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This article was written in mid-2017 for the research journal of a UK-based investment group. 

Japan’s robotic global champion

Peter Marsh has written a thought-provoking article on Fanuc, referencing the views of Gideon Franklin and a photograph of a massive robot lifting a car. The article is published here. This article talks about global market growth “as technologies such as artificial intelligence (AI) and smart sensors amplify the powers of robots”. Peter is author of The New Industrial Revolution and has in recent years pioneered an initiative to promote the UK manufacturing industry, which is well illustrated on the website Made Here Now. We recommend viewing the video on the home page.

Japan’s robotic global champion

by Peter Marsh

In a hall in a big aerospace plant near São Paulo, four yellow robots perform a series of snake-like manoeuvres as they clean and paint the exterior of giant fuselages being made by the Brazilian aerospace producer Embraer. The robots are among roughly 400,000 of the machines installed worldwide by Fanuc.

The Japanese company is the world’s biggest robot producers. Over several decades it has built up a near godlike status among admirers. The picture here shows a Fanuc robot during a demonstration at an industrial fair in Germany.

Holmes Osborne, a US financial commentator who publishes GuruFocus, a newsletter, says:   “Fanuc is the best robotics company in the world, bar none.  If what everyone is saying is true, that the world is to be run by robots, Fanuc will have a ring side seat and is the stock to own.” Another view comes from a senior executive at a big Japanese machine tool company: “They [ Fanuc] have a strong record on innovation. They stay close to customers and always seem to be pushing in a new direction.”

Fanuc last year had sales of Y536bn (about $5bn) with more than 75 per cent of revenues coming from outside Japan. Its shares have risen appreciably over the past year and the company’s market capitalisation stands at just under $40bn, 10 times higher than US Steel and roughly four times bigger than Marks and Spencer.

Behind Fanuc’s stock market record is partly the perception that robotics will become increasingly important as technologies such as artificial intelligence (AI) and smart sensors amplify the powers of robots and other pieces of automation hardware. Armed with new capabilities robots could for instance start to appear in large numbers in the home, for such uses as giving meals to old people or helping to look after children.

Fanuc wants to be a leader in this area.  It has announced a collaboration with Nvidia, a US semiconductor maker working on the novel  microchips needed to process the vast amounts of data required in new AI applications.

One example could be a robot to pick up items from a conveyor belt. At present robots of this sort are programmed to work in a set manner. The objects always have to be presented to the robot  in the same way and to be  spaced a set distance apart.

In future the robot could receive images from a TV camera to find out the positions of the items -which could come down the conveyor in a random manner. With the help of new Nvidia chips if would assimilate the information and – depending on the objects’ position – adjust its actions accordingly. The extra flexibility would allow many more applications.

Fanuc does virtually all its production in Japan – chiefly at its main plant nestling in woodland at the base of Mt Fuji just outside Tokyo. It has no plans to open any factories in China, despite the migration of much of the world’s manufacturing to this country – which with the US is one of Fanuc’s biggest markets.

The company was started in 1956 by Seiuemon Inaba, a legendary engineer who remains honorary chairman. The chief executive is Yoshiharu Inaba, Seiuemon’s son.

In spite of the Inaba family owning a negligible stake in the business the Inabas have maintained a hold on Fanuc’s corporate culture, rarely giving media interviews and seldom providing investors with more than cursory guidance about strategy.

However, it appears the company may be opening up. Just over two years ago Fanuc was the subject of a sudden burst of attention.

Third Point, a US investment fund, announced it had taken a stake (of an undisclosed size) in the company. Daniel Loeb, the firm’s chief executive,  professed his admiration for Fanuc. But he said it had to change its ways – chiefly by increasing its dividend payments and by disclosing more information.

Within weeks the company caved in, announcing a big rise in dividends and also in new briefings with journalists and investors.

Gideon Franklin, an independent corporate adviser who is an expert on Japanese businesses, says the change is part of a broader shift.

“For a long time they [Fanuc] have defied gravity by being secretive towards the financial community, keeping high levels of cash on their balance sheet with low returns and shunning mergers and acquisitions. There is a strong consciousness in Japan now of corporate governance best practice which has been fostered by the government [of prime minister Shinzo Abe] and it is going to be difficult for the company to keep to some of its traditional ways of facing the outside world of finance.”

If this view is right Fanuc – buoyed by its strong long-term record while also stimulated by a new interest in exchanging information and ideas with the outside world – could become a vital company to watch over the next decade.