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Teradyne’s Robot Business Proves Co-Bot Market is Real and Inflecting

Special thanks to Austin Bohlig for his work on this note. 

We believe we are seeing a paradigm shift in the manufacturing sector, where robots and humans are beginning to work together side-by-side. These robots that are working alongside people (not in caged environments) are known as collaborative robots (co-bots). Over the last few years the co-bot market has been one of the fastest growing robot industries. In mid-2015, Teradyne (TER) acquired the leading collaborative robot manufacturer in the world, Universal Robots (UR), for $285M. We view UR as one of the leaders in the space, and the best proxy for aggregate market trends. On Wednesday afternoon, Teradyne released Q2 results, which leave us incrementally more confident in the future of collaborative robots. Based on these results, we have a few key takeaways about the quickly emerging co-bot market:

Collaborative robots are built with multiple vision- and force-detecting sensors, which make it safer for these systems to collaborate alongside humans. Programming co-bots is also less sophisticated than traditional robots, reducing costs and improving flexibility.

Co-Bot Market Remains On Pace To Double in 2017

Teradyne reported the Universal Robot business generated $39M in sales, up 56% y/y, and 1H17 sales of $76M, up 81% over 1H16. Teradyne management expects  to achieve 50%+ growth in 2017 in their robot business. Before its acquisition, UR was one of only a few collaborative robot manufacturers in the world. Given the massive market opportunity, many of the legacy robot OEMs and startups alike have since entered the space. We believe the co-bot market is big enough for many players to succeed, and the need for specialization makes a monopoly outcome unlikely.

We believe the total co-bot market increased ~150% y/y to $260M in 2016. This equates to approximately 8,950 units, assuming $29K ASPs. While Universal Robots did not disclose unit shipments in the quarter, the company stated in their most recent 10K their install base exiting 2016 was ~12K. Based on other company reports and internal assumptions on ASPs, we believe the company shipped ~4,180 robots in 2016. Assuming a $24K ASP, we believe UR controls approximately 38% of the co-bot market exiting 2016. Although the market looks small today, we believe we have approached an inflection point and anticipate the aggregate co-bot market more than doubling in 2017 to $680M. By 2025 we believe the industry will ship over 434K co-bots per year and equate to a ~$9.2B market. This growth implies a 56.5% CAGR. Over that same timeframe we anticipate UR will sustain their leading market position, but also see a huge opportunity for startups and legacy robot providers to take advance of this fast growing market.

Co-Bots Are Expanding Out of Manufacturing and Now Making Our Omelets

Key drivers of co-bot demand include: human collaboration, lower costs and functional flexibility. The manufacturing industry has been the largest adopter of co-bots thus far, where co-bots are used for manufacturing techniques such as CNC machining, injection molding and other pick-and-place applications. However, we were intrigued by Teradynes’s comments that many new applications for co-bots are beginning to surface within the services industry. For example, management highlighted the use of co-bot arms in rehabilitation therapies such as muscle massaging. Some restaurants are even beginning to use UR robots to make omelets. These comments show the flexibility of co-bots, and when we consider the number of applications outside of manufacturing, we believe our $9.2B market opportunity in 2025 is likely underestimating the true potential of this market.

Co-Bot Adoption Continues To Be A Global Theme

From a geographic perspective, we believe the inflection in co-bot demand is a global theme; however, we do anticipate certain regions to adopt the technology faster than others. For example, over the next 10 years we believe China will be one of the fastest adopters, and UR specifically said their robot business doubled in this region in Q2. We believe rising labor costs, as well as government subsidies, will promote robot adoption in China. In addition, we see growth in United States driven by the demand for retrofitted automation processes to offset rising labor costs.

Bottom Line

We were encouraged with Teradyne’s Universal Robot results in Q2, which we believe validate the massive opportunity in the co-bot market. We believe we have hit an inflection point for co-bot demand. Traditional industries and new markets alike are finding meaningful value in collaborative robots, which could drive 50%+ annual growth through 2025 and create attractive investment opportunities.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

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