The global transition away from a demand-driven to competition-driven world has given rise to trends such as robotics, the Internet of Things or Industry 4.0, and the force of e-commerce that drives the way business is conducted. In addition, the Asia Pacific region covers several diverse sub-regions, with highly-developed markets like Japan on one hand, and emerging markets like India on the other.
Q: Can you give us some background on Hypertherm?
Evan Smith (ES): Hypertherm was one of the pioneers in plasma cutting, starting in the 1960s. In the 1950s, plasma was a crude cutting process, so the company introduced radial water injection plasma in the late 60s and the early 70s, and it really allowed the expanded application of plasma cutting into the carbon steel market, as it started out primarily in stainless steel cutting.
Through the decades, we have advanced the capability, cut quality and reliability of the technology, while also every 10 years or so, cutting in half the operating cost of the technology. And in recent years, Hypertherm has advanced into the control and software application space, including robotics most recently.
Q: What are the company’s key priorities for the Asia Pacific region and your strategy towards achieving those opportunities, including potential growth areas?
ES: For us, the Asia Pacific region encompasses several diverse sub-regions, which includes highly-developed markets like Japan, Korea, Taiwan, and the Oceania region. But of course, there are still emerging markets such as India, and portions of the Southeast Asian markets.
We still see some of those markets undergoing rapid infrastructure development, which is a core driver for our business. So we look for a leadership position in those markets, in sectors such as transportation, energy, construction.
In other markets that are already well-established in infrastructure, we look to aid them in further automation and application advancement in plasma, waterjet and laser cutting. Such markets would include Japan, Korea, Australia, and others. We also still see opportunities for market share advancement, in particular for our portable equipment.
Israel Gonzalez (IG): On top of what Evan has shared, there are markets where awareness is low, such as Malaysia, Indonesia, and the Philippines. We have two drivers there; the first is the development of infrastructure and building airports and shipyards. These industries are starting to learn about our technologies.
The second is that for advanced applications, we are taking a different approach that leans towards automation, and developing distribution networks and OEM capabilities.
Q: What are the unique takeaways from this region being a mix of technologically mature markets and developing markets?
ES: Sometimes I describe the world as advancing on two tracks; one track is moving towards the digital factory—the application of more advanced technologies, sensors, software and application advancement in Industry 4.0—for global competitiveness.
The second track is customers serving smaller local markets and are perhaps less confident of future demand growth. They are more focussed on having the right technology at the appropriate investment level today. They still want reliable, high-quality cutting solutions, but they are not looking for Industry 4.0.
The Asia Pacific region is a blend of those types of markets. I think in some markets, like Japan, Korea and Singapore, the demand is for digital applications, more connectivity, predictive maintenance, and so forth. Our automation products, such as the XPR300, our software suite, and robotics CAM capabilities, are aligned with these trends.
In other markets that are still in rapid infrastructure development and earlier in manufacturing technology adoption, there is greater demand for our light automation and portable equipment lines which are ideally suited to the more price-sensitive customer.
IG: To provide an example, we just visited a shipyard in Singapore that is now looking to connect their machines together aka Industry 4.0, but they are also looking for tighter tolerances, better quality and for improvement of the outcomes of their table.
If that customer wants to get both, products are available that cover the needs of immediate improvements in operations, and we have those we call “futuristic” needs of the evolution of the industry.
Q: What are some of the biggest developments happening now in industrial cutting?
ES: Industrial cutting has always been a cyclical industry, and we have certainly seen a down-cycle in the last couple of years globally in industrial cutting. And we are seeing a recovery now in most parts of the world, including the Asia Pacific region served out of the Singapore office.
But I think what has fundamentally changed through this last industrial cycle is that we are transitioning away from a demand-driven world where a lot of markets were in fast growth and customers were looking to add cutting capacity aggressively.
Now, as we are coming into a more moderate recovery and the world still has a lot of excess capacity, the demand growth is lower. And so I think we are going from a demand-driven world to more of a competition-driven world. The key drivers in the competition-driven world are automation; customers are increasingly looking to reduce reliance on labour to reduce labour costs in order to improve their competitiveness.
These automation trends include robotics, the Internet of Things or Industry 4.0, the force of e-commerce driving the way business is conducted, and we are also seeing new technologies in additive manufacturing. I think those are the biggest developments in industrial cutting as the world is rebalancing and is looking for its path forward in balancing technology with capacity and competitive demands.
Q: There is a lot of technology convergence at the moment. How do you see these technologies coming together over the coming years?
ES: The technology convergence that we see is increasingly around software. I think that embedded software really drives the world now. When I was at Hypertherm 25 years ago, these worlds were pretty discrete; you had equipment and maybe some software in the equipment. Of course you also had the traditional industrial controls, CAD and CAM software, and the internet did not really exist as a business platform.
