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Winter for Japan's Robotics King Just Got a Little Longer

Tim Culpan
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Winter for Japan's Robotics King Just Got a Little Longer

(Bloomberg Opinion) -- Fanuc Corp.’s yearlong slump isn’t ready to end yet. And the Japanese robotics maker isn’t alone in facing a winter that’s likely to continue for longer than previous downturns.

The supplier of machines to automotive, industrial and technology manufacturers posted a 22% drop in September-quarter revenue. That’s Fanuc’s fifth straight fall in sales. Such prolonged contractions aren’t unusual: Each cycle tends to last six quarters of decline, followed by six of growth.

Yet the maker of factory robots and computerized numerical control systems, or CNC, also cut its revenue outlook for the year through March 31 by 3.8% to 504.5 billion yen ($4.6 billion). Analysts predicted an average 553.6 billion yen and none estimated a figure lower than 524.2 billion yen. In other words, no one saw this coming.

As my colleague Anjani Trivedi noted last year, the company’s guidance tends to be at the moderate end of the spectrum, and is typically followed by results that beat. By forecasting the worst annual sales decline in a decade, Fanuc is indicating that its renewed pessimism is more then mere sandbagging.

The robot division, the largest at 34% of sales, is suffering at the hands of the North American auto industry while China and Europe are seeing clients in autos and general manufacturing remain cautious about capital expenditure, the company said in a statement Monday. The FA division, which includes CNC systems sold to the machine-tool industry, experienced a drop in China due to the trade war with the U.S., a factor that also depressed demand in Taiwan. South Korea and India showed relative strength, the company said.

Fanuc isn’t an outlier. Yaskawa Electric Corp., another industrial robot supplier, earlier this month cut its full-year revenue forecast by 10% after quarterly sales missed estimates, while Nachi-Fujikoshi Corp. also reduced its outlook after coming in below expectations.

Japan’s machine tool orders fell 35.1% in the September quarter, the fourth straight decline and the largest in over a decade. The nation’s industrial robot orders fell 47% in the period, also a decade low. That makes the current down cycle in both sectors the worst since the 2009 financial crisis and global recession.  

Orders will return. Companies will still manufacture things and will need machines from companies like Fanuc. The question is when. The global economic outlook continues to worsen: The IMF two weeks ago cut its 2019 GDP growth forecast to 3%, the weakest in a decade. 

This corroded outlook gives CEOs every reason to delay purchases while they wait for conditions to improve. Once bought, equipment becomes a depreciation expense that weighs on the income statement no matter what happens to demand.

Investors who believe that this downturn will follow the previous two cycles, which dipped in 2013 and 2016, might do well to remember that the global economy was performing much better back then. Let’s also bear in mind that Beijing and Washington have yet to strike a trade deal.

Spring always comes eventually, but some cold seasons linger for longer than others.

 

To contact the author of this story: Tim Culpan at tculpan1@bloomberg.net

To contact the editor responsible for this story: Matthew Brooker at mbrooker1@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.

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