ABB Ltd (ABBNY)

Executive Summary / Key Takeaways

• ABB Ltd. (ABBNY) is strategically positioned at the nexus of global electrification and automation trends, leveraging its "ABB Way" operating model and differentiated technology to drive profitable growth. The company's focus on high-growth segments like data centers and utilities, coupled with a robust order backlog, underpins its positive outlook.
• Recent financial performance demonstrates strong momentum, with Q2 2025 marking record highs in order intake ($9.8 billion) and revenues ($8.9 billion), alongside an operational EBITA margin of 19.2%. This performance is largely volume-driven, with pricing remaining stable.

• Technological leadership, exemplified by the upgraded Emax 3 air circuit breaker and the HiPerGuard medium voltage UPS system, provides a competitive edge, offering enhanced energy efficiency, cybersecurity, and CapEx reduction for customers, particularly in critical infrastructure and data centers.
• Strategic portfolio adjustments, including the planned spin-off of the Robotics division by Q2 2026 and the integration of Machine Automation into Process Automation, aim to unlock further value and streamline ABB's core focus on synergistic businesses.
• Despite ongoing challenges in the Machine Automation and E-mobility segments, and geopolitical uncertainties, ABB maintains its 2025 guidance for mid-single-digit comparable revenue growth and an improved operational EBITA margin, supported by a record $25 billion backlog and disciplined capital allocation.

A Century of Innovation: Powering the Future of Industry

ABB Ltd., founded in 1883, has evolved into a global industrial powerhouse, deeply embedded in the electrification and automation of industries, cities, and infrastructure. The company's enduring presence on global exchanges, including its listings on the SIX Swiss Exchange since 1999 and NASDAQ OMX Stockholm Exchange, underscores its long-standing commitment to industrial progress. ABB's strategic journey, particularly since the implementation of the "ABB Way" operating model around 2019-2020, has centered on decentralization, increased accountability, and a relentless pursuit of profitable growth. This foundational shift has enabled ABB to sharpen its focus on core businesses that are at the heart of the world's transition to electric power and automation.

The global landscape is undergoing a profound transformation, with electricity demand projected to grow ten times faster than any other energy source, making electrification a critical driver for decarbonization and productivity. The industrial automation control market alone is forecasted to reach $391.63 billion by 2031, expanding at a 10.7% CAGR, fueled by rising labor costs and the imperative for production accuracy. ABB's strategic alignment with these megatrends positions it for sustained growth. The company's commitment to innovation is evident in its R&D investments, which have increased by approximately 40% since 2020, reaching $1.4 billion in the last 12 months, representing 4.4% of sales. This investment is crucial for maintaining its technological edge and competitive moat.

Technological Edge: The Core of ABB's Competitive Moat

ABB's competitive advantage is significantly bolstered by its differentiated technology, which delivers tangible and quantifiable benefits to its customers. A prime example is the recently upgraded Emax 3 air circuit breaker in the Electrification segment. This product features world-leading cybersecurity technology, sensing, intelligence, and advanced algorithms, significantly enhancing energy security and resilience in critical infrastructure such as data centers, factories, and hospitals. The Emax 3 is designed with the same proportions as its predecessor, the Emax 2, of which over 5 million units have been installed, allowing for seamless and safer retrofits for customers. This design continuity not only simplifies upgrades but also reinforces customer loyalty and market share.

Another critical technological differentiator is the HiPerGuard medium voltage UPS system. This innovative solution enables data centers to reduce CapEx by up to 30%, decrease complexity, and improve energy efficiency by relocating critical power equipment closer to the grid connection point, freeing up valuable "white space" within data centers. These quantifiable benefits are crucial in a rapidly expanding market driven by AI and machine learning, where energy efficiency and cost optimization are paramount. ABB's R&D initiatives are strategically focused on these high-impact areas, with 55% of its R&D employees dedicated to software and digital solutions. This emphasis on embedded software in its products, as seen in the Emax line's integration into Motion's power drives, creates significant customer value and strengthens ABB's market-leading position, contributing to robust gross margins.

Performance with Purpose: Financial Strength and Strategic Evolution

ABB's financial performance in recent quarters reflects its strategic focus and operational effectiveness. In the second quarter of 2025, the company delivered a record-high order intake of $9.8 billion, a 14% comparable increase, including a substantial $600 million multiyear service order in Process Automation. Excluding this large order, comparable orders still grew by a solid 7%. Revenues also reached an all-time high of $8.9 billion, up 6%, with positive contributions from three out of four business areas. This strong top-line performance translated into a new all-time high operational EBITA of $1.7 billion, with the operational EBITA margin reaching 19.2%, exceeding expectations. The company successfully maintained its gross margin at the 40% level, with the underlying margin improving by 50 basis points year-on-year.

