Hexagon AB
Precision measurements are worth $20 billion
Hexagon of Stockholm has built a $20 billion market cap company using precision metrology as its core skill. Manufacturing clients rely on its time-series data, making it difficult to replace with a competitor's system.
Hexagon sells geospatial software that is made more accurate by its metrology software. Clients integrate this software with their other systems, making switching costs significant. Hexagon's client retention exceeds 90% annually
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Metrology, the study of measurements, is used to precisely fit manufactured parts together, e.g. car doors, or function perfectly, e.g. titanium connectors for airplane wings. It is also used to make precision tools, medical devices, electronics components, etc.
Unlike producers of these items, who take large market risk - i.e. no one may want their products - Hexagon's business depends on the increasing amount of total manufacturing taking place.
Manufacturers use time series data to track production metrics and equipment performance and process. For example performance data can be linked to temperature and pressure conditions.
Because it is the market leader in manufacturing related metrology with a reputation for very high quality in a very specialized area requiring advanced engineering skills, Hexagon is the "easy" choice for manufacturers.
As the market leader in a relatively small, specialized space, larger companies do not consider it worthwhile to compete directly. For example, KLA focuses on the semiconductor industry.
Hexagon's geospatial software is used by military, airports, sea ports, maritime authorities, etc. for precision mapping and tracking. The topography is mapped, and the vehicle is tracked using software based on Hexagon's software.
For example Lockheed-Martin uses Hexagon's software as the basis for its Command, Control, Communications, Computers, Intelligence, Surveillance, and Reconnaissance ("C4ISR") system used to track naval vessels, aircraft and ground vehicles. Once Lockheed builds upon Hexagon's software it is prohibitively difficult to switch to a competitor.
Hexagon's net income has grown at 8% annually for the past decade. It is unspectacular but solid.
Next Missouri soybeans.