Company Reports

Fanuc is well positioned for long-term, secular growth in the industrial robotics industry, as the world’s largest computer numerical control and industrial robotics manufacturer. The FA division currently makes up approximately one third of total sales and has the leading global market share with its CNCs, which is the automated control software of machine tools. With an established reputation and record that supports its ability to maintain a 50% market share, we expect this business to grow along with its machine tool manufacturer customers, as the software/control console will differentiate the quality of machine tools and meet increasing demands for extremely high precision by end-users.

Fanuc’s robot orders, which have been resilient in recent quarters, fell 7% sequentially in the March quarter, which we believe reflects a slowdown in capital spending, contributed by sluggish electric vehicle, or EV, demand. As a result, we expect the inventory correction for robots to continue at least through the end of the year, and consequently lower our fiscal 2024 (ending March 2025) sales forecast by 2% as well as our operating income forecast by 9%. Meanwhile, we largely maintain our forecasts after fiscal 2025 as well as our fair value estimate for Fanuc of JPY 5,200 per share, as our medium-term outlook remains intact. We expect sales to grow 10% in fiscal 2025, driven by the recovery in robot sales, followed by a steady-state compound annual growth rate of about 6% through 2028. We think the market leader with industrial robots is strongly positioned for industrial automation demand to deal with rising wages/labor shortages as well as further EV/hybrid vehicle investments by its existing automobile original equipment manufacturer customers, which is underestimated by the market.

Factory automation, or FA, segment orders (mainly computer numerical controls, or CNCs, for machine tools) in the December quarter were down 17% sequentially, but this isn't as bad as it appears, due to the front-loading of domestic orders in the September quarter. We estimate FA orders were essentially flat, suggesting CNC demand is not deteriorating. Robot orders rose 6% sequentially, lower than we expected, but gradually bottoming out. While we trim our near-term revenue assumptions based on a slower recovery in first-half fiscal 2024 (ending March 2025), we retain our Fanuc fair value estimate at JPY 5,200, as our longer-term outlook remains unchanged. We revise our fair value estimate for its U.S. ADR to USD 18.05 from USD 20.00, after adjusting our USD/JPY assumption to JPY 144 from JPY 130. We think much of the downside risks are priced in its shares and see upside potential over the medium term. The market leader’s industrial robots will be necessary to deal with rising labor costs as well as further electric vehicle, or EV, investments in the U.S./Europe. With the market underestimating these factors, we believe Fanuc’s shares are undervalued.

Fanuc is well positioned for long-term, secular growth in the factory automation and industrial robotics industry, as the world’s largest computer numerical control and industrial robotics manufacturer. The FA division currently makes up approximately one third of total sales and has the leading global market share with its CNCs, which is the automated control software of machine tools. With an established reputation and record that supports its ability to maintain a 50% market share, we expect this business to grow along with its machine tool manufacturer customers, as the software/control console will differentiate the quality of machine tools and meet increasing demands for extremely high precision by end-users.

Based on weaker-than-expected September quarter orders from prolonged inventory adjustments in the distribution channel, we lower Fanuc’s fiscal 2023 (ending March 2024) sales by 3 percentage points and now project a 10.3% decline from the previous year. However, we maintain our fair value estimate of JPY 5,200 as our medium-term growth expectation is intact. We continue to view that Fanuc’s computer numerical controllers, or CNCs, which are used for machine tools, will be essential for improving manufacturing capabilities in the long run. Meanwhile, Fanuc’s shares have fallen more than 25% from their recent peak in June on concerns over slowing demand for machine tools in China, which we believe are too pessimistic. In fact, September quarter orders for the factory automation, or FA, segment have risen 8.9% sequentially and increased for two consecutive quarters amid the economic slowdown, suggesting that the inventory adjustment is nearing an end. As a result, we forecast revenue to recover by 9% year over year in fiscal 2024 and then normalize to a 7% CAGR between fiscal 2024 and 2027.

Fanuc is well positioned for long-term, secular growth in the factory automation and industrial robotics industry, as the world’s largest computer numerical control and industrial robotics manufacturer. The FA division currently makes up approximately one third of total sales and has the leading global market share with its CNCs, which is the automated control software of machine tools. With an established reputation and record that supports its ability to maintain a 50% market share, we expect this business to grow along with its machine tool manufacturer customers, as the software/control console will differentiate the quality of machine tools and meet increasing demands for extremely high precision by end-users.

