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SKF: The World Runs on Bearings
How a Swedish engineer's frustration with factory breakdowns spawned a 117-year global industrial empire—and why the company's upcoming split might be the biggest bet in its history.
I. Introduction: The Heart of Everything That Spins
Picture a world without bearings. Every motor would seize. Every wheel would grind to a halt. Every turbine, conveyor, and compressor would shudder and fail. The industrial age itself would collapse into friction-induced chaos.
This is not hyperbole. SKF is a Swedish multinational engineering company founded in 1907 in Gothenburg, specializing in bearings, seals, lubrication systems, mechatronics, and maintenance services aimed at reducing friction in industrial applications. Headquartered in Gothenburg, Sweden, SKF operates in approximately 130 countries with more than 40,000 employees and over 17,000 distributor locations worldwide.
The hook is simple but profound: everything that rotates needs a bearing—and one company from Sweden has made the world spin more smoothly for over a century.
The top companies in the bearings industry include SKF, NSK, Schaeffler, Timken, NTN, and JTEKT, and they collectively hold a share of 20-30% in the market. But within that elite group, SKF stands apart. The company commands approximately 25% of the global bearing market, making it the largest contributor in an industry that quite literally keeps civilization running.
In 2024, SKF reported a net revenue of SEK 98.72 billion, a year-on-year decline of 5.4%. Despite the revenue dip, the company maintained a solid profit margin, with an adjusted operating margin of 12.3%, consistent with 2023. That translates to roughly $9 billion in annual sales—not bad for a company whose products are almost entirely invisible to the consumers who depend on them.
But SKF today stands at a remarkable inflection point. SKF is a global leader in industrial bearings and rotating equipment solutions, operating in segments where reliability, efficiency, and engineering know-how matter most. The company is reshaping itself into two focused businesses, industrial and automotive, to sharpen strategic execution and unlock value.
The themes that emerge from SKF's 117-year history are striking: an invention-driven culture that has never stopped innovating, quiet industrial dominance built on engineering excellence rather than marketing flash, the powerful influence of the Wallenberg family (Sweden's answer to the Rockefellers), and now a modern transformation that may fundamentally reshape the company for the next century.
Let's trace how a frustrated maintenance engineer's solution to broken drive shafts became one of the most consequential industrial innovations of the 20th century—and examine whether SKF's current management team can replicate that magic for the 21st.
II. Origins: The Problem of Friction (1906-1907)
A Factory Built on Unstable Ground
To understand SKF's founding, you must first understand the peculiar geology of Gothenburg, Sweden. Much of the city is built on clay—soft, shifting, treacherous clay that causes buildings to settle unevenly over time.
In the early 1900s, the Gamlestadens textile factory was struggling with this exact problem. In 1899, Sven became an operating engineer at a weavery in Gamlestadens in Goteberg, Sweden. They continuously experienced problems because the factory was built on clay soil. Because the ground was unstable, the building housing their main operations shifted from time to time. This caused their drive shafts to incur damages, and their machines overheated.
The factory relied on a central steam engine that drove power to rows of spinning machines via overhead line shafts. These shafts required ball bearings to rotate smoothly—but the imported German bearings of the era simply could not cope with the misalignment caused by the shifting building foundations. They failed constantly, causing expensive production stops and creating fire hazards from overheating.
Since they wanted to avoid this fire hazard, they found a way to solve the problem. This solution however also meant ordering ball bearings that came all the way from Germany which caused deliveries to take several months. Even worse, the ball bearings proved to be of poor quality; the ball bearings broke down at an alarming rate, causing even more damage to the drive shafts.
Enter Sven Wingquist
Sven Gustaf Wingqvist (10 December 1876 – 17 April 1953) was a Swedish engineer, inventor, and industrialist, and one of the founders of Svenska Kullagerfabriken (SKF), one of the world's leading ball bearing and roller bearing makers.
Wingquist was not a theoretical academic. He graduated Örebro Technical Elementary School in 1894, whereafter he started working as an engineer in Swedish textile factories, respectively Jonsereds Fabriker AB from 1896 to 1899 and Gamlestadens Fabriker AD from 1899 onwards. He was a practical man, an operations engineer responsible for repairs and maintenance—the person who got called at 3 AM when machines broke down.
What made Wingquist different was his intellectual curiosity. In particular he carefully studied the report presented in 1902 by professor Richard Stribeck working at the Institute of Technology in Dresden, Germany, where he had compared ball bearings versus plain bearings from a scientific point of view. Wingquist soon realized that ball bearings had a future and that there was room for innovation.
So, Wingquist proposed to directors that the plant stop importing failing bearings, and manufacture their own out of better Swedish steel. Wingquist was given the green light to start the unusual bearing project, but only on his own time. For an entire year, motivated Wingquist spent evenings and weekends on the project.
The Eureka Moment
In spring 1907, Wingquist presented a breakthrough: a double row self-aligning ball bearing with a spherical raceway in the outer ring, shared by both rows of balls. This allowed the inner ring to align freely in relation to the outer ring, with no negative impact on the function of the bearing.
This was the key insight. Previous bearings required perfect alignment between shaft and housing. If the machine shifted—as machines on clay soil constantly did—the bearings would bind, overheat, and fail. Wingquist's self-aligning design solved this fundamental problem.
