SHORTAGES AND bottlenecks have been a supply of fixed frustration for producers world wide for 2 pandemic-afflicted years. For a handful of firms within the enterprise of holding factories working and provide chains intact, these frustrations have been a supply of cheer—and income. Japanese makers of business gear, specifically, have seen orders surge as firms turned to automation, first amid the disruption wrought on human workforces by covid-19, then because of tight labour markets and rising wage prices.
The world’s inventory of business robots has tripled prior to now decade. According to the International Federation of Robotics, a commerce group, Japan furnishes 45% of recent ones every year. It additionally produces plenty of different automation gear, from laser sensors to inspection package. Even after the latest sell-off in tech shares, Japan’s 4 standout gear producers—Keyence, Fanuc, SMC, and Lasertec—are collectively price two and a half instances what they had been 5 years in the past (see chart). Last yr the founding father of Keyence, Takizaki Takemitsu, briefly grew to become Japan’s richest man. His $29bn fortune is half as massive once more as that of Son Masayoshi, a flamboyant tech investor who’s company Japan’s most globally recognisable face. Mr Takizaki’s agency and its fellow equipment-makers are hardly family names. But the {hardware} they produce is changing into as mission-critical to many industrial provide chains as semiconductors are.
It is not any shock that Japan, a famously robot-loving place, has spawned a powerful Automation Inc. Just-in-time manufacturing, pioneered by efficiency-obsessed Japanese firms corresponding to Toyota in carmaking or Panasonic in shopper electronics, has concerned changing people with machines for many years. This supply of aggressive benefit grew to become an existential necessity for home producers after Japan’s working-age inhabitants started to shrink within the Nineties. Today it’s changing into one for different wealthy nations as they enter demographic dotage. Keyence and SMC now derive greater than half their revenues from overseas. Fanuc and Lasertec are much more worldwide, with greater than 80% of gross sales coming from abroad.
Some of the brand new international demand is the results of the world’s insatiable starvation for pc chips. SMC, which sells pneumatic management units to chipmakers, has seen its enterprise growth, particularly as locations together with America and Europe attempt to carry extra semiconductor manufacturing residence, says Masahiro Ota, who sits on SMC’s board. Lasertec enjoys a near-monopoly on inspection instruments for essentially the most superior semiconductor photomasks—plates by way of which circuit patterns are etched onto silicon wafers. Its share worth has ballooned four-fold because the begin of 2020, making it one of many best-performing blue-chip shares in Asia. Keyence’s precision sensors are likewise essential for the detection of flaws in semiconductor surfaces.
The firms’ units are, after all, additionally useful in different sectors. Fanuc, which makes massive factory-floor robotic arms, has lengthy been a fixture of automotive meeting strains. Mike Cicco, who runs Fanuc’s American operations, notes that the event of electrical vehicles requires a spread of recent capabilities on the a part of carmakers—and that in flip necessitates new forms of robotic. Fanuc expects to produce Ford’s manufacturing unit in Cologne, in Germany, with 500 robots this yr because the plant turns into the Ford Cologne Electrification Centre.
Being indispensable has proved to be profitable. All 4 stars of Japan’s automation-industrial advanced boast operating-profit margins of over 20%. That of Keyence, essentially the most worthwhile of the lot, exceeds 50%. The agency has reported document internet income in every of the previous three quarters. Like chip corporations corresponding to Nvidia, Keyence doesn’t manufacture merchandise however quite designs them and assists prospects in deploying them of their factories. Lasertec, too, does little of its personal manufacturing. This capital-light strategy helps maintain income. Keyence spends simply 3% of its internet gross sales on analysis and growth (R&D). Similarly, SMC spends round 4%. Fanuc does make virtually all its merchandise independently and invests extra in manufacturing capability and R&D. But it makes use of that capital effectively, not least, as befits a robot-maker, by deploying loads of its personal robots to construct robots for purchasers. Its greatest “lights out” manufacturing unit can run for greater than a month with no expensive human operators round.
Japan’s automation corporations additionally owe a few of their success to company tradition. SMC maintains a community of 6,000 salespeople who double as methods engineers with in-depth data of shoppers’ gear. Keyence makes use of no middlemen to promote its merchandise, relying fully by itself gross sales pressure. As with SMC, many are engineers, who spend loads of time on prospects’ manufacturing unit flooring figuring out niggles and tweaks which may in any other case go unnoticed. They are rewarded handsomely for his or her efforts. Nikkei, a Japanese writer, studies that common salaries at Keyence exceeded $150,000 within the final fiscal yr.
The automation stars, like Japan Inc as a complete, are usually much less beneficiant with shareholders. Most sit on piles of money; Keyence held over $10bn in present property within the final monetary yr. The reserved character of the businesses and their tightfistedness is so well-established that some buyers say any sudden shifts in that angle could also be an indication of huge and presumably unwelcome adjustments on the corporations.
Investors must depend on such rune-reading as a result of it’s not at all times clear what’s going on inside the businesses, no less than by up to date Western requirements of open shareholder relations. SMC’s “traditional Japanese approach to corporate governance”, as Baillie Gifford, a tech-focused British asset supervisor, delicately put it in 2020, provides solely restricted engagement with shareholders. One asset supervisor with a stake in Keyence studies by no means talking immediately with its administration.
As the businesses grow to be ever extra worldwide, they are going to face stress to be extra candid—and fewer frugal, each with payouts to shareholders and with investments. Fanuc elevated its dividend sharply in 2015 below stress from Third Point, an American activist hedge fund. As Japan turns into much less averse to gadfly buyers, Automation Inc ought to anticipate extra such calls. To preserve their progressive edge, in the meantime, the corporations could must spend significantly extra on R&D. Amid tech-inflected geopolitical tensions with the West, China desires to scale back its reliance on international suppliers of all method of superior know-how, together with robotics. If profitable, the Chinese technique would directly deprive the Japanese corporations of an enormous market and create new world rivals. Becoming indispensable is one factor. Staying so is kind of one other. ■
For extra knowledgeable evaluation of the most important tales in economics, enterprise and markets, signal as much as Money Talks, our weekly e-newsletter.
This article appeared within the Business part of the print version below the headline “Automation Inc”