Below is the transcript of a CNBC Exclusive interview with ABB Group CEO Peter Voser. The interview was first broadcast on CNBC's Squawk Box Asia on 23 September 2019. The interview took place at the Singapore Summit. If you choose to use anything, please attribute to CNBC and Nancy Hungerford.
Nancy Hungerford: Thank you so much for taking the time to speak to CNBC. Let's talk about the state of the business in light of the geopolitical tensions that are out there about the U.S.-China trade talks there will be great. What are you expecting?
Peter Voser: Thanks for having me here. I think at first if I look at the markets, we see obviously markets slowing down. We see mixed pictures in Europe and China quite clearly, you are still going reasonably ok, but also starting to show signs of slowing down. So this is specifically in automotive and discrete industries so which we see at the moment. The whole geopolitical discussion clearly has some impact in all of this. We see it on the customer base because they are slowing down in investments because uncertainty normally is not what we want in business terms. And this whole trade talk – or better say maybe the technology talk behind that – really means that a lot of customers and ourselves, we are thinking through on how we will run global supply chains, how we will actually structure our businesses in the future. It does affect us less in ABB but it affects our customers and hence the macro trends become important for us.
Nancy: And of course manufacturing, being at the centre of this pain in the U.S. as you pointed out, is key to ABB's business. When you talk about a slowing in the U.S., do you fear that it could get to a recession?
Peter: That's not what we are seeing at the moment so I'm more half glass full still that we see many industries still performing OK. But we see a slowdown in taking decisions to run or sanction bigger projects and that has the knock on effect over time. And the manufacturing sector clearly the automotive sector also there seems to slowdown. So I think the real impact we will see a little bit later, depending on how the companies are, or our customers, how they will take the decisions regarding large investment projects.
Nancy: The automotive sector too has really been a pain point in Germany and now there are fears about Germany going into recession. What could that mean? The broader European block, is that something you worry about?
Peter: Yes. Worry is a little bit too much. It's a challenge which is OK. So we need to solve it. But I think Germany's a mixed bag. We still have industrial pieces which are growing, but clearly as it is such a big automotive country, it is slowing down. And I think the automotive have two issues: consumption is slowing down on combustion engine type of cars and they are not yet ready on the electric side. So you see an overlapping here which slows things even a little bit further down and also pushes them into a kind of high capital spending over the next few years because they need to maintain some series of cars and need to build new ones, and that we clearly see in Germany. But we see it in China and in the U.S. as well.
Nancy: What does this mean for your automotive unit then as part of the company that does business on the manufacturing sector? Does business need to be restructured? Do changes need to be made?
Peter: Quite clearly this is the robotics business which we have, we are quite unique in that in our industry because we are the only ones in the automation field with robotics. Yes you are optimizing costs. You are taking some measures there, but we take a long term view and the aging society with the technology coming in for more autonomous manufacturing in all the big markets we see growth potential for the future. So it's now the time to think about that and get your capacities right. And that's why we announced that we had the groundbreaking last week of our new robotic innovation manufacturing happening in Shanghai. So we are going countercyclical on this one.
Nancy: Let's talk more about that because this gets to what is taking place in China. I mean when you look at just the lingering trade tensions, is that changing the way that you invest in China?
Peter: Not at all because we see this more as a short term issue because the Chinese market is big enough and has enormous growth potential. On the manufacturing side, I mean there are global manufacturing hubs but they also have their own big market which they can serve. They have an aging problem. So they need to automate as well. Yeah because they will not have enough trained staff and some are getting too old. So and it's also one of the 2025 China objectives to get more into automation. So for our automation robotics business we see a huge upside. China is not very highly roboticized today compared to Germany, compared to Singapore here, which is number one now in the world, or Korea and Japan. So there's a huge way to go and hence we see the whole situation positive in the longer term.
Nancy: And we know China has made robotics a big part of their 2025 plans as well. By setting up a factory in Shanghai, do you worry about intellectual property transfer?