The new bearing solved the problem associated with misalignment of the shafts and thus did away with the frequent production stops. Self-alignment was particularly useful in the less-than-perfect machinery of the times and in buildings with subsidence problems, which was the case at Gamlestaden.
On 16 February 1907, Wingqvist applied for Swedish patent No. 25406, a multi-row self-aligning radial ball bearing. The Patent was granted on 6 June in Sweden coinciding with patents in 10 other countries.
The Dual Leadership Model
What happened next is a case study in effective founder dynamics. Wingquist had the engineering genius, but building a global company required different skills.
AB SKF was established in Gothenburg in 1907 with the initial capital and startup project for ball bearing manufacturing of Gamlestadens Fabriker AB, under the guidance of co-owners and members of the board Axel Carlander and Knut Johansson Mark, following the invention of the spherical ball bearing by engineer Sven Gustaf Wingquist. Industrialist Axel Carlander was the first chairman of the board of SKF from 1907 to 1937 during which time he implemented successful industrial and corporate managerial strategies for the startup and growth of SKF and the establishment of its factories outside Sweden.
In this context, the startup and growth of SKF has become possible due to the engineering experience and inventions of Sven Wingquist and the industrial managerial experience and strategies of Axel Carlander.
This dual-leadership model—visionary engineer paired with business-minded industrialist—became a template for Swedish industrial success. It's a pattern we see repeated throughout Nordic business history: the technical founder who creates the breakthrough, and the commercial leader who turns it into an empire.
For investors: SKF's founding illustrates a recurring theme in durable industrial businesses—the product must solve a genuine, widespread problem better than alternatives. Wingquist didn't invent ball bearings; he invented ball bearings that actually worked in real-world conditions. This distinction between incremental improvement and genuine innovation is worth remembering when evaluating any industrial company's competitive moat.
III. Explosive Global Expansion (1907-1930)
From Workshop to World Power
The speed of SKF's early expansion was nothing short of extraordinary. The new ball bearing was successful from the outset. Three years after SKF was founded, the company had 325 employees and a subsidiary in the United Kingdom. Manufacturing operations were later established in multiple countries.
The growth trajectory tells the story:
- 1907: Founded with initial capital from Gamlestadens Fabriker
- 1908: First subsidiary opens in Copenhagen, Denmark; orders worth SEK 114,000 received
- 1909: Operations in Germany, France, and the United Kingdom
- 1910: 325 employees
- 1912: Represented in 32 countries
- 1930: Over 21,000 employees across 12 manufacturing facilities worldwide
By 1912, SKF was represented in 32 countries and by 1930, a staff of over 21,000 were employed in 12 manufacturing facilities worldwide with the largest in Philadelphia, United States.
Strategic International Manufacturing
SKF's leadership understood early that to serve global customers, they needed global manufacturing. Shipping heavy metal components across oceans was expensive and slow. Local production meant local responsiveness.
The first major international expansion came with the UK plant. In 1916, SKF acquired the Hofors Bruk steel works to ensure a reliable supply of high-quality steel for bearings, a strategic investment that supported vertical integration and cost control amid growing production demands.
This vertical integration into steel supply was critical. Ball bearings must be manufactured to extraordinary precision—tolerances measured in thousandths of millimeters. Inferior steel meant inferior bearings. By controlling their own steel supply, SKF could guarantee quality at a level their competitors simply could not match.
The Automotive Connection
In the years immediately preceding World War I, automotive manufacturers were enjoying a boom period, and by 1912 SKF found itself unable to meet demand for its bearings due to supply problems with the foreign balls used in its bearing products. SKF therefore decided to produce its own balls in Göteborg. In 1913 the company could literally afford to strengthen its position in the crucial German market by the acquisition of a half share in Norma Compagnie GmbH at Cannstatt. SKF, in common with most Swedish businesses, derived considerable advantage from Sweden's declaration of neutrality in 1914, trading with both the Allied and Central powers and successfully increasing its market share, particularly outside Europe, at the expense of its German, British, and French competitors whose countries were at war.
This last point deserves emphasis. While the Great Powers were destroying each other's industrial capacity between 1914 and 1918, neutral Sweden—and SKF specifically—continued expanding. By war's end, SKF had built market positions that its war-weakened competitors would struggle to reclaim.
The 1920s: Capital Markets and Continued Expansion
The 1920s saw rapid expansion, including a share capital increase to 106 million Swedish kronor in 1928 and the listing of SKF shares on the London Stock Exchange, facilitating international financing and investor access.
The Great Depression, which devastated many industrial companies, actually presented opportunities for SKF. The Great Depression, which began in 1929, enabled SKF to buy a number of rival German bearings companies, giving the company a leading position in the important German market.
For investors: SKF's early history demonstrates the power of counter-cyclical investment. Companies with strong balance sheets can use downturns to acquire distressed competitors at attractive prices—a strategy that has compounded value for SKF shareholders across multiple economic cycles.
IV. The Volvo Connection: A Forgotten Origin Story
Birth of an Automotive Icon
One of the most remarkable spin-off stories in industrial history has its roots in an SKF boardroom. And it all started in an SKF boardroom. In 1926, SKF sales manager Assar Gabrielsson sought the permission of his managing director to build ten passenger automobiles using SKF parts and resources.