The Electrification segment, a key growth engine, continued its stellar performance in Q2 2025, achieving new all-time highs for both orders ($4.5 billion) and revenues ($4.3 billion). Its operational EBITA exceeded $1 billion, with a margin of 23.9%, driven by volume leverage and operational efficiencies. Motion also delivered a solid quarter with orders above $2 billion and comparable revenue growth of 4%. Process Automation saw a remarkable 40% comparable order increase, reaching $2.6 billion, and achieved a record operational EBITA margin of 15.9%. These results underscore the effectiveness of ABB's strategy in capitalizing on strong underlying markets, particularly in utilities and data centers, which are experiencing double-digit order growth globally.

Liquidity remains robust, with a free cash flow of $845 million in Q2 2025, contributing to a total of $1.5 billion for the first half of the year. Despite a growth-related buildup of net working capital and planned CapEx increases, ABB anticipates a stronger cash delivery in the second half of 2025, confident in improving its annual free cash flow. The company's record $25 billion order backlog, with an estimated 5% conversion rate, provides significant revenue visibility. ABB's strong balance sheet, with a net debt to EBITDA of approximately 1.4, offers substantial capacity for strategic acquisitions, which the company is actively pursuing to enhance its portfolio.

Competitive Landscape and Strategic Positioning

ABB operates in a highly competitive environment, facing established rivals such as Siemens AG (SIEGY), Schneider Electric SE (SBGSY), Rockwell Automation Inc. (ROK), and Emerson Electric Co. (EMR). In electrification and power solutions, ABB's Emax 3 circuit breakers and HiPerGuard UPS systems offer a sharper, more secure, and efficient alternative, building on a legacy of over 5 million Emax 2 installations. This technological edge, combined with a focus on reliability, has allowed ABB to gain market share and foster strong customer loyalty, particularly in large, mission-critical projects.

In the motion and automation space, ABB's integrated solutions, which combine automation systems, motors, and drives, are a unique competitive advantage. This holistic approach is highly valued by customers in sectors like LNG and marine propulsion, where ABB's ability to deliver comprehensive, interconnected systems provides a "winning argument" against competitors. The company's "local-for-local" manufacturing footprint, covering 75-80% of U.S. sales with local production and even higher in Europe and China, further strengthens its position by mitigating tariff risks and enhancing responsiveness to regional market demands. This strategy is particularly evident in China, where ABB Robotics is launching new robot families designed, manufactured, and sold locally to address the specific needs and cost structures of the mid-market.

While ABB demonstrates superior operational execution and technological breadth, it faces challenges in the speed of software innovation compared to rivals like Rockwell and Siemens, who have historically been more aggressive in IIoT platforms. Additionally, its diversified portfolio, while a strength, can sometimes dilute focus compared to more specialized competitors. However, ABB's strategic decision to increase R&D spending and focus on embedded software aims to address these gaps, ensuring its offerings remain at the forefront of industrial digital transformation.

Outlook and Risks: A Path to Higher Performance

ABB's management maintains an unchanged 2025 guidance, projecting mid-single-digit comparable revenue growth and a further improvement in the operational EBITA margin from last year. This outlook is supported by a positive book-to-bill ratio and the expectation of a stronger cash flow delivery in the second half of the year. For Q3 2025, the company anticipates comparable growth to be at least in the mid-single-digit range, with the operational EBITA margin remaining broadly stable at 19%.

The Electrification segment is expected to continue its strong trajectory, with mid-to-high single-digit revenue growth and stable margins in Q3 2025. Motion anticipates mid-single-digit revenue growth and stable margins. Process Automation foresees mid-single-digit revenue improvement and stable margins. Robotics & Discrete Automation, while still facing headwinds, expects sequential increases in order intake and an improved operational EBITA margin in Q3 2025, as customer inventory adjustments normalize.

Key risks to this outlook include the ongoing underperformance of the Machine Automation and E-mobility businesses. Machine Automation recorded a small loss in Q2 2025 due to insufficient production volumes to cover fixed costs, though inventory levels at customers are normalizing. E-mobility, despite being a significant drag on profitability in 2024 (over $270 million in losses), is expected to be a "clearly smaller drag" in 2025 as new product portfolios, like the T-60 and T-400 fast chargers, gain traction. Geopolitical uncertainties and potential tariffs also present an "added layer of uncertainty," though ABB's local-for-local strategy and thorough analysis suggest a limited direct impact on overall performance. The company's commitment to strategic acquisitions, with a target of 1-2% acquired growth through the cycle, is expected to further enhance its market position and financial performance.

Conclusion

ABB is firmly positioned for continued profitable growth, driven by its deep alignment with the secular trends of electrification and automation. The company's "ABB Way" operating model, coupled with its consistent investment in differentiated technologies like the Emax 3 and HiPerGuard UPS systems, provides a robust competitive advantage. Strategic portfolio optimization, including the planned spin-off of Robotics and the integration of Machine Automation into Process Automation, is set to further enhance its focus and unlock shareholder value. While challenges in specific segments and broader economic uncertainties persist, ABB's strong financial performance, record backlog, and disciplined capital allocation strategy provide a solid foundation. The company's unwavering commitment to innovation and sustainability, as reflected in its ambitious decarbonization targets and its role in making industries "leaner and cleaner," reinforces its long-term investment thesis, promising sustained value creation for discerning investors.