Dive Brief:
- Rockwell Automation is expecting its backlog to begin moderating in the second half of the year as improving chip supply allows the company to fill orders faster.
- The industrial manufacturer's order backlog sat at $5.6 billion at the end of Q2, up from $5.2 billion at the beginning of the year. Chairman and CEO Blake Moret said on an earnings call late last month he expects that level to fall to $5 billion by the end of the year.
- As lead times continue to fall and component supply improves, the company expects orders to dip slightly in the second half of the year, ending at approximately $9 billion, down from more than $10 billion in 2022.
Dive Insight:
Like other technology-driven manufacturers, Rockwell Automation is benefiting from the global ease in semiconductor supply chains.
The company plans to add labor and production capacity as needed to keep up with improved lead times and future orders. The manufacturer employs more than 25,000 workers and holds a presence in more than 100 countries.
"At the same time that chip supply is improving, we're continuing to make sure that our labor and our facilities, our redundancy across our integrated supply chain operations is ready to handle continued growth," Moret said on the call.
Rockwell Automation has also been adding equipment as needed, though Moret noted to investors that capital expenses remain a smaller focus for the company.
"We're not really a very capital-intensive operation. So it's not like if we're having to add a lot of heavy equipment because we're primarily an intellectual capital company," the CEO said. "And so the equipment that we need has relatively shorter lead times than if we were in heavier manufacturing type operations."
The company is also preparing for some order moderation as customers no longer need to place large orders far in advance due to normalizing supply chains.
“Now in terms of where you might see a little bit of the contribution from the moderation in orders, probably the most specific area is as lead times improve, as they are across a lot of our product lines, you'll see machine builders not having to provide orders of the same size to have as many months of coverage of their backlog,” Moret said.
Other industrial manufacturers also saw some gains in the past quarter regarding improved supply chains and moderating backlogs.
Honeywell saw positive backlog reductions in its short-cycle businesses, and expects to be able to continue to work down its past-due backlog from last year as supply chains continue to improve.
"Our expectation for the supply chain remains unchanged, modest, steady improvement each quarter," Honeywell SVP and CFO Greg Lewis said on the company's April 27 earnings call.
