Japan's Fanuc Bumps up Profit Outlook on Brisk China Business

Robots crank out robots at full capacity in Fanuc's chief factory in Japan's Yamanashi Prefecture.

TOKYO -- Industrial robot maker Fanuc upgraded its full-year net profit outlook Friday for the third time this fiscal year, highlighting its success in seizing on China's rush to automate factories.

Japan-based Fanuc, which traditionally has gotten much of its business from U.S. electronics titan Apple, now sees group net profit growing 41% year-on-year to 180.2 billion yen ($1.64 billion) for the year ending March. It previously forecast a 29% gain to 164.9 billion yen.

"Business with China is particularly strong," Chairman Yoshiharu Inaba said in an earnings call. As labor costs surge, Chinese businesses are investing actively in automating factory floors. Fanuc is well-positioned to benefit from this trend as the global market leader in industrial robots, as well as in numerical control units, which as the "brains" of machine tools are key to advancing manufacturing technology. The central government's "Made in China 2025" initiative also boosts Fanuc's business.

Sales in China -- which Fanuc now reports separately from the rest of Asia -- grew 140% year-on-year to 54.9 billion yen for the October-December quarter, far outpacing the company's overall sales growth of 41% for that period.

Two of Fanuc's major strengths are its efficiency and its attentive customer support. It uses robots to build other robots at headquarter factories in Yamanashi Prefecture, cutting out labor costs and thus arming itself to compete heavily on cost. In China, it has arranged an on-the-ground sales operation that lets it respond quickly to clients' needs.

Fanuc's revised forecast would mark its second-greatest full-year net profit behind the 207.6 billion yen booked in the year through March 2015. That year, Apple's introduction of larger iPhone models set parts makers and other companies scrambling to invest in new equipment, providing rapid growth in small cutting tools for metal smartphone frames, for instance. Such tools fall into Fanuc's robomachines segment, which in that year contributed 40% of sales, but now has relaxed to the 20% range.

The market has applauded Fanuc's effort to wean off Apple and balance its income diet. On Jan. 16, the Japanese company scored its first new record market capitalization in about two years and seven months. Goldman Sachs rated Fanuc's shares a strong buy in a recent report.

The company is upbeat about the future. Order values for October-December came to 195.5 billion yen, close to highs in April-June. That strength "is based on brisk real demand," says Iwaba.

But how long the sun will shine is unclear. Some believe "automation investment will slow down in 2018," in the words of a source at Morgan Stanley MUFG Securities. Shortages in parts also continue to delay deliveries. Fanuc shares have climbed on growth expectations, but could be in for a sudden correction if signs of a slowdown appear.