Will Trimble’s shift to emphasize recurring revenue drive demand and pricing?
Report Available: April 25, 2016
Blueshift’s initial research showed TRMB pushing its solutions with subscription services, a departure from its focus on an out-of-the-box product. The company has acquired various software companies in the last year and is bundling hardware-software solutions with successful results in growing recurring revenue. However, it continues to contend with challenges in the macro environment as oil and gas continues to struggle and agriculture deals with forecasts of ongoing low commodity prices.
- TRMB provides technology solutions centered around positioning and location that increase productivity for field and mobile workers. It operates in four segments with its Engineering and Construction division amassing 57% of revenue in Q4, followed by Mobile Solutions (over 23%), Field Solutions (14%) and Advanced Devices (5%). TRMB’s Q4 earnings beat expectations with revenue down 1% year to year and its Q1 guidance was also better than expected. Mobile Solutions was the only division with revenue growth, up 7% from a year ago. Agriculture revenue was flat, growth in building construction was consistent, transportation and logistics gained momentum, while geospatial is recovering after the drop in oil prices.
- TRMB is shifting from a single out-of-the-box product to a solutions provider, and recurring revenue climbed to 26% of total revenue in 2015. To that end, TRMB is presenting solutions bundling hardware and software, with five of its six acquisitions last year being software companies. Product revenue (which represents two-thirds of company revenue) declined 10.5%, subscription revenue increased 18%, and service revenue grew 6%.
- TRMB announced in December a contract extension with its project at the Beijing airport to include machine control systems for soil stabilization, was awarded a five-year contract with the U.S. Navy in January to provide survey systems to support topographic missions, and just this week announced an integration agreement with Volvo for a 3D machine control solution on Volvo Excavators.
- Macro challenges with slowdowns in some of TRMB’s important industries, such as oil and gas as well as agriculture, plagued the company in the last year and a half and continue to serve as threats to growth. Low corn and soybean prices are expected to result in a third straight down year for farmers, who will likely choose to spend only on essential, tangible products for their fields. Large ag companies are also increasingly offering these tools at healthy discounts for their large and loyal customers. In the oil fields, conditions are worsening in 2016. Just this year, working rig count in the Houston area has dropped 30% and is flirting with the smallest domestic rig count since 1949, squeezing capital spending, among other things.
How is dealer inventory? What are they seeing with demand and pricing? How is the environment changing as TRMB emphasizes subscription services solutions? To answer these and other questions, Blueshift will gather data and issue a market research report from Independent dealers/distributors and Industry specialists.
Companies: Trimble Navigation (TRMB)
Research Begins: April 11, 2016