SHORTAGES AND bottlenecks have been a supply of fixed frustration for producers all over the world for 2 pandemic-afflicted years. For a handful of corporations within the enterprise of preserving factories working and provide chains intact, these frustrations have been a supply of cheer—and earnings. Japanese makers of business tools, particularly, have seen orders surge as corporations turned to automation, first amid the disruption wrought on human workforces by covid-19, then on account of tight labour markets and rising wage prices.
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The world’s inventory of business robots has tripled previously decade. In keeping with the Worldwide Federation of Robotics, a commerce group, Japan furnishes 45% of latest ones every year. It additionally produces a number of different automation tools, from laser sensors to inspection equipment. Even after the current 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). Final yr the founding father of Keyence, Takizaki Takemitsu, briefly turned Japan’s richest man. His $29bn fortune is half as giant 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. However the {hardware} they produce is changing into as mission-critical to many industrial provide chains as semiconductors are.
It’s no shock that Japan, a famously robot-loving place, has spawned a powerful Automation Inc. Simply-in-time manufacturing, pioneered by efficiency-obsessed Japanese corporations similar to Toyota in carmaking or Panasonic in client electronics, has concerned changing people with machines for many years. This supply of aggressive benefit turned an existential necessity for home producers after Japan’s working-age inhabitants started to shrink within the Nineteen Nineties. Right this moment it’s changing into one for different wealthy international locations 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.
A few of the new overseas demand is the results of the world’s insatiable starvation for laptop chips. SMC, which sells pneumatic management gadgets to chipmakers, has seen its enterprise growth, particularly as locations together with America and Europe attempt to convey extra semiconductor manufacturing house, 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 value 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 businesses’ gadgets are, in fact, additionally useful in different sectors. Fanuc, which makes giant factory-floor robotic arms, has lengthy been a fixture of automobile meeting strains. Mike Cicco, who runs Fanuc’s American operations, notes that the event of electrical vehicles requires a spread of latest capabilities on the a part of carmakers—and that in flip necessitates new sorts of robotic. Fanuc expects to provide Ford’s manufacturing facility 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 earnings in every of the previous three quarters. Like chip corporations similar to Nvidia, Keyence doesn’t manufacture merchandise however moderately designs them and assists clients in deploying them of their factories. Lasertec, too, does little of its personal manufacturing. This capital-light strategy helps maintain earnings. Keyence spends simply 3% of its internet gross sales on analysis and improvement (R&D). Equally, SMC spends round 4%. Fanuc does make nearly all its merchandise independently and invests extra in manufacturing capability and R&D. Nevertheless 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 patrons. Its greatest “lights out” manufacturing facility can run for greater than a month with no dear 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 techniques engineers with in-depth data of shoppers’ tools. Keyence makes use of no middlemen to promote its merchandise, relying completely by itself gross sales power. As with SMC, many are engineers, who spend a variety of time on clients’ manufacturing facility flooring figuring out niggles and tweaks that may in any other case go unnoticed. They’re rewarded handsomely for his or her efforts. Nikkei, a Japanese writer, stories 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 traders say any sudden shifts in that perspective could also be an indication of huge and probably unwelcome modifications on the corporations.
Buyers must depend on such rune-reading as a result of it isn’t 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 “conventional Japanese strategy to company 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 stories by no means talking straight with its administration.
As the businesses grow to be ever extra worldwide, they are going to face strain to be extra candid—and fewer frugal, each with payouts to shareholders and with investments. Fanuc elevated its dividend sharply in 2015 underneath strain from Third Level, an American activist hedge fund. As Japan turns into much less averse to gadfly traders, Automation Inc ought to anticipate extra such calls. To keep up their revolutionary edge, in the meantime, the corporations might have to spend significantly extra on R&D. Amid tech-inflected geopolitical tensions with the West, China desires to cut back its reliance on overseas suppliers of all method of superior expertise, together with robotics. If profitable, the Chinese language technique would without delay deprive the Japanese corporations of an enormous market and create new international rivals. Turning into indispensable is one factor. Staying so is sort of one other. ■
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This text appeared within the Enterprise part of the print version underneath the headline “Automation Inc”
