Building automation is poised to remain a key growth area for the HVACR industry over the next several years. A recent report by BCC Research forecasts the global market to reach $116.4 billion by 2020, up from $90.1 billion in 2014. While currently dominated by the larger industry players, particularly Honeywell Intl. Inc., Schneider Electric, Johnson Controls Inc., and Siemens, significant opportunities exist for new entrants who demonstrate innovative technologies. Building automation has become a significant application for the broader Internet of Things (IoT) development, where millions of devices are already communicating with one another, and billions more machine-to-machine (M2M) connections are expected in coming years. With all of these devices interacting, certain standards must be adopted to ensure seamless communication between systems, and it’s important for manufacturers as well as contractors to be mindful of ongoing developments on this front.

One early mover in universal standards is the KNX Association, which was founded in 1999 by a group of European trade associations in response to the need for effective communications between automation systems. The KNX Association is made up of manufacturers that develop devices for several home- and building-control-based applications standards, like lighting control, shutter control, HVAC, energy management, metering, monitoring, alarm/intrusion systems, household appliances, audio/video, and many more.

In addition to manufacturers, a number of service providers and contractors also serve as members. Over the years, KNX has expanded beyond Europe to include installations in Asia, North America, and South America.

Additional organizations formed in recent years to address the need for universal IoT and building automation standards include the InsideIQ Building Automation Alliance and the Fairhair Alliance.

InsideIQ serves as the international alliance of building automation contractors seeking to maximize value for its customers while sharing best practices and perfecting the inside environment. The Fairhair Alliance was founded with the vision of developing a cost-effective, certified, and secure Internet protocol (IP)-based common network infrastructure that can serve as a basis for interoperable lighting and building automation systems to enable a move from proprietary, stand-alone solutions to a common building network infrastructure that supports the IoT.

While there are a number of groups looking to address the move toward a more connected, smarter world of buildings, there are a lot of exciting ideas for where the industry will head next. With the current pipeline of smart products coming to market, it appears the sky is the limit, and it will certainly be fascinating to see the capabilities in the buildings of the future.

2015 IN REVIEW AND A 2016 PREVIEW

From the recent publicly traded HVAC company earnings reports, the general outlook for the industry remains positive. Here are some recent highlights.

• Aaon Inc. Hints at Acquisition — “As you know, you can outbuy somebody and you can also do it internally. And we, historically, have done it through internal efforts. We do have something, which we’re not ready to announce yet, that we’re working toward, and we will be spending quite a bit of money on this coming year, which will put us into an entirely new portion of the marketplace,” said. Norm Asbjornson, president and CEO, AAON Inc.

• Lennox Intl. Inc. Expresses Optimism About the Future — “We are well-positioned for continuing momentum in the fourth quarter, and, as we look ahead to 2016, we remain focused, as we always do, on capitalizing on end market growth, capturing additional market share, and driving operational initiatives for higher profitability,” said Todd Bluedorn, chairman and CEO, Lennox Inc.

• Watsco Inc. Conveys Confidence in Continued Customer Dynamics — “For the fourth quarter, sales increased 4 percent to a record $1.2 billion and increased 5 percent on the same-store basis. HVAC equipment increased 5 percent, including an 8 percent increase in the U.S. and came from share gains in a continued movement toward higher-efficiency systems. Other HVAC products increased 3 percent, and commercial refrigeration products increased 2 percent,” said Albert Nahmad, chairman and CEO, Watsco.

EQUITY MARKET SNAPSHOT

Within the HVAC universe, pure-play manufacturers, which include Aaon, Lennox, Mestek, and Nortek, have led the market since January 2012 with a cumulative return of 232 percent. HVAC service and distribution stocks have also performed well, gaining 109 percent and outperforming the S&P 500 with a gain of 64 percent over the same period. Diversified HVAC manufacturers gained 56 percent.

Information courtesy of Raymond James & Associates. The company actively covers the HVAC sector through its General Industrial Investment Banking Group. For more information, please contact Frank McGrew at 615-665-3626 or Michael Stockburger at 901-579-2705.

Publication date: 12/28/2015

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