The major AI and robotics project that has piqued the interest of both Walmart and Softbank
Softbank made a $15 billion profit on its 2016 acquisition of Arm Holdings when the artificial intelligence-enabling semiconductor business went public last month. However, not as many investors are aware of Softbank’s “other” huge AI investment, Wilmington, Massachusetts-based software and robotics business Symbotic, in which Walmart has acquired a significant position.
That might soon change.
Symbotic, a business that has already made a name for itself in the industry by offering AI-powered robotic warehouse management systems to clients such as Walmart.
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as well as Albertson’s
, is collaborating with Softbank to enter a potentially massive and disruptive market. The two are collaborating in a joint venture called GreenBox Systems, which promises to bring AI-powered logistics and storage to much smaller enterprises as a service in facilities shared by several companies. It’s a $500 billion market, according to estimates, and an illustration of the type of disruption AI may bring to the economy as a whole.
If it works, GreenBox will reach organizations who could never afford the multi-million dollar investment necessary, just like cloud computing has made high-end information technology more accessible, according to Dwight Klappich, an analyst at technology research firm Gartner.
“I’ve seen a lot of robotics technology, and I’ve never seen anything like it in my life,” said TD Cowen analyst Joseph Giordano. “Compared to what it replaces, it’s like day and night.”
Trying to forget about a major WeWork real estate disaster
It may even obliterate the memory of Softbank’s most unsuccessful commercial real estate management venture to date, the infamous office-sharing business WeWork.
GreenBox, like WeWork, is a promise to combine technology and real estate. Indeed, its sales pitch of “warehouse as a service” closely resembles the “space as a service” term in WeWork’s 2019 IPO prospectus. The significant difference: independent analysts were unable to demonstrate any technology benefit WeWork ever provided clients over working from home or traditional workplaces, much alone one that warranted its peak valuation of $47 billion. WeWork is currently worth less than $150 million and is on the verge of bankruptcy after warning in August of its probable incapacity to be “a going concern,” and more recently ceased paying debt interest payments, requesting lenders to negotiate.
Giordano said that the technology is the entire premise of GreenBox. And, unlike WeWork, which wanted individuals to modify how they utilized offices, Symbotic and GreenBox seek to help businesses that currently manage warehouses increase productivity and revenues, he added.
“Contract warehousing exists today – but those operations are mostly manual,” said Rob Mason, an analyst at Robert W. Baird.
According to statistics from Robert W. Baird, Softbank controls more than 8% of Symbotic and took it public last year through a special purpose acquisition company. Softbank also controls 65% of the GreenBox business, which the two firms formed with a $100 million investment. According to a proxy statement from the robotics business, Walmart owns another 11% of Symbotic and is by far its biggest customer until the GreenBox partnership ramps up, accounting for over 90% of sales.
“We share the same vision of going big and going fast,” stated Rick Cohen, CEO of Symbotic. “We believe this market is massive.”
Even before the GreenBox purchase, Symbotic sparked investor interest. Its stock is gained 190% this year. Sales increased 77% in the most recent quarter, and orders for its current warehouse-management systems increased to $12 billion, a backlog that would take the business years to complete. Add in the $11 billion in Symbotic software and follow-on services GreenBox committed to purchasing over the next six years in July, and the company’s backlog soars to $23 billion for a company that expects its first billion-dollar revenue year in fiscal 2023, and to break even on an EBITDA basis for the first time as a public company in the fourth quarter.
The strongest indicator of the future may come from Walmart, which purchased its Symbotic interest as part of an agreement to automate the retailer’s 42 regional distribution facilities for packaged consumer items in the United States.
Analysts believe the product is to blame.
According to a conference call Symbotic held with analysts in July, a Symbotic system blends as many as dozens of autonomous robots that scoot around warehouses at speeds up to 25 mph, moving and unloading boxes from pallets and picking orders with AI software that optimizes where in a warehouse to put individual cases of goods, and lets boxes be packed to the warehouse’s ceiling, wasting much less space, Giordano said.
The technology functions similarly to a disk drive, using intelligence to store data effectively and retrieve the appropriate data on demand – but with boxes of goods. Furthermore, a large warehouse may employ numerous distinct systems, increasing the initial expenditure necessary to start things rolling.
Because Symbotic’s technology can readily manage inventory down to the case level, where things are stored can be much more simply linked to incoming orders, allowing for more completely automated order selection. According to Klappich, it may also adapt the design of departing pallets to the layout of the shop the pallet is headed to, speeding up unloading and shelf stocking.
However, the most significant innovation enabled by technology is in business models rather than in technology itself. That hasn’t yet expanded outside of large corporations, but Giordano and Mason believe it will.
Mason explained that the AI’s accuracy will allow several firms to share the same warehouse and even commingle their items for efficient delivery without confusion, similar to how cloud computing allows different customers to share the same computer servers.