Peter: We have been for 60, 70 years in China and I think we see the positive trends in China about intellectual property. They are tightening the rules, they are getting closer to western standards etc. and we have clearly department in place or an organization in place which watches this quite clear and carefully. But so far so good. I think we are not only setting up as I said the manufacturing price for robotics, we also have 250 people doing R&D and A.I. or robotics, like we have in China, we have 2000 people in our R&D centers. So we are using China also to develop IP for the rest of the world. So I think this gives us as a sum, a much better value.
Nancy: You've also been involved with Huawei in China and helping, I believe, in cloud programs. Do you worry about the scrutiny though at the moment around Huawei and what we hear often in the U.S. and some in Europe, that they perceive Huawei as a national security risk? Do you worry about those risks being a business partner?
Peter: I think in the digital world you need to work with ecosystems and partners. We cannot do everything on our own. Our global partner is Microsoft. We stand as your platform. We have developed our ABB ability. Now in China, we are offering through a company, the Microsoft possibility. We said sure, but we also needed China, Chinese solution in China for customers who want to have a Chinese provider of cloud. And that's where we have our partnership with Huawei, which is a partnership which we have for China in China. And we are offering both of them. So at this stage as we are operating with them in China, I think this is well accepted and it's an absolute must for us to be competitive in China, and our competitors have also different solutions in place and I think that's the way we all have to develop our business. So there is always a risk but we do not see this as an issue as it is for China in China.
Nancy: The scrutiny around Huawei though speaks to the fact that it's not just about trade anymore. When you talk about the issues that the U.S. and China are trying to work through, it's very much become a technology confrontation as well. I've heard a few voices here in the Singapore Summit who's talked about their concern about a bifurcation. Do you see that?
Peter: We see this day in day out now and we are preparing ourselves for that. I think we will have a multipolar world. We will have a bifurcation on technology and we have to be ready for that. On the one side, we always had a regional supply chain type of thinking and policy in place. So we produce in the region for the region. So we are a little bit less affected by global supply chain interruptions but quite clearly our customers are and global trade today is a trade of components. We are shipping them around the world or our customers which we serve. And that clearly will be interrupted in the bifurcated technology world or in a multipolar world. And I think the businesses are getting ready to deal with that.
Nancy: It can't be easy for businesses to navigate this bifurcation, and I wonder if that's part of the reason why you predicted a turbulent year ahead. I mean it's already been turbulent times for ABB. I mean just how turbulent is it going to be. Can you give us a better idea of what that actually means in terms of performance for the company?
Peter: I think from a performance point of view you do the typical thing when the markets start to soften, you start to tighten your belt on the cost side and that's what we are doing, but we always keep in mind medium to long term what we will need to capture the upswing afterwards and that's how we are planning. But I will clearly see the second half of this year and in the robotics field most probably in other two quarters more next year, which will be tight and tough. And we have just to weather the storms and go through that, without losing the long term perspective.
Nancy: What would you like to see in the way of a deal between the U.S. and China that would at least make things less turbulent or even smoother?
Peter: We are a great proponent of global trade. We are an international company. We want to serve society and the world with our products and hence we would like to have a global deal between the two which allows us actually to develop the international business hopefully with not too many restrictions on the technology side. Whilst I have to say that today, in my view, that's going to be very difficult to achieve. Will we get to some form of a deal at one stage? I'm hopeful on that because I think otherwise the businesses will suffer and I think the United States and China will suffer in their own home markets because they are depending on each other in certain areas today. So I'm hopeful that we will get a commercial solution which will still allow global businesses to do their business. Maybe with some touches of running things in duality like the technology and then it will be interesting to see where we can apply what and that's ahead of us now.
Nancy: Are you seeing the slowdown show up in business activity in China?
Peter: In some segments, yes; in some segments there are still growing very fast. But if I take discrete automation or discrete process OEM and automotive, that's where we see it coming down. But we see on the infrastructure side, on the building side, we still see quite significant growth, even double digit growth. But it is really mixed and if you take our robotics business that's half of it depending on automotive. And that's where you would see it, but as a company in the second quarter, we were still okay in China and excluding robotics, we were actually growing very strongly.
