The ASSEMBLY Top 50
September 28, 2007
Alas, the Assembly Top 50 was once such an exclusive club. As recently as 2003, in fact, a manufacturer needed annual sales of $10 billion or more to be ranked among the Assembly Top 50. In 2006, however, a whopping 65 manufacturers joined the $10 Billion Club, and another five were knocking on the door.
Even the most exclusive club in the Assembly Top 50-those manufacturers with annual sales of more than $100 billion-welcomed a new member in 2006. For nearly a decade, that club consisted of the same five companies: General Motors Corp., Toyota Motor Co., DaimlerChrysler, General Electric Co. and Ford Motor Co. In 2006, however, Siemens joined the club. The diversified manufacturer of auto parts, medical devices, turbines and myriad other products rang up sales of more than $110 billion in 2006, an increase of 22 percent from 2005. Net income increased 42 percent, from $2.7 billion in 2005 to $3.8 billion in 2006.
To determine the impact of product assembly on the U.S. economy, ASSEMBLY magazine ranked the top 50 publicly owned manufacturing companies by gross revenue. To qualify for our list, a company must derive a significant portion of its gross revenue from products it assembles or that it designs and has assembled by another company. More importantly, a substantial amount of the design and assembly of those products, whether in-house or outsourced, must occur in the United States.
Overall, 2006 was a very good year for the Assembly Top 50. All totaled, these manufacturing giants pulled in $2.48 trillion in gross revenue in 2006, an increase of 9 percent over 2005. By our estimates, approximately 80 percent of that revenue came directly from assembled products.
Eight companies saw their gross revenue increase by more than 20 percent in 2006, and 21 companies enjoyed revenue increases of 10 percent to 19 percent. Four companies-No. 15 United Technologies Corp., No. 17 Caterpillar Inc., No. 28 General Dynamics and No. 38 Paccar Inc.-enjoyed four consecutive years of double-digit revenue growth. Two of those companies-Cat and Paccar-also posted four straight years of double-digit increases in net income.
Just four companies-No. 5 Ford Motor Co., No. 26 Delphi Corp., No. 42 AB Electrolux and No. 47 Eastman Kodak Co.-garnered less revenue in 2006 than they did in 2005. In comparison, 17 companies had lower sales in 2005 than they did in 2004.
The Assembly Top 50 also did well on the profit side of the ledger. The Top 50 earned $126.5 billion in net income last year, an increase of 16 percent compared with 2005. Thirty-five of the Top 50 made more than $1 billion in net income, which is three more than did so in 2005. Eighteen of the Top 50 enjoyed double-digit increases in net income for two straight years.
Just seven companies posted net losses for 2006, though five of those are GM, Ford and three of their suppliers. In fact, of the 150 companies we studied for this article, 83 percent posted a net gain for 2006.
The top 10 companies in our 2006 ranking are the same as they were in 2002, though their positions have shifted a bit. The biggest story among the top 10 is the continuing decline of Ford, which slides down another notch from No. 4 in 2005 to No. 5 in 2006. In 2002, Ford was No. 2, behind rival GM. The past year was particularly bad for Ford, which saw sales decrease 9 percent from $176.9 billion in 2005 to $160.1 billion 2006, the largest decrease in revenue of anyone in the Top 50. What’s worse, the company posted a net loss of $12.6 billion last year, the biggest loss of any of the 150 companies we studied.
Another company inching its way down the top 10 is IBM Corp., which falls from No. 6 in 2005 to No. 9 in 2006. After posting a 5 percent decrease in revenue in 2005, “Big Blue” managed to boost revenue just 0.3 percent in 2006. Only 25 percent of the company’s revenue was derived from assembled products in 2006. That’s the lowest percentage for IBM in five years, and it’s the second lowest percentage of any company in the Top 50. (Only No. 29 Abbott Laboratories had a lower ratio-23 percent-but that is actually an increase from 18 percent in 2005.)