We lower our fair value estimate for Fanuc to JPY 5,200 from JPY 5,400, mainly as a result of lowering our near-term robot sales projection. The sudden decline in robot orders was a negative surprise, as June-quarter segment orders fell 23% year on year, after 10 consecutive quarters of annual growth. Much of this was due to inventory adjustments in China and the Americas regions, and with manufacturers remaining cautious over capital investments, we expect this adjustment will continue throughout 2023. While we cut our 2023 companywide revenue growth forecast to a 7% year-on-year decline (down from 1% growth), we maintain our 7% revenue CAGR projection between 2023 and 2027. We believe Fanuc’s shares are undervalued, despite the poor market reaction from the June-quarter results, as the market is underestimating the industrial robot market leader’s midterm prospects, driven by further electric vehicle investments and new applications in nontraditional industries.

Fanuc is well positioned for long-term, secular growth in the factory automation and industrial robotics industry, as the world’s largest computer numerical control and industrial robotics manufacturer. The FA division currently makes up approximately one third of total sales and has the leading global market share with its CNCs, which is the automated control software of machine tools. With an established reputation and record that supports its ability to maintain a 50% market share, we expect this business to grow along with its machine tool manufacturer customers, as the software/control console will differentiate the quality of machine tools and meet increasing demands for extremely high precision by end-users.

We lower our fair value estimate for Fanuc to JPY 5,400 from JPY 5,600 after revising our operating margin assumptions. March-quarter orders suggest further near-term sales divergence in Fanuc’s two main businesses, with factory-automation orders (mainly CNC systems) down 51.4% from the previous year and robot orders up 27.5%. We expect robot orders to remain robust over the medium term, supported by secular tailwinds, such as EV production automation and increased robot adoption in general industry, while demand for CNC is subject to economic fluctuations. As a result, while our medium-term revenue growth forecasts remain largely intact, we believe the company’s product mix will be less favorable than we had anticipated, and we have lowered Fanuc’s operating margin assumption for fiscal 2026 (ending March 2027) to 23.5% from 28.0%. We believe Fanuc’s shares are currently fairly valued.

Fanuc is well positioned for long-term, secular growth in the factory automation and industrial robotics industry, as the world’s largest computer numerical control and industrial robotics manufacturer. The FA division currently makes up approximately one third of total sales and has the leading global market share with its CNCs, which is the automated control software of machine tools. With an established reputation and record that supports its ability to maintain a 50% market share, we expect this business to grow along with its machine tool manufacturer customers, as the software/control console will differentiate the quality of machine tools and meet increasing demands for extremely high precision by end-users.

We raise Fanuc’s fair value estimate to JPY 28,000 from JPY 27,000, after adjusting our near-term companywide revenue assumptions, based on stronger-than-expected robot demand. Robot segment orders in the December quarter continued to be at record levels, growing 18.5% year on year, supported by electric vehicle, or EV, automation demand. We now project companywide revenue will grow by 14.5% and 1.0% year on year in fiscal 2022 and 2023 (ending March) respectively, after raising our robot sales growth assumptions to 29% and 12%, from 22% and 8%, in the same period. Further, we think Fanuc’s longer-term prospects for robots remain strong and are underestimated by the market, as its businesses are supported by secular drivers, like EV production automation and increasing robot adoption in nontraditional fields like food. As such, we think Fanuc is undervalued.

Fanuc is well positioned for long-term, secular growth in the factory automation and industrial robotics industry, as the world’s largest computer numerical control and industrial robotics manufacturer. The FA division currently makes up approximately one third of total sales and has the leading global market share with its CNCs, which is the automated control software of machine tools. With an established reputation and record that supports its ability to maintain a 50% market share, we expect this business to grow along with its machine tool manufacturer customers, as the software/control console will differentiate the quality of machine tools and meet increasing demands for extremely high precision by end-users.

We've lowered our fair value estimate for Fanuc to JPY 27,000 per share from JPY 28,000 after revising our expectations for factory automation business sales and lowering margin estimates. The segment, which mainly sells computer numerical controls to machine tool makers in Asia, faced an order decline of 29.0% year on year in the September quarter. As local machine tool makers adjust their inventories from having overanticipated demand, FA orders in China will likely face declines for the remainder of fiscal 2022 (ending March). As such, we lowered our 2022 and 2023 revenue growth assumptions to 11.9% and 2.3% year on year, respectively, from 12.9% and 5.0%. Despite these headwinds, we think the market is underestimating Fanuc’s medium-term prospects, as high-end machine tools is a key area in the Chinese government’s efforts to improve its manufacturing prowess and Fanuc is the dominant market leader (globally and in China) in the high-end CNC space.