And today, I think all those lines have been blurred. Companies that succeed today in the industrial technology space really have to master the “Iron Triangle” of expertise in process technology (in our case, plasma, waterjet and laser), a command of the actual software drivers that cut across all of those cutting technology domains, and then the final piece really is a deep intimacy and knowledge of the customer’s application.
If you have those three things—command of the main software levers, the process expertise and the application knowledge, these are the companies that will succeed going forward and I think be the leaders in industrial fabrication.
Q: What are some of your company's plans going forward?
ES: The company is known for its technology in plasma arc cutting. And so I think the world does look to us to advance plasma arc cutting in all of those areas that I described earlier; digitisation, application advancement and development, the connectivity of our systems and equipment with each other and to the cloud, and the continued application development of the technology. And you see that with our newest products and technology platforms.
But I think more broadly outside of plasma, we are also advancing robotic cutting tools and applications, with software tools and process improvement across multiple technologies and across the value stream. We are increasingly supporting customers in total value stream analysis and being a partner and advisor for cutting operation improvement. So that clearly brings us outside of our traditional reputation in plasma cutting.
Q: You usually work with partners to provide your cutting technologies on their machines. Why is your position as such?
ES: This business model is often described as a ‘merchant model”, where we are supplying key technology content to integrators and machine builders; and I think that the model evolved that way because it was advantageous to the industry. Plasma cutting is not such a large industry that it would be economical for each machine or even for three or four larger machine builders to develop and advance and maintain competitiveness of their own plasma cutting equipment and processes.
So I think our business model and leading industry position evolved by the constancy of our focus, and the fact that we were able to aggregate the demand of multiple machine producers in a way that allowed the advancement of the technology in a much faster way than individual companies could by themselves. Companies saw the advantage of that, and we have been relentless in our focus, both on technology and on developing strong partnerships, for the development of the end market for these technologies.
Of course, a meaningful portion of our business is also on portable cutting equipment, and that we do provide the complete product sold through a global network of distribution partners. Most applications for our portable cutting equipment are hand-operated torches, but a meaningful portion of the applications are in light automation, for instance track burners or fixtures or devices that allow the products to be applied to different cutting demands.
Q: What are some of the partners that you work with?
ES: To simplify, there are three kinds of partners that we have. We have OEMs who produce cutting machinery which are typically X-Y coordinate machines, or sometimes punch presses, robots, or more customized equipment. They take our core cutting equipment, and sometimes also our software and controls, and merge them together with their own equipment to produce the final machinery for the end-user.
The second category is the integrator, who also offers the integration of technologies but usually does not make their own cutting equipment, and instead sources those different pieces of equipment, such as a robotic arm, and integrates them for the end-user.
The third category will be the industrial distributor, who normally resells our equipment with value-added services for the customer.
These partners will always be critical, or I would even say indispensable, to our business model. As we have broadened our offerings, an end user may be served by multiple partners specialising in different equipment types or services. We work in flexible partnerships, sometimes in direct consultation with end customers seeking our expertise, but always with partners in the technology implementation and support.
IG: Every time we develop a new product, we also take feedback from our partners/OEMs for development. Once our partners test our products in real-life applications, that feedback is very important. Before we launch a product, not only do our OEM partners test these systems; we also send beta units to end-users to use them in extreme and demanding applications so we can go back and refine it further.
Different partners have different priorities, and for us to deploy new technologies, we have to understand the needs and interests of our partners and balance those carefully. We also need to understand that the importance of this is for end-market users, and for deployment and improvement in the cutting process and the total value cutting stream.
Lester Lee (LL): I would like to add that we have been focussing solely on the industrial cutting space. Overall, we have around 15 percent of our workforce in research and development in our headquarters in the US, making sure that we keep up with the demands and as Evan mentioned, consistently cutting the cost of cutting.
Q: As the president and chief executive officer of the company, in the next years or timeframe, how would you lead the company with all that we have discussed?
S: I think the challenge with all companies is always to renew its customer focus. We have been very successful at building a leadership position in our core technologies with our core partners around the world.
But I think with the transition as I described earlier from a demand-driven world to a competition-driven world, we have to be that much more focussed on understanding the final customers’ demands, needs and pressures, and the application problems and opportunities that we are best positioned to help them solve and improve.
And so our focus, as it has always been but now especially, is to recommit ourselves to working with and understanding the end-customer, and forming more strategic partnerships with key partners in meeting those needs.
Q: Anything interesting that you would like to share?
ES: I think one thing that is not often commented upon is our relatively unique ownership structure. We are 100 percent associate-owned. In the last two or three years in the industrial economy, we have seen a lot of restructuring and consolidation of players in the industry. This rarely serves our partners and end users very well, because this tends to bring disruptions, dilution of focus and the inward direction of energy.
With us being 100 percent associate-owned, we have been able to maintain a very long-term focus; we have a no lay-off policy as a company, so we have remained focussed and continued to invest through this time of disruption. As such, we have key technologies ready now as the market is turning back up.