On the other hand, IBM remains highly profitable. The company posted a net income of $9.4 billion in 2006. That’s 20 percent more than what IBM netted in 2005, and it’s the fourth highest among the Top 50.
Moving up in the top 10 is Honda Motor Co., which jumps from No. 9 in 2005 to No. 7 in 2006, the highest ever ranking for the company. The manufacturer of cars, motorcycles, boat motors and portable generators saw its revenue increase 12 percent, from $84.2 billion in 2005 to $94.2 billion in 2006.
Elsewhere in the Top 50, there were plenty of other bright spots. Apple Computer Inc. continued its meteoric rise up our rankings, propelled by the phenomenal success of the iPod. After debuting at No. 41 in 2005-the highest debut of any company in the five-year history of our rankings-Apple climbed up eight more spots, to No. 33, in 2006. That’s the biggest jump of any member of the Top 50 in 2006. Apple saw its gross revenue increase 39 percent in 2006, while its net income increased 49 percent. For the first time since the company introduced the iPod, sales of its digital music player outpaced sales of its computers. If the iPhone does half as well as the iPod, look for Apple to crack the Top 30 in 2007.
Another success story is Illinois Tool Works, which inches up two spots in our rankings to No. 44. The diversified manufacturer of auto parts, fasteners, tools and commercial equipment has enjoyed three straight years of double-digit growth in revenue and four straight years of double-digit growth in income. When the Top 50 are ranked by income as a percentage of gross revenue-a key measure of profitability-ITW has placed 21 or higher for the past four years.
Of course, for every company that rises in our standings, another falls. Topping that list is Visteon Corp. Ford’s struggles have been disastrous for the Tier One supplier, which plummets out of the Top 50, from No. 34 in 2005 to No. 56 in 2006. That’s the steepest one-year fall of any company in the five-year history of our rankings. Visteon’s gross revenue decreased for the second straight year, and the company has posted a net loss for six years running. Of the 150 manufacturers we examine for the Top 50, only six other companies have posted a net loss for five or more years in a row. Two of those are automotive suppliers and two are electronics manufacturing service providers.
Kodak may soon follow Visteon out of the Top 50. Caught flat-footed by the digital imaging revolution, the manufacturer of film, cameras and image processing equipment has fallen from No. 36 in 2002 to No. 47 in 2006. Kodak tallied sales of $13.3 billion last year, which is 7 percent less than 2005 sales and the lowest revenue total for the company since 2003. In addition, the company has posted a net loss for two straight years.
At least Kodak’s management team is on the problem. For the first time in the company’s history, earnings from its digital products grew at a faster rate than earnings from its traditional products decreased. The company secured 688 patents in 2006, and it obtained patent license agreements with more than 20 companies.
Here’s some of what’s going on at other companies on our list.
No. 21, Johnson Controls Inc., Milwaukee.In 2006, Johnson Controls marked its 60 consecutive year of increased sales and its 16th straight year of higher earnings. Indeed, the company has enjoyed three straight years of double-digit growth in revenue and four straight years of double-digit growth in net income. Johnson Controls’ sales have more than tripled in the past 10 years, and the company netted more than $1 billion in income for the first time last year.
The company’s Automotive Experience Div. generated sales of $18.3 billion last year, more than half of which came from outside North America. The division provided seat systems, overhead and door systems, and integrated electronics for 34 million vehicles from virtually every major automaker in the world.
In 2007, the division launched major new programs in every geographic market. In North America, it began delivering seats, overhead systems, instrument panels and door systems for the Toyota Tundra and Saturn Outlook. In Europe, it began providing interior assemblies for the Volvo C30 and Kia CEED. And in China, it started assembly lines for interior assemblies for the Mercedes E-Class and the Volkswagen Bora.
Product development has been key to the automotive division’s success. The division regularly holds innovation summits, which bring together engineers from its worldwide technology centers to identify new applications, technologies and design methods. In 2006, the division introduced more than 50 new products and enhancements for automotive interiors.