Assar Gabrielsson, SKF sales manager, and Björn Prytz, Managing Director of SKF, were the founders of Volvo AB in 1926. In the beginning, the company functioned as a subsidiary automobile company within the SKF group. SKF funded the production run of the first thousand cars, built at Hisingen in Gothenburg, beginning in 1927. SKF used one of the company's trademarked names: AB Volvo, which derives from the Latin "I roll", with its obvious connotations of bearings in motion.
The name itself tells the story. "Volvo"—Latin for "I roll"—was originally a trademark SKF had registered for a line of bearings intended for the automotive industry. When the car company needed a name, SKF simply pulled one from its portfolio of unused trademarks.
A Rocky Start
The early years of Volvo were not smooth. In its early years, Volvo faced some steep hurdles, failing to meet production quotas and operating at a loss. But, buoyed by positive signs from the six-cylinder 'saloon' car and new truck manufacturing operations, SKF increased its support for Volvo. In late 1929, SKF increased its capital share in Volvo to 4.2 million Swedish kronor, giving the fledgling motoring company a solid foundation on which to build.
In 1929 SKF was planning to sell Volvo to Nash (USA) because there wasn't enough profit (or even not at all). Fortunately Gabrielsson was successfully convincing SKF to keep Volvo and the Nash-deal didn't take place. The following year Volvo made a modest profit.
The Spin-Off
The ownership of Volvo lasted until 1935, when the last shares were divested.
AB Volvo was introduced at the Stockholm Stock Exchange in 1935 and SKF then decided to sell its shares in the company.
In 1926 SKF decided that its AB Volvo subsidiary should enter the car and truck manufacturing industry. SKF used Volvo as a practical testing ground for its bearings until 1935 when Volvo became an independent company. SKF retained close links with its former subsidiary.
After giving birth to the company, giving it a name and helping it get up and running in its infancy, SKF released Volvo into the world like a proud parent. Since then, Volvo has grown into a first-class brand in cars, trucks, marine and industrial engines. We at SKF have partnered with Volvo Cars since 1927 and continue to provide Volvo with optimized solutions for their premium vehicles.
What This Tells Us About SKF
The Volvo story reveals something important about SKF's corporate culture: a willingness to pursue adjacent opportunities and then spin them off when they become large enough to thrive independently. This is not a company that holds onto assets for ego or empire-building. When Volvo needed more capital and focus than SKF could provide while maintaining its core bearing business, SKF let go.
This historical pattern is worth remembering as we examine SKF's current plan to spin off its automotive business—it's not the first time the company has reshaped itself through strategic separation.
For investors: The Volvo spin-off created enormous value over time. Today Volvo (the truck company) has a market capitalization exceeding $50 billion, while Volvo Cars (sold to Ford in 1999, then to Geely in 2010) is another significant enterprise. SKF shareholders who held through the spin-off benefited from both entities' growth—a reminder that corporate splits can be powerful value-creation mechanisms.
V. World War II: The Strategic Importance of Bearings
The Most Controversial Chapter
No honest account of SKF's history can ignore World War II. SKF's ball-bearings were Sweden's most important strategic contribution to German war production. This is a deeply uncomfortable fact, but understanding it requires understanding the strategic reality of neutral Sweden surrounded by Nazi-controlled Europe.
During the Second World War, Sven Wingvist was CEO of SKF and Jacob Wallenberg was member of the company's board of SKF directors. The Wallenberg-owned ball-bearing multinational, SKF, supplied the German military with ball-bearings and ball-bearing machines, and had a monopoly on it in Europe. SKF also supplied the Allies with ball-bearings.
Both Sides of the Conflict
This paper examines the Swedish ball bearings industry during the Second World War, including subsidiary operations in Germany and the United Kingdom. It determines that these ball bearings were very important to the war effort in both countries, comprising in total about 58% of German supplies and 31% of British. Despite favouring Germany with more exports, the Swedish government allowed the British access to Swedish territory to ensure the delivery of the bearings through the German blockade.
SKF, in fact, produced them during the Second World War, with some sources stating that up to 58 percent of German ball bearings were, in fact, from Sweden. However, the Germans were not the only ones to receive them.
The situation was more nuanced than simple wartime profiteering. Historian Christian Leitz says that Sweden violated their neutrality by offering the United Kingdom ball bearings at a discount.
The Schweinfurt Raids
The strategic importance of ball bearings was not lost on Allied military planners. The U.S. War Department was not so sure. It lost 60 Flying Fortresses and 600 men bombing Germany's ballbearing center of Schweinfurt, where the chief producer is an SKF subsidiary.
World War II presented acute challenges, as SKF's facilities in Germany, particularly in Schweinfurt, became strategic targets due to their role in ball bearing production essential for Axis machinery. The Schweinfurt raids by Allied forces in August and October 1943 inflicted heavy damage on these plants, disrupting output and highlighting the vulnerabilities of international operations during conflict.
Post-War Reality
In the spring of 1944, the Swedish government, along with the Wallenbergs, promised the Allies that the export of ball-bearings would cease. However, SKF continued to export. When this could not be done legally, the ball-bearings were smuggled to Germany. As late as 1945, SKF sold ball-bearing steel and ball-bearing machines to Hitler.
This is the dark history that SKF's corporate communications understandably prefer not to emphasize. The company's wartime actions remain controversial among historians, with some arguing that Swedish neutrality simply forced difficult choices, while others view SKF's continued German exports as opportunistic at best.
For investors: The WWII experience actually demonstrated something important about SKF's strategic position: ball bearings are so essential to industrial civilization that both sides in a global conflict required them. This is the ultimate test of product indispensability.
