MILAN, Italy (March 31, 2000) — Pirelli S.p.A. will invest nearly $1 billion in the coming three years to transform itself into "e-Pirelli," a business equipped to take full advantage of the e-commerce revolution.
The Italian tire and cable company also reported increases in sales and net earnings for 1999, despite a decrease in its tire sales.
About half the proposed $1 billion investment will be in tires, where Pirelli already has initiated more than 20 separate projects to develop e-commerce ventures that will transform the business and "revolutionize the unit´s profitability parameters," according to Chairman Marco Tronchetti Provera. &Copy;:
The bulk of the tire capital spending will be for the construction of five tire plants using the company´s new flexible manufacturing process, Modular Integrated Robotized System (MIRS).
The new plants — at least one each in Europe, North America, South America and Asia by year-end 2002 — will have combined annual output of 10 million tires, primarily of the higher value-added high-performance type, Pirelli said.
A MIRS-based plant occupies only about one-fifth of the space of a comparable conventional plant, Pirelli said, and uses one-third less energy. As a result, the initial investment is cut by half and operating costs by 25 percent. MIRS-based manufacturing also opens up opportunities for streamlining the development process and speeding up product development cycles, the company said.
Also under development are so-called "intelligent" tires, which will be capable of interacting electronically with a vehicle´s security systems, with the car owner, with dealers or with the car makers.
Pirelli´s short-term goal is to generate about $1 billion of its annual sales revenue via internet transactions, counting both business with suppliers and customers, a spokesman said. In Europe, Pirelli expects half its replacement tire orders from dealers to take place electronically by year-end, double what they are currently.
Pirelli did not disclose how much it expects the efforts to affect tire sales over the period.
In fiscal 1999, the company´s tire unit sales fell 5 percent, to $2.73 billion, largely because of eroding prices, unfavorable currency swings and the loss of sales from the agricultural tire business, now operating as a joint venture under the control of Trelleborg A.B.
The sales decline, coupled with sales gains in cables, shifted the cables-to-tires business ratio from roughly 50:50 to 60:40.
Pirelli has made some major moves in cables lately — including five acquistions in the past year and the creation of a strategic business alliance with Cisco Systems — and continues to push investment in optical cables and underwater fibers technologies, markets with high double-digit growth rate projections.
For fiscal 1999, Pirelli reported 18-percent growth in both sales and net earnings, while operating results fell 20 percent. Sales rose to $6.9 billion largely because of the consolidation of new acquisitions, and the net profit reached $312 million. The operating result dropped due to exchange rate differences and pricing erosion across the board, the company said.