Nancy: It's not the only geopolitical risk factor that business leaders such as yourself have to contend with at the moment, quite a big shock coming out of Saudi Arabia last weekend here. The oil markets you might say have been pretty resilient and in ABB you have some exposure to the oil and gas side. I really want to draw on your experience back in the oil industry as well. How surprised were you by this attack at Aramco which is really seen as the crown jewel of Saudi Arabia's oil?
Peter: Yeah I think on the one side is the market reaction which is understandable because there were uncertainties as usual you never know how long it will take until have everything back up again. I think the kingdom does. Therefore Saudi Aramco will get it up as fast as possible but it also shows the vulnerability of our energy system, oil system, which we have across the world, depending on a few big players and if something happens there, then it has an immediate effect on pricing, on availability, which then has an effect on the macroeconomic side. So it may have an effect on growth. So I think it's also a warning signal to protect these types of very significant strategic assets in the future even more. And it's both, these types of attacks but it is also the whole cyber world which makes our life in business much more complicated.
Nancy: And it's interesting that Saudi Arabia officials there said this wasn't just an attack on Aramco facilities; it was an attack on the global oil supply. So as you say it, the defenses do need to be improved don't they?
Peter: Yeah they… we need to make sure that the global energy system is protected in such a way that it doesn't harm the economy across the world. And yes, there are a few players, which really matters if something happens. Saudi Arabia is one of them. I think Russia is very big and there are two or three more. You can also argue about that in the United States, but there it is more kind of scattered around. It's less in one or two units, but I think that certainly will now trigger some of the thinking on how to build, to defend the defensive part of it but also how we build these big beasts of refineries or gathering kind of refineries, or just bringing the products together. How big you build it because the vulnerability is there.
Nancy: And based on your knowledge of the shale industry in the United States, there was some discussion as to if oil prices were to remain high or go even higher from that initial reaction they had, what the shale producers would do, how easy it is to turn on the switch so to speak and react to the higher price environment. What's your view?
Peter: Yes it is. They can react much faster than the more traditional oil and gas business. I think they would clearly start to have a higher number of rigs and go for more resources again. Against that I think they're playing two things which is total oil demand in the world. One needs to watch that. And the second one is quite clearly a lot of the smaller players are highly geared in the shale business and they may also opt at one stage to pay back some of their leverage, some of their debts first, before they actually get them pumping money again into capital. But the payout is much shorter than for the bigger project. So typically you have an 18 months one answer. As soon as you start to pump and the cash comes in and that helps quite a bit on the shale side so they can react much faster, get faster to money as well.
Nancy: And just given the tensions we see in the Gulf region, specifically the tensions with Iran, do you think we could see some of these price spikes going forward? I mean is volatility here to stay given the state of relations in the Middle East?
Peter: The oil always reacted volatile to geopolitical events when producer nations were involved. Now it's with Saudi Arabia and Iran. Well we had it when Libya was critical. So then you will get volatility unless you are really in a very low cycle of the economy where there is a lot of surplus, which I don't think we will see that over the next few years. But therefore the volatility is combined with the geopolitical side in those producer regions that will always be there.
Nancy: So can I just conclude by asking you, you have few more months left until you hand over the reins, but you will also come back to the company from your post as chairman where you will go back to eventually. What is your advice for the new CEO? I mean what really needs to be done in this environment to keep things going?
Peter: I think in this environment, but also in general for ABB, we have to put this strategy in place which is for the next few years, it is now all about execution. That was a little bit of our weakness over the last years. So we need to really execute very fast and in a very high quality manner and that, if done, then you combine with a slowdown in the market, it's even more important. So it doesn't change the direction in that sense but it's just needed to do it faster and maybe a little bit deeper here and there in terms of costs. But that's what the new CEO then also has to do, because I have already started it now, because I'm not sitting around and not doing nothing.
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