VI. The Wallenberg Influence & Post-War Dominance (1945-1990)
Understanding the Wallenberg Sphere
To understand SKF, you must understand the Wallenbergs—Sweden's most powerful business dynasty. The Wallenberg family is a prominent Swedish family of bankers, industrialists, politicians, bureaucrats and diplomats, present in most large Swedish industrial groups, including EQT AB, Ericsson, Electrolux, ABB, SAS Group, SKF, Atlas Copco, Saab AB, and more. In the 1970s, the Wallenberg family businesses employed 40% of Sweden's industrial workforce and represented 40% of the total worth of the Stockholm stock market. Their flagship company, Investor AB, has a market capitalization of around $60 billion.
The family's motto—"Esse, non Videri" (To be, rather than to seem)—perfectly captures their approach: enormous power exercised quietly, without ostentation.
In 1932, just before the Kreuger Trust collapsed, and the years after it, the Wallenberg sphere increased its holding in SKF, added a minority stake in LM Ericsson and acquired a large interest in STAB. The roller bearing manufacturer SKF was the largest holding in the Investor portfolio at the time. Jacob Wallenberg was elected to the company's board of SKF's directors in 1934, and by the time World War II was over, the sphere's interest constituted 11 percent of SKF's voting rights.
Today, FAM's largest holdings include SKF, Stora Enso, Munters, IPCO, Kopparfors Skogar, The Grand Group, Höganäs, Nefab, and Kivra. The Wallenberg influence on SKF has been continuous for nearly a century, providing the patient capital and long-term strategic perspective that has allowed the company to make generational investments.
Post-War Reconstruction and Expansion
With its European competitors devastated by war, SKF emerged from 1945 in a position of remarkable strength. The company used the immediate post-war period to rebuild its damaged facilities while simultaneously expanding into new markets.
The 1970s: Production Rationalization
Swedish industrial companies faced intense cost pressures in the 1970s as global competition intensified. SKF's response was characteristically innovative: the company embarked on a massive production rationalization program that would position it for the next generation of competition.
The "Production Concept for the 80s" was a visionary project aimed at running night shifts with minimal human intervention. This required continuous, automatic flow of bearing rings—a challenge that led SKF to develop the Flexlink multiflex plastic chain conveyor system, which itself became a successful product line.
Building the Global Footprint
By the 1980s, SKF had established itself as the undisputed global leader in bearings. The company's manufacturing presence spanned dozens of countries, its distribution network reached everywhere industrial equipment was made or maintained, and its engineering expertise was unmatched.
SKF is the world's largest bearing manufacturer and employs 44,000 people in 108 manufacturing units. It has the largest industrial distributor network in the industry, with 17,000 distributor locations encompassing 130 countries. SKF is one of the largest companies in Sweden and among the 2000 largest public companies in the world.
For investors: The Wallenberg ownership structure represents a distinctive Swedish model of industrial capitalism—patient, long-term focused, and engineering-driven. This contrasts sharply with the quarterly-earnings obsession that characterizes much of Anglo-American corporate governance. The Wallenberg approach has allowed SKF to make investments with 10-20 year payback horizons that publicly traded companies under shorter-term pressure might avoid.
VII. The Knowledge Engineering Transformation (2003-2014)
Tom Johnstone Takes the Helm
In 2003, SKF brought in a new CEO who would fundamentally reshape how the company thought about itself. From 2003 to 2014 he was President and CEO of AB SKF. Tom joined SKF in 1977 and has held several management positions within the SKF Group, the latest as Executive Vice President AB SKF and President of Automotive Division. During his tenure, SKF has evolved into a knowledge engineering company which enables customers to profit from more than 100 years of accumulated application expertise. He has also successfully advanced initiatives to integrate sustainability into the company's long term strategy and performances, for instance by launching BeyondZero.
Johnstone, a Scotsman who has been with SKF for almost 38 years, will step down on 1 January, 2015.
The Strategic Pivot
The "knowledge engineering" concept was more than marketing language. It represented a fundamental shift from selling products to selling solutions. Rather than competing purely on bearing price and quality—a game increasingly difficult as Asian manufacturers improved their capabilities—SKF would compete on the value of its accumulated expertise.
Under Tom Johnstone's leadership as President and CEO from 2003 to 2014, SKF underwent significant transformations to become a more innovative, sustainable, and customer-focused organization. Johnstone implemented the SKF Business Excellence program, which aimed to improve operational efficiency, quality, and customer service across the company's global operations. He also championed SKF's transition towards becoming a knowledge engineering company, investing in research and development to create high-tech solutions for customers in various industries.
The Numbers Tell the Story
Under Tom's leadership SKF has developed into a Knowledge Engineering company, profitably increased its sales from SEK 41 billion in 2003 to SEK 63 billion last year and delivered a Total Shareholder Return of over 400 percent".
Paying tribute to Johnstone, Ă–stling points out that "under Tom's leadership, SKF has developed into a knowledge engineering company, profitably increased its sales from SEK41bn ($5.9bn) in 2003 to SEK63bn ($9.1bn) last year, and delivered a total shareholder return of over 400%".
