Rockwell Automation: Software & Control Segment Reaches 35% Margins as Data Center, E-Commerce Demand Accelerates
Wells Fargo Industrials Conference, June 11, 2026
Rockwell Automation delivered a standout performance in its Software & Control segment during the second quarter, reaching 35% operating margins while the business grew at low double-digit rates. The company has now operated within its 31% to 34% margin corridor for four consecutive quarters, driven by a confluence of volume growth, pricing discipline, productivity gains, and favorable product mix as higher-margin offerings like Logix controllers and cloud-native software accelerated.
Matheus Bulho, SVP of Software and Control, and Aijana Zellner, VP of Investor Relations and Market Strategy, outlined the drivers behind the performance at the Wells Fargo Industrials and Materials Conference. The company raised its full-year organic growth guidance to 7% and increased its outlook for several end markets including semiconductor, data center, and energy, which is now expected to grow high single digits for the year.
Margin Trajectory and Cost Pressures
While the 35% margin achievement in Software & Control represents a significant milestone, management cautioned that this level may not be sustainable in the near term. The company faces double-digit millions in headwinds during the second half of the fiscal year from escalating memory chip costs, which disproportionately impact the Software & Control segment. Zellner acknowledged that while Rockwell has mechanisms to offset these cost increases through pricing, "it might not be perfectly aligned in any particular quarter, especially in Q3."
The company expects Software & Control margins to be sequentially lower in the third quarter but still anticipates several hundred basis points of year-over-year margin expansion for the full year. The margin outperformance in the second quarter stemmed from strong volume leverage, effective price realization of 250 basis points for the year including 150 basis points of underlying price, and structural cost improvements across direct manufacturing, logistics, and SG&A functions.
Data Center Opportunity Gaining Momentum
Rockwell's position in the data center market emerged as a particularly compelling growth vector. The company is capturing share as hyperscalers shift from traditional direct digital control systems to industrial logic platforms. Bulho explained the value proposition: "With our system, we have an order of magnitude greater availability. So what we call our Logix runs today 5 nines, so 99.999% availability. And you can imagine what the cost of downtime, we've always dealt with cost of downtime in any type of production system. And in data centers, the cost per minute is significant."
Beyond availability, Rockwell's Logix platform offers superior cybersecurity with encrypted communications, better performance to handle megawatt swings in server racks within minutes, and longer product lifecycles compared to commercial building management systems. The data center business currently represents a low single-digit percentage of total revenue but management indicated it could reach approximately 5% in the not-too-distant future.
The revenue opportunity spans multiple product lines. Logix controllers manage building infrastructure, while Rockwell's Cubic acquisition provides modular switchgear packaging technology that has proven particularly well-suited for data center applications. Additional Intelligent Devices products including variable frequency drives for chillers, fans, and pumps contribute to the overall content per data center installation.
Broadening Demand Beyond Short-Cycle Projects
The company's Intelligent Devices and Software & Control segments have outperformed for several quarters, with growth actually accelerating from the first to second quarter. Zellner described a broadening of demand beyond the small modernization and efficiency projects that have characterized the recovery. "We did see kind of broadening of the demand and larger projects across a number of additional industries," she noted, specifically calling out semiconductor, data center, e-commerce and warehouse automation, and energy sectors.
In discrete industries, e-commerce and warehouse automation continue to drive significant investment as labor scarcity and cost pressures push companies toward automation. The customer base spans parcel companies, e-commerce players, and traditional retailers, all investing in facility upgrades. Many warehouses and sortation facilities remain largely manual, representing a substantial retrofit opportunity. Zellner characterized this as both large brownfield retrofits and greenfield projects.
The semiconductor industry showed pickup in both legacy fab investments and AI-related data center chip production. Energy markets are experiencing growth across traditional oil and gas, power generation, and renewables including carbon capture, wind, and solar. Rockwell benefits from deploying the same core technology across these diverse applications, whether for LNG facilities, gas-powered microgrids, or data center infrastructure.
Customer Spending Patterns and Inventory Controls
While larger projects are materializing in specific verticals, customers remain cautious about longer-ranging capital expenditures. Zellner explained that trade uncertainty around USFCA, persistent policy changes, and geopolitical volatility continue to weigh on customer confidence for major greenfield investments. Customers are instead focusing on projects with clear scope, defined ROI, and near-term productivity benefits through increased throughput and quality improvements at existing facilities.