Johnson Controls’ Building Efficiency Div. recorded sales of $10.2 billion last year, including the revenues from newly acquired York International. The division’s building automation systems and heating, ventilating and air-conditioning (HVAC) equipment can be found in buildings in 125 countries. In 2006, the division received a $50 million contract to supply controls and HVAC equipment for the new Children’s Hospital at the University of Pittsburgh Medical Center. It’s one of the largest contracts the company has ever been awarded.
Like the company’s automotive division, the Building Efficiency Div. has tapped emerging markets around the world. For example, the tallest building in the world, the World Financial Center in Shanghai, China, will be equipped with a Johnson Controls building automation system.
Johnson Conrols’ Power Solutions Div. rang up sales of $3.7 billion last year, an increase of 27 percent. The division assembles vehicle batteries for both OEMs and aftermarket retailers, including Ford, GM, Sears and Wal-Mart. Through best business practices and Six Sigma methodologies, the division has identified more than $200 million in cost-savings.
Last year, the division opened a lithium-ion battery development lab, and the company was awarded the first industry contract to supply lithium-ion hybrid vehicle batteries. Production of the battery is expected to begin in Europe in late 2008. Johnson Controls was also awarded its second major research grant for lithium-ion batteries by the U.S. Advanced Battery Consortium, an organization funded by the U.S. Department of Energy and administered by the Big Three automakers.
Overall, Johnson Controls is committed to sustainable manufacturing. Last year, the company began a comprehensive program to identify opportunities for energy improvement at its manufacturing facilities. The program includes a five-phase assessment focused on energy supply management, energy asset management, utility bill management, energy information management, and regulatory compliance and sustainability. In the program’s first year, the company audited five of its U.S. manufacturing facilities.
Safety is another watchword at Johnson Controls. According to the U.S. Bureau of Labor Statistics, there were 4.8 injuries per 100 full-time workers in the private sector in 2004, the most recent year for which data are available. In 2006, Johnson Controls averaged 1.4 injuries per 100 full-time workers, a 14 percent improvement over 2005 and less than one-third the national average.
No. 28, General Dynamics, Falls Church, VA.GD moves up two spots in the Assembly Top 50, to No. 28, the highest ranking for the company in five years. The defense contractor earned $1.8 billion on sales of $24.1 billion in 2006. Over the past three years, the company has increased sales by at least 11 percent and income by at least 19 percent.
GD’s Combat Systems Div. had another strong year. Revenues grew by more than 19 percent, while operating earnings increased 18 percent. Strong demand continued for several of the division’s products, including the Stryker wheeled combat vehicle, the M1 Abrams tank and the Light Armored Vehicle. The U.S. military also increased orders for the company’s ammunition and armaments.
Revenues and earnings were also up at the company’s Marine Systems Div., which produces both commercial and military ships. In January 2006, for example, the Navy awarded GD a $1.35 billion contract to work on nuclear submarines and a $317 million contract to build a cargo and ammunition ship.
GD’s Information Systems and Technology Div. did well, too. Besides the U.S. military, the division provided IT systems for the U.S. Environmental Protection Agency, the U.S. Coast Guard and the Department of Homeland Security. In December 2006, the division received a $231 million contract to assemble combat operation centers for the Marine Corps.
Not all the company’s revenues have come from defense systems. GD’s Aerospace Div. received 159 new orders for its Gulfstream business jet in 2006, an increase of 35 over the previous year. The division now has a backlog of some $7.7 billion in orders. GD Aerospace opened a new, 100,000-square-foot R&D center last year, and announced plans to expand its Gulfstream manufacturing plant in Savannah, GA.
With war continuing in both Iraq and Afghanistan, GD should continue to climb up the Assembly Top 50. For fiscal year 2007, Congress appropriated $435 billion for the Defense Department, including $156 billion for procurement and R&D activities. And, for fiscal year 2008, the President has requested an 11 percent increase in defense spending.