Smart Bearings: Making the Heart the Brain
The capstone of the knowledge engineering transformation came in 2013 with the launch of SKF Insight. Gothenburg, 8 April 2013: SKF launches SKF Insight™, a groundbreaking innovation in intelligent wireless technologies that are integrated into SKF bearings. SKF developments in various smart technologies now enable bearings to communicate their operating conditions continuously, with internally powered sensors and data acquisition electronics. Bearings have long been considered the heart of rotating machinery, now SKF makes them the brain as well.
"These innovations are set to revolutionise condition monitoring for bearings, especially in critical machinery and technically challenging applications. SKF Insight technology will make condition monitoring more widely available, especially in applications where it was previously impossible or impractical," says Tom Johnstone, SKF President and CEO.
The technical achievement was remarkable. SKF Insight technology includes: Miniaturisation – Packaging of sensor technologies enables measurement of critical parameters such as RPM, temperature, velocity, vibration, load and other features. Self-powered – Using the application environment itself, smart bearings can generate their own power needed to operate. Simplicity – Intelligent wireless communication technology packaged inside the bearing enables it to communicate within environments where traditional WiFi cannot operate. Smart networks – Communicating through each other and via a wireless gateway, bearings with SKF Insight form a "mesh network" and can send information relevant to their condition for analysis.
SKF has been monitoring equipment remotely for around fifteen years and it now has around 1 million bearings connected to the Cloud.
For investors: The Johnstone era demonstrated that "old economy" industrial companies can successfully pivot to higher-value business models. The 400% total shareholder return wasn't achieved by cutting costs or financial engineering—it came from genuine strategic transformation.
VIII. Recent Strategic Transformation (2015-Present)
The Alrik Danielson Era (2015-2021)
Tom Johnstone will be succeeded by Alrik Danielson who has been President and CEO of Höganäs AB since 2005. Alrik Danielson worked at SKF between 1987 and 2005 and held a number of executive positions within the Group including that of President of the SKF Group's Industrial Division and member of the SKF Group's Executive Committee.
Danielson's mandate was to build on Johnstone's knowledge engineering foundation while preparing the company for the next phase of global competition. He implemented major operational changes that positioned SKF for the challenging years ahead.
Enter Rickard Gustafson (2021-Present)
Employed since 2021. Born 1964 Education Master of Science from the Institute of Technology at Linköping University. Job experience President and CEO of the SAS Group. CEO of the insurance company Codan/Trygg Hansa and several positions within General Electric. Other assignments Board member of Telia Company and The Confederation of Swedish Enterprise.
Mr. Gustafson brings a breadth of professional experience to SKF. Having held previous leadership roles within several well-known organizations, he is most notably recognized for his decade long tenure as CEO of SAS. Now, with a keen understanding of the bearing industry, Rickard Gustafson weighs in on current trends, objectives, and future insights, with particular attention dedicated to the utilization of technology, the importance of sustainability, and finally, the capacity to navigate today's rapidly evolving world.
The 2022 Decentralization Strategy
One of Gustafson's first major moves was implementing a decentralized operating model that fundamentally reorganized how SKF operates globally. The company now operates through four regions—Europe, North America, China and Northeast Asia, and India and Southeast Asia—each with end-to-end accountability.
Regionalization is a key element of our strategy. In 2024, we continued to invest in further optimizing our footprint and in creating competitive and resilient regional value chains. These efforts improved our regionalization rates during the year from 63% to 68% in Asia and from 66% to 69% in Americas. Increased regionalization brings several market- and operational benefits. In China for example, it has shortened lead times from order to delivery with 25% since 2019.
The Automotive Spin-Off: The Biggest Bet in a Generation
The most consequential strategic decision of the Gustafson era came in September 2024: In September 2024, SKF announced the decision to initiate a separation of its Automotive business with the objective of a separate listing on Nasdaq Stockholm through a Lex Asea distribution to its shareholders.
We believe the separation will improve focus and resource allocation as the two segments serve different customers, operate on different sales cycles, and face distinct competitive dynamics. We do, however, expect some near-term separation pains, as the process will be costly and operationally disruptive before the benefits materialize.
As previously communicated, SKF considers that the contemplated spin-off of its automotive business would facilitate a clearer focus on distinct opportunities to enhance customer value, accelerate growth, improve competitiveness as well as providing long-term value benefiting customers, employees and shareholders.
The rationale is compelling: industrial and automotive bearings are fundamentally different businesses. They serve different customers, operate on different sales cycles, face different competitive dynamics, and require different strategic priorities. Combining them in one organization creates compromises that benefit neither.
Deutsche Bank upgraded bearing manufacturer SKF to "buy" from "hold" and raised its target price to SEK280 from SEK240, citing expected value creation from the planned separation of the company's Automotive division. Analyst John Kim said that Deutsche Bank continues to view the spin-off as a "value unlock" for the bearings maker, noting that the bank expects the Industrial division to trade at about 12x and the Automotive unit at about 7x, in line with their peer groups. Kim said the separation could add roughly 30% upside from current share price levels, driven by a re-rating of about 90% of the group's earnings base and a de-rating of the remaining 10%.
Sustainability and Decarbonization Leadership
The Annual and Sustainability Report also highlights the progress towards SKF's 2030 decarbonization target of a 95% reduction in scope 1 and 2 emissions from a 2019 baseline. In 2024, a 59% reduction was achieved, which is well ahead of the verified Science Based Targets initiative (SBTi) trajectory of a 43% reduction. SKF accelerated its decarbonization efforts in 2024 by achieving a year-on-year emission reduction for scope 1 and 2 emissions of 32%, up from 18% in the previous year.