Rockwell has significantly enhanced its inventory monitoring capabilities since the pandemic-era supply chain crisis. Bulho detailed the company's evolved approach: "Pre-pandemic, we were primarily a book-and-bill business. So we didn't have as much attention into this space. But since then, we've kind of built out quite a few muscles to help us prevent and avoid to the degree we can, any type of prebuy and excess inventory out there."
The company now manages distributor inventory with visibility into both shipments and orders, has implemented controls around unusual order patterns based on historical norms and system composition, and in some cases has rejected or canceled orders that raised red flags. Additionally, Rockwell conducts surveys across a proxy sample of customers and industries to compensate for limited visibility into OEM end-customer demand. These efforts have yielded no meaningful indications of prebuy activity contributing to results.
Pricing Discipline and Structural Improvements
Rockwell has fundamentally transformed its pricing approach from a historically modest 1% annual realization to a more dynamic and granular methodology. The company shifted from fixed contracts to fixed discount structures, enabling instantaneous price adjustments across the customer base. Management invested in optimization software providing visibility into pricing by customer, region, industry, and application, allowing for more surgical pricing decisions.
Zellner expressed confidence in the company's ability to continue driving pricing given its differentiated position: "We think broad the longer term, we're well positioned and pricing is a great lever, one of many levers for us to continue expanding our margins." The current inflationary environment and tariff pressures provide additional justification for price actions beyond the company's structural improvements.
Software Portfolio and Competitive Moats
The Software & Control segment maintains what Bulho characterized as a "full stack" for production systems, with no major portfolio gaps. This comprehensive coverage matters increasingly as customer challenges around cybersecurity, functional safety, data management, and AI become system-level concerns rather than point solutions. The portfolio spans system design including digital twins and programming tools, operator support through visualization and decision support systems, production execution via manufacturing execution systems, and maintenance capabilities including disaster recovery and computerized maintenance management systems.
Regarding potential competitive threats from AI and new entrants, Bulho outlined three durable moats. First, much of Rockwell's software is deeply integrated with embedded systems for resiliency, cybersecurity, and safety reasons, meaning AI applications must interface through Rockwell's software layer. Second, production execution systems operating in regulated industries require deterministic outcomes with consistent performance over time. "It is not acceptable in manufacturing for you to have outcomes that are approximately right. It's not acceptable for you to build cars or to create drugs or food that are approximately right," Bulho explained, rendering probabilistic AI outputs unsuitable for core control functions.
Third, the automation domain requires tremendous specialized knowledge, and the primary software cost in production systems lies in lifecycle management rather than initial development, favoring established players. Conversely, AI presents significant opportunities to simplify automation deployment, operation, and maintenance. "The single largest barrier to more automation density is the complexity, is the complexity of deploying and maintaining and supporting and AI with these virtual workers, if you will, are there to help you lower that barrier, so more automation can be used for -- in more production systems over time," Bulho said.
Cybersecurity as Competitive Advantage
Rising cybersecurity requirements, particularly the European Union's Cyber Resiliency Act establishing minimum security standards for automation systems, are elevating barriers to entry in the industrial automation market. Bulho noted that Rockwell has invested heavily in product security and resilience, and the company welcomes these regulations as they "disproportionately benefit Rockwell." The increasing cost to compete extends beyond product hardening to services, with Rockwell building capabilities around security assessments including targeted acquisitions. Critical infrastructure, food and beverage, and life sciences industries face the earliest pressure to strengthen industrial systems, with broader propagation expected across sectors.
Capital Deployment Priorities
Rockwell outlined a $2 billion multiyear investment plan largely focused on domestic capacity expansion, operational transformation toward more autonomous manufacturing, and continued technology development. Research and development spending runs at approximately 8% of revenue company-wide, with Software & Control investing in the low teens percentage as a proportion of segment revenue. Management characterized R&D as "the lifeblood of the company" with no intention to reduce this investment level.
On the inorganic front, Bulho indicated the company is "very open and interested and serious about continuing to evaluate opportunities that fit in our channel," with focus on profitable or near-term accretive acquisitions that can accelerate share gains in regions where Rockwell's presence is less established. The company's return to active M&A consideration follows several years of integration and organic focus.
The Middle East exposure, already limited, became smaller following the dissolution of the Sensia joint venture. Recovery and rebuilding opportunities in the region would most likely impact fiscal 2027 and beyond given the longer-cycle nature of Rockwell's relevant offerings.