No. 32, Emerson Electric Co., St. Louis.Like Johnson Controls, Emerson Electric has managed three straight years of double-digit growth in revenue and four straight years of double-digit growth in net income. Sales for 2006 totaled a record $20.1 billion, up 16 percent from $17.3 billion in 2005. When the impact of acquisitions, divestitures and foreign currency translation is excluded from gross revenue calculation, Emerson still had an underlying sales growth of 12.5 percent, which is twice the company’s long-term goal.
Emerson’s net income of $1.8 billion ranks 29th among the 150 companies we evaluated for this project. Earnings per share increased 32 percent, from $3.40 in 2005 to $4.48 in 2006, and dividends have increased for 50 consecutive years.
The company’s diverse product portfolio includes wireless networking systems for power plants and refineries, computerized mobile workstations for hospitals, power supplies for electronic equipment, cooling systems for computer servers, commercial refrigeration systems, motion control technology, electrical distribution equipment, ceiling fans and household garbage disposals.
Success in foreign markets is a major reason behind the growth of all the companies in the Assembly Top 50, and Emerson is a prime example. International sales, including U.S. exports, totaled $9.5 billion in 2006, or nearly half the company’s total sales. And, that trend has continued this year. In August, Emerson’s Process Management Div. was awarded a $3.5 billion contract to automate the planned Fujian Refining and Ethylene Joint Venture Project in Quanzhou City, China. When completed, the refinery will be the largest petrochemical processing facility in China.
Emerson’s employees are loyal. The average length of service of its top 15 managers is a hefty 26 years, and promotion tends to be from within. Among electrical and electronics manufacturers, Emerson ranks second on Fortune magazine’s list of Most Admired Companies.
Senior executives spend up to half their time analyzing the minutiae of new markets and industrial projects. In addition, a select group of managers, dubbed “profit czars,” are tasked with boosting earnings from new or existing ventures. Among their tools is a “profits waterfall,” in which negative and positive pressures on earnings are continuously analyzed. Follow-through is a cornerstone of the corporate culture, and Emerson makes a point of making sure that board decisions are implemented lower down in the company.
No. 45, Rolls-Royce, London.Rolls-Royce returns to the Assembly Top 50 after a 2-year absence. The manufacturer of jet engines, ship engines and gas turbines climbed from No. 52 in 2005 to No. 45 in 2006, its highest ranking in five years.
Sales increased 23 percent from $11.3 billion in 2005 to $14 billion in 2006. That’s the fifth highest growth rate of the Assembly Top 50. Net income more than tripled, from $596 million in 2005 to $1.9 billion in 2006. When ranked by income as a percentage of gross revenue, Rolls places fifth among the Assembly Top 50.
International sales have been critical to the company’s success. The company’s 2006 orders were divided almost equally between Europe, Asia and the Middle East, and North and South America. In 2006, the company opened or began constructing new facilities in Europe, the United States and Asia. One of those was a new factory in Shanghai, China, to manufacture rudders, steering systems and tunnel thrusters for merchant marine vessels.
Rolls derives more than half its revenue from jet engines for civilian airplanes. The company’s new Trent 1000 engine will power the Boeing 787 and its Trent 900 will power the Airbus A380. Better still, Rolls expects the market to be healthy for years to come. According to the company’s projections, some 114,000 jet engines, worth $600 billion, will be required during the next 20 years to power 51,000 commercial airplanes and business jets.
In 2006, Rolls invested more than $1.4 billion on R&D. Most of that spending was directed at improving the environmental performance of its products. For example, in the aviation sector, Rolls is playing a leading role in achieving the long-term environmental goals set for jet engines by the Advisory Council for Aeronautics Research in Europe. By the year 2020, the council hopes to reduce fuel burn and carbon dioxide emissions by 50 percent, noise by 50 percent and nitrous oxide by 80 percent.
Who's WhoWHO’S IN
Rolls Royce, London. The manufacturer of jet engines, ship engines and gas turbines returns to the Assembly Top 50 after a 2-year hiatus. Rolls climbs from No. 52 in 2005 to No. 45 in 2006.
Valeo, Paris. The auto parts manufacturer jumps five spots, to No. 46, in 2006. Valeo has 14 assembly plants and 12 R&D centers in North America.
