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The Giant Japanese Robot Company You've Never Heard Of

FANUC churns out 6,000 industrial robots per month, double that of its closest competitor. For a company on the cutting edge, it's surprisingly conservative.

FANUC Robot Assembly Demo
FANUC Robot Assembly Demo
Yann Rousseau

PARIS — Earlier in the decade, when Elon Musk was looking to equip his Tesla factory in Fremont, California, he naturally approached FANUC, the Japanese industrial-robotics giant, for machine parts. Price was not an issue, but the US entrepreneur did have one requirement. He wanted the robots that would assemble his futuristic sedans to be bright red — to impress both investors and the media.

At FANUC's corporate headquarters in Oshino, a village at the foot of Mount Fuji, management politely replied that they would be happy to provide Musk with the proper gear, but that their robots had always been yellow and would remain that way. In the end, Tesla got its red robots, albeit from another supplier: the KUKA group of Germany.

In Tokyo, analysts like to tell this anecdote to convey the essence of FANUC: brilliant and high-performing, but also conservative — rigid even. "It's one of Japan's nuggets," says Jeremie Capron, research director at Robo Global. "The group is the world leader in industrial robots and computer numerical control (CNC), but they don't like to venture far out of their comfort zone," he points out.

Morten Paulsen, an analyst with the brokerage and investment group CLSA, agrees. "They are the best in the industry, and they know it. Their margins are exceptionally high at 25% while their competition is at 10%. But they aren't the most innovative machines in the world, nor the most tailor-made."

Recipe for success

The head of the group of companies, Yoshiharu Inaba, takes no offense to such statements. "We focus on the aspects that we can win," the 69-year-old CEO says from his office in Oshino. "The sustainability of the group is our priority."

Inaba follows in the footsteps of his father, Seiuemon Inaba, who launched FANUC in 1972 from a subsidiary of the electronics giant Fujitsu. In his book Walk the Narrow Path, the founder explained that companies should identify their specific area of excellence, then focus on making a limited number of technically superior products that are guaranteed for life but manufactured at the lowest price possible.

The formula worked. FANUC has never been a household name, preferring discretion to self-promotion. And yet, it plays a key role in the production of numerous everyday objects. It's also on very solid financial footing. For the fiscal year ending in March, FANUC is expected to post a net profit of 1.4 billion euros. Its overall valuation exceeds 40 billion euros.

We focus on the aspects that we can win.

Over time, it has become a key supplier to some of the world's most important industries, selling some 500,000 robots overall. Major car manufacturers, including Tesla, are often assembled and welded by the six-axis yellow robots. The skeletons of iPhones are dismantled and prepared in its Robodrill machines, with articulate yellow arms equipped with cameras that sort products. FANUC's robots also help with the production of aeronautical components and even apply the varnish — ever so delicately — on Fender guitars.

"In the United States, they have a market share of over 50%," says Morten Paulsen. "Elsewhere, in China, for example, it is between 20% and 25%."

Industry leader

In its 33 production centers in Japan, where robots manufacture more robots in mass production, FANUC has reached phenomenal economies of scale. Analysts say the company's factories are the most automated in the world, producing up to 6,000 robots per month while ABB, its biggest competitor, makes only half that number. Roughly 90% of the robots are shipped abroad, according to Yoshiharu Inaba. And with new sites set to open around Japan in the coming months, FANUC will soon push its monthly production capacity to 11,000 robots.

The industrial revolution is far from over. "They have opportunity for massive growth in front of them," insists Jérémie Capron, noting the relatively slow rate of robotization in China. "In Japan, there are 500 robots for every 10,000 workers. In China, this ration is 50 for 10,000," he explains. "There is still huge room for improvement in the Chinese market, where favorable policies are put in place for automating factories."

The company's conservatism could cost it big time

Inaba agrees. "In the United States too, executives have a very positive attitude towards robotics," the company's CEO explains. He notes that FANUC also relies heavily on high demand in both India and Southeast Asia. And yet, the company has no plans for opening production centers outside Japan.

"The Yen has fluctuated in the past and it will continue to do so. It's normal," Inaba says in answer to critics who suggest that to offset currency-exchange risks, FANUC should locate some of its manufacturing abroad. "But we don't focus on these short-term issues. Instead, we're looking ahead 10, 20 years."

Playing it safe

The CEO says its important to anticipate the overall evolution of the robotics industry. He expects a speed-up, for example, in the so-called "cobots' market. Cobots are collaborative robots that can operate in factories alongside humans. Another priority for FANUC is the integration of artificial intelligence into automated systems.

But the company is also cautious when it comes to these new technologies. Rather than explore new terrain — and invest, for example, in robotics used for agricultural or medical purposes — it prefers to stick with what it knows. "Robots are now coming out of the factories, but that doesn't seem to interest FANUC," says Capron.

ROBO Global has calculated that only 3% of the 17,000 logistics centers in the United States are automated. "With the explosion of e-commerce, robots will be needed on this segment and they will require technologies similar to those that FANUC has today," Capron argues.

So far, though, Inaba's not swayed. "Our only expertise is in industrial robotics," he says. "That's not enough to venture into health care or services that require a lot of other knowledge."

Playing it safe is a still a good option as demand from conventional industries remains very strong. Eventually, though, the company's conservatism could cost it, analysts warn. But there will also be an eventual generational shift at FANUC, where Yoshiharu Inaba's U.S.-educated son, Kiyonori Inaba, is being groomed to take the reins. That in itself may push the group to other adventures and further accelerate innovation.

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