In addition to these efforts, SKF has made significant strides in renewable energy adoption. In 2024, 72% of SKF's electricity use came from renewable sources, up from 64% in 2023. This is also important progress on SKF's commitment as part of the Renewable Energy 100 (RE100) initiative to source 100% of its electricity from renewable sources by 2030.
SKF has decided to allocate SEK 3 billion to meet its energy and decarbonization goal by 2030, which is a key element of the Group's strategy. The Group has also decided to ban any fossil fuel investments in its own operations, as well as to replace direct fossil gas use with renewable energy or approved non-fossil fuel alternatives by 2029. The SEK 3 billion investment frame is to be exclusively used to fund decarbonization activities, mainly energy efficiency and removal of fossil gas use for process and building heat, within the Group's operations around the world.
Electrification and High-Speed Bearings
To position us to benefit from the electrification megatrend and the increasing demand for high-speed rotation, we are investing in our ceramic bearing capacity and capabilities. To strengthen our competitiveness and secure the full value chain, we are investing in increased access to raw material as well as in accelerating our manufacturing and R&D processes.
Electric motors spin faster than internal combustion engines. Much faster. This creates demand for bearings that can handle higher rotational speeds while maintaining precision and durability—exactly the high-value, engineering-intensive products where SKF's expertise provides the greatest competitive advantage.
For investors: The automotive spin-off represents the most significant strategic decision at SKF since the Volvo divestiture in 1935. Success would create two focused, independently valued entities; failure could destroy significant shareholder value through execution problems and stranded costs.
IX. The Competitive Landscape & Industry Dynamics
A Consolidated Global Market
The global bearings market size was valued at USD 46.82 billion in 2024. The market is projected to grow from USD 50.16 billion in 2025 to USD 97.10 billion by 2032, exhibiting a CAGR of 9.9% during the forecast period. The Asia Pacific dominated global market with a share of 48.95% in 2024.
The bearing market is characterized by concentration at the top and fragmentation below. The top companies in the bearings industry include SKF, NSK, Schaeffler, Timken, NTN, and JTEKT, and they collectively hold a share of 20-30% in the market.
The Competitive Set
The global bearing industry has a clear hierarchy:
Tier 1 (Global Leaders): - SKF (Sweden): ~25% global market share, strongest in industrial applications - Schaeffler (Germany): Strong automotive presence, owns INA and FAG brands - NSK (Japan): Strong in precision and automotive applications - Timken (USA): Particularly strong in tapered roller bearings - NTN (Japan): Broad product range, strong in Asia
Regional Dynamics: The Asia Pacific region held a revenue share of over 51.2% of the global bearings market, with market size of USD 30 billion in 2024. Countries, such as China and India are experiencing rapid industrialization, driving the demand for bearings in machinery, infrastructure and vehicles. Moreover, Asia Pacific is the largest automotive market; countries like China, South Korea and India boast a strong production and consumption landscape.
End-Market Dynamics
In 2023, the automotive segment dominated the market and accounted for 49.0% of the market share. The high share of this segment can be attributed to high automotive production, globally. Also, the demand for vehicles with technologically advanced solutions is escalating, thus leading to a rise in vehicle manufacturing that necessitates instrumented products. The growth in demand for highly advanced vehicles and the subsequent increase in the capabilities of the vehicles has escalated the demand for bearing in the automotive industry. Additionally, the automotive aftermarket segment is also anticipated to boost at a subsequently higher CAGR over the forecast period, thereby further bolstering the demand for bearings.
Competitive Differentiation
SKF's competitive positioning centers on several key strengths:
- Technical leadership: Over a century of accumulated engineering expertise
- Global presence: Manufacturing and distribution in 130 countries
- Services and solutions: Condition monitoring, maintenance services, engineering consulting
- Brand reputation: Premium positioning in quality and reliability
- Vertical integration: Control of key inputs including specialized steel
For investors: The bearing industry's competitive dynamics favor incumbents. High capital requirements, long customer qualification processes, and the mission-critical nature of the product create meaningful barriers to entry. However, the automotive segment faces more intense price pressure than industrial applications—one reason the spin-off makes strategic sense.
X. Porter's Five Forces Analysis
Threat of New Entrants: LOW
The bearing industry presents formidable barriers to entry:
Capital Intensity: Building a precision bearing factory requires hundreds of millions of dollars in specialized equipment. The tolerance standards are measured in thousandths of millimeters—ordinary metalworking equipment cannot achieve the required precision.
Engineering Know-How: The company was established by engineer Sven Wingquist, who invented the double-row self-aligning ball bearing to address shaft misalignment problems prevalent in early 20th-century machinery, a breakthrough patented in 1907 that enabled more reliable and efficient rotating equipment. This accumulated engineering expertise, built over 117 years, cannot be replicated quickly.
Customer Qualification: Automotive and aerospace customers require years of qualification testing before approving new bearing suppliers. A bearing failure can cause catastrophic equipment damage—customers are highly risk-averse about switching to unproven suppliers.
Bargaining Power of Suppliers: MODERATE
SKF has addressed supplier power through vertical integration. In 1916, SKF acquired the Hofors Bruk steel works to ensure a reliable supply of high-quality steel for bearings, a strategic investment that supported vertical integration and cost control amid growing production demands.