Sun Microsystems Inc., Santa Clara, CA. Thanks to an 18 percent increase in revenue last year, the computer maker is back in the Top 50 for the first time since 2003. Sun climbs six spots from No. 55 in 2005 to No. 49 in 2006.
Masco Corp., Taylor, MI. The housing slump in the latter half of 2006 kicked Masco out of the Top 50 for the first time. The manufacturer of cabinets, faucets and other household hardware posted just a 2 percent gain in revenue in 2006.
Visteon Corp., Van Buren Township, MI. Ford’s struggles have been disastrous for Visteon, which plummets out of the Top 50, from No. 34 in 2005 to No. 56 in 2006. The company’s gross revenue decreased for the second straight year.
Sanmina SCI, San Jose, CA. Sanmina follows Solectron Corp. and Celestica Inc. as electronics manufacturing service providers to fall out of the Assembly Top 50. After two consecutive years of declining revenue, Sanmina drops 12 spots, from No. 50 in 2005 to No. 62 in 2006.
WHO’S UP AND COMING
Eaton Corp., Cleveland. This diversified manufacturer has inched its way up from No. 58 in 2002 to No. 53 in 2006. Eaton has quietly put together four straight years of double-digit increases in both gross revenue and net income. Only five other companies in the Top 100 can claim that distinction, and two of them-Caterpillar Inc. and Paccar Inc.-are in the Top 50.
EMC Corp., Hopkinton, MA. This manufacturer of data storage equipment has climbed up from No. 69 in 2002 to No. 61 in 2006. EMC cracked the $10 Billion Club for the first time last year, with total sales of $11.15 billion. That’s an increase of 15 percent compared with 2005, and it marks the fourth straight year of double-digit increases in sales for the company.
Highs and Lows2
Rank of Toyota Motor Co. in the Top 50. Toyota is closing fast, but General Motors hangs on to the top spot for the fifth straight year.
Position of Toyota when the Top 50 are ranked solely by revenue from assembled products. It’s the first time that the Japanese carmaker has held that distinction. GM ranks third.
Position of GM when the Top 50 are ranked according to net income. The automaker posted a net loss of nearly $2 billion in 2006. Only Delphi and Ford had larger net losses.
Number of spots Apple Computer Inc. rises in our rankings, from No. 41 to No. 33. That’s the largest jump of any manufacturer in the Top 50.
Number of spots Visteon Corp. falls in our rankings. That’s the largest drop of any manufacturer, and it moves the automotive supplier out of our Top 50.
Number of manufacturers in the Top 50 that posted double-digit increases in gross revenue in 2006. That’s the most since 2004.
Percentage increase in revenue posted by Apple Computer Inc. That’s the largest revenue increase of anyone in the Top 50, and it’s the third straight year that Apple has posted double-digit gains in revenue.
Percentage decrease in revenue posted by Ford Motor Co. That’s the largest decrease in revenue of anyone in the Top 50, and it moves the automaker down a notch in our rankings, to No. 5. In 2002, Ford held the No. 2 spot.
Percentage increase in net income posted by Flextronics International. That’s the biggest increase in income of anyone in the Top 50. Competitors Celestica Inc. and Sanmina SCI Corp. had net losses for the year.
Percentage decrease in net income posted by Ford. That’s the biggest decrease in income of anyone in the Top 50. Indeed, Ford’s net loss of $12.6 billion in 2006 was the most of any of the 150 companies we studied.
Percentage of gross revenue retained as net income by Texas Instruments Inc. That’s the best ratio of any company in the Top 50.
Percentage of the 150 companies we studied to post net profits in 2006. In comparison, only 68 percent of those companies showed a net profit in 2002, while 89 percent earned a profit in 2004.
Number of companies in the Top 100 with sales of at least $10 billion. In 2002, only 44 of the Top 100 had revenues exceeding $10 billion.
Number of companies in the Top 100 with net incomes of at least $1 billion. That’s three times the number in 2002.