Fanuc is well positioned for long-term, secular growth in the factory automation and industrial robotics industry, as the world’s largest computer numerical control and industrial robotics manufacturer. The FA division currently makes up approximately one third of total sales and has the leading global market share with its CNCs, which is the automated control software of machine tools. With an established reputation and record that supports its ability to maintain a 50% market share, we expect this business to grow along with its machine tool manufacturer customers, as the software/control console will differentiate the quality of machine tools and meet increasing demands for extremely high precision by end-users.

Fanuc is well-positioned for long-term, secular growth in the factory automation, or FA, and industrial robotics industry, as the world’s largest computer numerical control (CNC) and industrial robotics manufacturer. The FA division currently makes up approximately one third of total sales and has the leading global market share with its CNCs, which is the automated control software of machine tools. With an established reputation and track record that supports its ability to maintain a 50% market share, we expect this business to grow along with its machine tool manufacturer customers, as the software/control console will differentiate the quality of machine tools and meet increasing demands for extremely high precision by end-users.

We maintain our fair value estimate at JPY 28,000, as our medium-term outlook remains largely intact. While market concerns over reduced factory automation/machine tool investments likely contributed to its stagnant share price, we believe there is continued order/sales growth for Fanuc, driven by robot demand. We see diverging demand prospects between Fanuc’s robot and robomachine businesses. On one hand, Fanuc continues to capitalize on strong industrial robot demand in key regions like Americas and China, as its finished the June quarter with record robot orders, growing 33.8% year on year. On the other hand, robomachine orders, which include machining centers used to shape 3C items like PC/tablets, declined 29.6% during the same period. While a slowdown in consumer electronics demand is bound to happen (for example Gartner forecasts 9.5% annual decline in PC shipments) and consequently affect robomachine orders, we expect robot demand will be relatively resilient over both near and medium-term, as automation investments related to EV and labor shortage will continue to be necessary, despite recession concerns. As a result, we remain convinced there is upside potential in Fanuc’s shares.

Fanuc achieved record companywide revenue for fiscal 2021, ending in March, as expected, with 33% year-on-year growth. We maintain our fair value estimate at JPY 28,000, implying that shares are undervalued. Despite strong sales/orders, Fanuc’s shares have been declining, likely from concerns over the potential impact of the ongoing components shortage, the conflict in Ukraine, and lockdowns in China. The latest fiscal 2022 guidance of a 1.1-percentage-point operating margin decline, from last year, suggests an impact of higher components/logistics costs, despite projecting a 12.6% year-on-year increase in revenue over the same period. While lockdowns in China can potentially affect near-term orders, we are not convinced that demand will be materially weakened, as we expect this will eventually be resolved and management commented that the quarterly decline in robot orders in China were due to temporary factors. The company has continued to receive inquiries despite the lockdown, and the book-to-bill ratio in China increased to 1.25 from 1.06, with factory automation, or FA, and robomachine segments driving the increase.

Fanuc is well positioned for long-term, secular growth in the factory automation, or FA, industry, as the world’s largest computer numerical control (CNC) and industrial robotics manufacturer. The FA division currently makes up approximately 30% of companywide revenue and has the leading global market share with its CNCs, which is the automated control software of machine tools. With an established reputation and track record that supports its ability to maintain a 50% market share, we expect this business to grow along with its machine tool manufacturer customers, as the software/control console will differentiate the quality of machine tools and meet increasing demands for extremely high precision by end-users.

Wide-moat Fanuc’s 2021 third-quarter results, ending in December, showed another quarter of strong revenue growth at 30% year on year, which surpassed our expectations. We maintain our fair value estimate at JPY 28,000, implying that its shares are undervalued. We think increased concerns of FA demand peaking in China have been negatively impacting Fanuc’s shares, and a quarter-on-quarter decline in orders for its FA business (driven by computer numerical controls or CNCs) in China seems to reaffirm these concerns. However, management commented that this is due to production not being able to catch up with orders, thus leading to a significant increase in backlogs and also resulting in customers making “adjustments” to their orders. We interpret this as customers plan to make purchases, once Fanuc is able to clear out some of its existing backlog to accept new orders going forward. Despite the quarterly decline in FA orders in China, the book-to-bill ratio in the region is still at 1.06, supported by strong industrial robot orders from EV- and IT-related demand.

Fanuc is well positioned for long-term, secular growth in the factory automation, or FA, and industrial robotics industry, as the world’s largest computer numerical control (CNC) and industrial robotics manufacturer. The FA division currently makes up approximately one third of total sales and has the leading global market share with its CNCs, which is the automated control software of machine tools. With an established reputation and track record that supports its ability to maintain a 50% market share, we expect this business to grow along with its machine tool manufacturer customers, as the software/control console will differentiate the quality of machine tools and meet increasing demands for extremely high precision by end-users.