“Through sharing infrastructure, you can get out of the infrastructure business and focus on what’s important to you,” he added. “It has been difficult to achieve large-scale automation without incurring capital costs.”
Born through covert collaboration with Walmart, resulting in a multi-billionaire
The concept arose from a vision Cohen had while operating his family’s supermarket distribution firm, C&S Wholesale supermarket, which he has expanded from $14 million to $33 billion in yearly revenue since 1974. Symbotic was created in 2006 and spent years in stealth mode while perfecting prototypes with Walmart.
“I’ve spent my entire life with C&S in the outsourcing and [logistics] business, so this — the ability to run warehouses for people — has always been on the plate,” Cohen said during a July analyst call. “We said we’d take care of Walmart first…We are now beginning to say, “I believe we can do more.”
According to Forbes, Symbotic and C&S have made the 71-year-old Cohen one of America’s wealthiest men, with a net worth of roughly $15.9 billion.
Cohen told analysts that Symbotic collaborated with Softbank to construct GreenBox in order to safeguard its own capital. The initial capitalization of the joint venture was 65% by Softbank and 35% by Symbotic, for a total of $100 million. According to analysts, the initiative would require significantly more funding, which might be funded by GreenBox borrowing money on the bond market. Symbotic stated that it will utilize its part of the earnings from GreenBox sales to maintain its ownership investment in the joint venture at roughly 35%.
“The question has been, who has the capital to set it all up?” Klappich explained. “Softbank could be the key because they have deep pockets.”
The joint venture will purchase software from Symbotic before selling warehouse space, equipment, and related services as a bundle to renters.
There are many unanswered uncertainties, as well as prospective challenges from Amazon and private equity.
Much more about the new organization is unclear, starting with the name of its unannounced CEO, according to Mason. The initiative might build warehouses or rent them out, however Symbotic has stated that it will most likely rent them out. The cost of the warehouse-as-a-service is not disclosed.
However, Greenbox’s ascent more than doubles Symbotic’s potential market and nearly doubles its backlog. Symbotic has said that its overall market is around $432 billion, a figure that chief strategy officer Bill Boyd reiterated during the GreenBox alliance announcement conference call. According to Symbotic’s annual federal regulatory filing this year, early adopters will be in industries such as food and packaged products, with Symbotic eventually extending into medicines and electronics.
According to Gartner’s Klappich, the GreenBox market for smaller businesses represents an additional $500 billion in potential demand. The estimations are based on the number of warehouses in each industry, the expected percentage of warehouses in each that can afford the technology, either individually or through GreenBox, and the typical price of Symbotic-like systems.
The third quarter of the company’s fiscal year, which concludes in October, demonstrates how earnings may scale. Revenue increased 77% to $312 million, but earnings before interest, taxes, and non-cash depreciation and amortization decreased to $3 million. Mason claims that the firm will become profitable on an EBITDA basis in the fiscal year that begins this autumn, before GreenBox orders begin, and that EBITDA will be “in the mid-teens” as a percentage of revenues the following year.
Clients will save money all the way through the warehouse, according to Klappich.
Giordano calculated the labor reduction as eight hours per outbound truck. By allowing things to be packed closer together and piled higher, the technology can help reduce space leasing costs.
Using the facility as a service allows seasonal businesses to reduce the amount of space and robot time they need during quiet months rather than carrying them all year. Giordano believes the facility should operate with many fewer employees. GreenBox would also pay for robot and software changes every few years, rather than requiring renters to contribute more, he added.
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In April, Walmart gave investors a tour of its Brooksville, Fla. warehouse and stated that technological investments such as the Symbotic partnership will allow profitability to increase faster than sales. Within three years, more than half of distribution volume will be routed through automated centers, lowering unit costs by around 20% as automated systems service two-thirds of retailers. The firm has spoken little about the impact on jobs, although CEO Doug McMillon has claimed that overall employment will remain roughly the same but will move toward delivery rather than warehousing functions.
Analysts predict that competition will arrive shortly. Building something like Symbotic, especially bringing it down to the level where organizations other than global behemoths can afford it, requires a mix of technology, money, and vision, according to Klappich.
Amazon may enter the market by utilizing its warehouse expertise in a service similar to its Web hosting business model, while private-equity firms flush with investable funds might purchase combinations of companies to build rival products and business models, according to Klappich.
If GreenBox works, the return for Softbank may be enormous. According to ratings aggregate TipRanks, analysts expect Symbotic shares will recover 53% in the next year after falling during current economic worries. With post-IPO forecasts suggesting that Arm shares would stagnate, and considering that Softbank paid an estimated $36 billion for Arm in 2016, it’s probable Symbotic may be the greater winner in the end, at least on a percentage basis, as GreenBox’s 65% stake increases in value.
