment.
Last question from me, and maybe we'll have time for one or two questions from the audience. What's your visibility on reshoring activity over the next six to 12, 18 months? What are you hearing from customers? You know, when do you start seeing orders coming on that?
I think there is a variation of different things. It's, you have some projects that have already started, maybe because they were already here, and they are just accelerated because there is demand. You have some new initiatives. We announce that we work with Rockwell with Ford to support them on their transition from ICE to EVs. I think it's real. Those are real projects. Those are not vague intentions. That's the first thing I will say. Then they are in different stage of execution. Some project will be sliced into smaller phases. Each phase will go faster. Some, if you look at semiconductors, you know, usually you build something big right away.
Those projects can be, I will say, those complex projects can have a lead time up to two years.
Right.
From the initial discussion. Most commonly, typical project of Rockwell, not just one, when we have a project business, it's more something like six -12 months.
Yeah.
The truth is kind of in between in terms of the cycle.
Maybe we'll open it up. We have time for a couple of questions. I don't know if folks in the audience have questions for Cyril. Any questions? Okay, well, I certainly have more questions. Maybe we can talk about virtualization, right?
Mm-hmm.
You certainly have strong views on this. Big debate on when and how virtualization will impact discrete automation, right? Some say the industry is ripe for disruption. Other think that PLC will be the last thing anyone will touch in product terms. You know, I think you have more of an evolutionary approach. Once again, probably another conversation that we can spend an hour on. Maybe talk about how do you think about sort of this evolution of PLC in a more virtual world, sort of virtualizing PLC, and what does Rockwell sort of have out there?
First, well, it's interesting because I have been in this industry for now probably 30 years, and this is a recurring pattern and questions that happens all the time. When you look at PLCs, because we are speaking about controllers and PLCs, they have already evolved quite a lot. The fundamental ideas of the PLC, which is to replace cable logic, is an idea from the 70s, but the PLCs today look very different from the PLCs of the 70s. They still do the same thing, but they have more compute power, more memory, more resilience, a lot of other additional attributes. What I believe is that PLCs will continue to evolve and they exist among different options, not the only one, to run control in a process. You could have some PC-based architecture. We have them.
We acquired a company called ASEM in Italy that is doing IPCs. We have this capability. We have more and more distributed compute that can go into the devices. When I was discussing about this development environment, it's all about how you can manage those different application. For me, the important change, which is for me, for Rockwell, creator of value, not destroyer of value, is this idea of a software-defined architecture. For me, the fundamental idea is decouple hardware cycles from software cycle and not commoditize hardware. This is not what it means. If PLC were to be commoditized, it will be already commoditized in one way or another. It's not the case. We have very resilient margins. Some of the players that have specialized in non-PLCs type of control will overwhelmingly have won the market.
They have not. I think they are A PLC is a fit-for-purpose devices that does what it's supposed to do very well in a very reliable way at a cost point that is the right one, and important for our customers with a kind of commitment of operations for 10, 15 years. Okay. You don't have this with a PC. The fundamental reason why your PLC exists today as a fit-for-purpose device is it's not going to disappear.
Right.
The PLC will need to continue to evolve. Like in the parallel, I will make with software-defined networking and all the IT players. Switch have not disappeared.
Right.
They became different. The players that have adapted their switch to the world of software-defined networking have had an upside.
Right.
The others that did not believe in software-defined networking, not to mention any name, have had a bit of competitive struggle over the years. We won't be on the first one, not on the second one, and we will lead that transformation. There are other things that are very important associated to this. You know, you can think about today, you build a PLC, you integrate capabilities inside it, and then you install it for 10 years. Tomorrow, we want to have the optionality to add features. We want to have the optionality to upgrade across the life cycle so that we monetize additional values that we have created. We want to be able to deploy specific application modules that could be custom or not custom for customers.
We want to be able to have natively inside the PLC some features that if the customer want to use it, you activate them with a subscription because it's model-based, for example. There is a lot of optionality and a lot of upside associated to this transformation. For me, this is certainly not about commoditizing the underlying hardware.
We're out of time. Cyril, always a pleasure. Thank you so much for being here.
Thank you very much. Thank you.