The critical input for bearings is high-quality steel with specific metallurgical properties. By controlling their own steel supply, SKF reduces dependence on external suppliers and ensures consistent quality.
Bargaining Power of Buyers: MODERATE-HIGH
This varies significantly by segment:
Automotive OEMs: Large customers like Volkswagen, Toyota, and GM have enormous leverage. They purchase billions of dollars of bearings annually and can credibly threaten to shift volume to competitors. This high buyer power is one reason automotive bearings have lower margins than industrial applications.
Industrial Customers: The customer base is more fragmented. Individual industrial customers typically lack the purchasing volume to extract major price concessions. Additionally, the cost of bearing failure (equipment damage, production downtime) far exceeds the cost of the bearing itself, making customers less price-sensitive.
This dynamic—different buyer power across segments—is a key driver behind SKF's decision to separate automotive and industrial businesses.
Threat of Substitutes: LOW
There is no viable alternative to rolling bearings for most applications. Everything that rotates—motors, turbines, wheels, compressors, fans—requires bearings. SKF's innovations have supported key industries including automotive, aerospace, and manufacturing, with products integral to applications from electric motors to wind turbines.
While some applications can use plain bearings (which rely on a lubricating film rather than rolling elements), these have different performance characteristics and are not substitutes for most rolling bearing applications.
Competitive Rivalry: HIGH
Competition among established players is intense, particularly in the automotive segment. The bearing market manifests characteristics indicative of fragmentation, with a diverse array of players catering to its demands across various industries, including automotive, aerospace, industrial machinery, and renewable energy. Unlike a concentrated market, this landscape is marked by the presence of numerous entities, each contributing to a fragmented competitive environment. This scenario results in intensified competition and a proliferation of niche offerings as companies seek to carve out their market niches. The presence of numerous players also fosters innovation, with companies vying to distinguish themselves through specialized products and tailored solutions.
XI. Hamilton's 7 Powers Analysis
Scale Economies: STRONG
SKF operates in approximately 130 countries with more than 40,000 employees and over 17,000 distributor locations worldwide.
SKF's scale advantages compound across multiple dimensions: - Manufacturing: Larger production volumes enable lower per-unit costs - R&D: Ability to spread development costs across larger revenue base - Distribution: Global distributor network impossible for smaller competitors to replicate - Services: Remote monitoring infrastructure benefits from scale
Network Effects: WEAK-MODERATE
Traditional bearings generate no network effects. However, SKF's condition monitoring services exhibit modest network effects: SKF has been monitoring equipment remotely for around fifteen years and it now has around 1 million bearings connected to the Cloud.
More connected bearings = more data = better predictive algorithms = more value for customers = more connected bearings. This flywheel is still in early stages but represents genuine strategic value.
Counter-Positioning: MODERATE
SKF's services and solutions model creates counter-positioning against commodity-focused competitors. Matching SKF's approach would require traditional bearing manufacturers to cannibalize their existing high-margin product sales by offering performance-based service contracts.
Switching Costs: HIGH
Once a bearing is designed into a customer's equipment, switching requires expensive re-engineering. In 2024, the OEM segment holds the highest global market share due to the critical role bearings play in the assembly of machinery and vehicles. OEMs generally have long-term contracts and stable relationships with bearing manufacturers, ensuring a steady flow of orders. The increasing trend of outsourcing production to regions with lower labor costs also contributes to higher bearing demand, as OEMs seek to enhance efficiency and reduce costs in production. Additionally, the growing emphasis on global supply chains and just-in-time manufacturing has led to a closer collaboration between bearing suppliers and OEMs.
Branding: MODERATE-STRONG
In industrial markets, brand matters differently than consumer markets. It represents accumulated trust, proven reliability, and technical expertise. SKF's brand has been built over 117 years through consistent performance in mission-critical applications.
Cornered Resource: MODERATE
SKF's cornered resources include: - 117 years of accumulated engineering expertise - Proprietary metallurgy and manufacturing processes - Integrated steel supply with specific properties - Global application engineering capabilities
Process Power: STRONG
Precision bearing manufacturing involves complex processes that take decades to optimize. The combination of metallurgy, machining, heat treatment, surface finishing, and quality control creates barriers that cannot be quickly replicated.
XII. Financial Analysis & Key Metrics
2024 Financial Performance
In 2024, SKF reported a net revenue of SEK 98.72 billion, a year-on-year decline of 5.4%. Despite the revenue dip, the company maintained a solid profit margin, with an adjusted operating margin of 12.3%, consistent with 2023. This was achieved through effective cost management, an optimized product mix, and a flexible pricing strategy.
AB SKF annual revenue for 2024 was $9.339B, a 4.66% decline from 2023.
Annual sales in 2024 were SEK 98,722 million and the number of employees was 38,743.
Margin Resilience in Challenging Conditions
"In 2024, we showed resilience in challenging market conditions thanks to diligent strategic execution. In the fourth quarter, we maintained solid margins given low demand and currency headwind. I'm pleased that we successfully navigated the challenging market conditions that prevailed throughout 2024, initiated a separation process for our Automotive business and continued to strengthen our operational and innovation capabilities."
"Our first quarter performance marked another step towards a more resilient and competitive SKF. In soft market conditions, we delivered a strong adjusted operating margin of 13.4%, somewhat ahead of Q1 2023. The margin improvement clearly demonstrates our improved resilience in a situation where organic growth shifted from +10% in Q1 last year to -7% this year. The improved performance is explained by our active and ongoing focus on business cycle management, in combination with a continued execution of our ongoing strategic initiatives."
Revenue History
| Year | Revenue (USD) | Change |
|---|---|---|
| 2022 | $9.606B | +0.8% |
| 2023 | $9.796B | +1.98% |
| 2024 | $9.339B | -4.66% |
Segmental Performance
Industrial Division Revenue: SEK 69.48 billion (-5.7% YoY)
The industrial segment remains the larger and more profitable of SKF's two businesses, accounting for approximately 70% of total revenue. This segment will become the "core SKF" following the automotive separation.
XIII. Investment Thesis: Bull and Bear Cases
The Bull Case
1. Automotive Spin-Off as Value Catalyst: The separation creates two focused entities, each better positioned to execute its distinct strategy. The industrial business should trade at higher multiples once freed from automotive's cyclicality and lower margins.
2. Electrification Tailwinds: Electric motors require more bearings than internal combustion engines, and those bearings must handle higher rotational speeds. SKF's investments in ceramic bearings and high-speed solutions position it for this secular shift.
3. Condition Monitoring Moat: SKF has been monitoring equipment remotely for around fifteen years and it now has around 1 million bearings connected to the Cloud. This creates recurring revenue, deeper customer relationships, and data advantages that strengthen over time.
4. Sustainability Leadership: SKF's 2030 decarbonization target of a 95% reduction in scope 1 and 2 emissions from a 2019 baseline. In 2024, a 59% reduction was achieved, which is well ahead of the verified Science Based Targets initiative (SBTi) trajectory of a 43% reduction. Increasingly, customers prefer suppliers who help them meet their own sustainability commitments.
5. Market Growth: The global bearings market size was valued at USD 46.82 billion in 2024. The market is projected to grow from USD 50.16 billion in 2025 to USD 97.10 billion by 2032, exhibiting a CAGR of 9.9% during the forecast period.
The Bear Case
1. Execution Risk on Spin-Off: We do, however, expect some near-term separation pains, as the process will be costly and operationally disruptive before the benefits materialize.
2. Industrial Cyclicality: Bearing demand is tied to industrial production. Global economic slowdowns directly impact SKF's revenues, as evidenced by the 2024 decline.
3. Chinese Competition: China is building significant bearing manufacturing capacity. While currently focused on lower-end applications, Chinese manufacturers are moving up the value chain.
4. Customer Concentration Risk: Large automotive OEMs have significant leverage. Loss of a major customer relationship could materially impact results.
5. Commodity Input Costs: Steel and energy prices directly impact margins. While SKF has some vertical integration, it cannot fully insulate itself from raw material volatility.
XIV. Key Metrics to Watch
For investors monitoring SKF's ongoing performance, three metrics deserve particular attention:
1. Adjusted Operating Margin
The most important indicator of SKF's pricing power and operational efficiency. Target: above 12% through the cycle. Watch for: margin compression in the automotive segment as a potential catalyst for spin-off value realization.
2. Regionalization Rate
SKF reports the percentage of products manufactured in the region where they're sold. Higher regionalization = shorter lead times, lower logistics costs, reduced currency exposure, and improved resilience to supply chain disruptions. Current target: continuing improvement from 68% in Asia and 69% in Americas.
3. Services & Aftermarket as Percentage of Revenue
Higher-margin, more recurring revenue streams that demonstrate the success of SKF's "knowledge engineering" transformation. Watch for: growth in condition monitoring contracts and services revenue.
XV. Conclusion: The Next 117 Years
Standing in Gothenburg in 1907, Sven Wingquist could not have imagined that his solution to a textile factory's bearing problems would grow into a company with nearly $10 billion in annual revenue, 40,000 employees, and operations in 130 countries. The self-aligning ball bearing he invented remains in production today, essentially unchanged, still solving the same problem of shaft misalignment that frustrated him 118 years ago.
SKF's history offers several lessons for long-term investors:
First, genuine innovation compounds. Wingquist's breakthrough wasn't a minor improvement—it was a fundamental solution to a widespread problem. That kind of innovation creates enduring competitive advantages.
Second, patient ownership matters. The Wallenberg influence has allowed SKF to make investments with generational time horizons, from vertical integration into steel to the current SEK 3 billion decarbonization program.
Third, strategic transformation is possible even for century-old industrial companies. The "knowledge engineering" pivot under Tom Johnstone demonstrated that old economy businesses can successfully evolve their business models.
Fourth, spin-offs can create value. The Volvo separation in 1935 was the right decision for both companies. The current automotive separation may prove equally visionary.
Today, SKF faces familiar challenges—economic uncertainty, competitive pressure, the need for continued innovation—but also unprecedented opportunities. The electrification of transportation requires bearings that can handle higher speeds than ever before. The digitalization of industry creates demand for smart bearings that can monitor their own condition. The imperative of sustainability favors companies, like SKF, that help customers reduce energy consumption and carbon footprints.
Whether the automotive spin-off unlocks the value that analysts expect, whether China's bearing manufacturers remain constrained to low-end applications, whether SKF's condition monitoring business achieves the scale to create true network effects—these remain open questions.
But one thing seems certain: as long as things need to rotate, the world will need bearings. And as long as the world needs bearings, SKF will matter.
The world runs on bearings. One company has made sure it spins smoothly for over a century. The next chapter is just beginning.
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