Company Reports

Harmonic Drive Systems has been able to capitalize on demand growth with industrial robots and semiconductor production equipment; its compact strain wave reduction gears (also known as harmonic reducers) serve as critical components of both. The company seeks to refine its product quality toward existing applications as well as find new applications that can serve as new long-term growth drivers. We think small industrial robots and semiconductor equipment will continue to serve as key target markets.

Harmonic Drive Systems posted June-quarter sales of JPY 16.7 billion, up 24% year on year, with operating margin coming to 11%. Orders grew 56% year on year to JPY 24.1 billion. Shares plunged 11% on the next trading day, Aug. 10.

Harmonic Drive Systems has been able to capitalize on demand growth with industrial robots and semiconductor production equipment; its compact strain wave reduction gears (also known as harmonic reducers) serve as critical components of both. The company seeks to refine its product quality toward existing applications as well as find new applications that can serve as new long-term growth drivers. We think small industrial robots and semiconductor equipment will continue to serve as key target markets.

Harmonic Drive Systems returned to growth in fiscal 2025 (ended March 2026), with sales up 7% year on year and operating margin returning to positive territory. March-quarter orders reached a four-year high, and management guidance is for 14% sales growth and 9% operating margin in fiscal 2026.

Harmonic Drive Systems, or HDS, posted flat December-quarter sales of JPY 14.3 billion quarter on quarter, while operating margin rose 2.7 percentage points sequentially to 5.1%, the highest level in the past 10 quarters.

Harmonic Drive Systems has been able to capitalize on demand growth with industrial robots and semiconductor production equipment; its compact strain wave reduction gears (also known as speed reducers) serve as critical components of both. The company seeks to refine its product quality toward existing applications as well as find new applications that can serve as new long-term growth drivers. We think small industrial robots and semiconductor equipment will continue to serve as key target markets.

Harmonic Drive Systems reported September-quarter sales growth of 5.8% year on year and an operating margin of 2.4%, the highest in nine quarters. Shares jumped 4% on Nov. 13 after the announcement, but later fell below the preannouncement levels.

Harmonic Drive Systems has been able to capitalize on demand growth with industrial robots and semiconductor production equipment; its compact strain wave reduction gears (also known as speed reducers) serve as critical components of both. The company seeks to refine its product quality toward existing applications as well as find new applications that can serve as new long-term growth drivers. We think small industrial robots and semiconductor equipment will continue to serve as key target markets.

Harmonic Drive Systems has been able to capitalize on demand growth with industrial robots and semiconductor production equipment; its compact strain wave reduction gears (also known as speed reducers) serve as critical components of both. The company seeks to refine its product quality toward existing applications as well as find new applications that can serve as new long-term growth drivers. We think small industrial robots and semiconductor equipment will continue to serve as key target markets.

Harmonic Drive Systems reported June-quarter sales up 3.8% year on year, with operating income turning a profit at a 0.9% margin. The company announced its guidance for 2.4% sales growth and 2.6% operating margin for fiscal 2025 (ending March 2026). Shares fell 9% on Aug. 7.

Harmonic Drive Systems has been able to capitalize on demand growth with industrial robots and semiconductor production equipment; its compact strain wave reduction gears (also known as speed reducers) serve as critical components of both. The company seeks to refine its product quality toward existing applications as well as find new applications that can serve as new long-term growth drivers. We think small industrial robots and semiconductor equipment will continue to serve as key target markets.

Harmonic Drive Systems reported its fiscal 2024 (ending March 2025) sales were down 0.3% and breakeven operating profit. The company disclosed guidance only for the first half of fiscal 2025 (ending March 2026), estimating sales to grow by 1.7% year on year and operating margin of 1.1%.

Harmonic Drive Systems has been able to capitalize on demand growth with industrial robots and semiconductor production equipment; its compact strain wave reduction gears (also known as speed reducers) serve as critical components of both. The company seeks to refine its product quality toward existing applications as well as find new applications that can serve as new long-term growth drivers. We think small industrial robots and semiconductor equipment will continue to serve as key target markets.

We raise our fair value estimate for wide-moat Harmonic Drive Systems, or HDS, to JPY 2,900 per share from JPY 2,800, reflecting gains of JPY 5.8 billion from the sale of Nabtesco shares announced in January. HDS' revenue in the December quarter grew 5% year over year to JPY 13.8 billion, in line with our estimate of JPY 13.5 billion, as growth in China was largely offset by sluggish sales in North America and Europe. As a result, we keep our revenue estimate for fiscal 2024 (ending March 2025) at JPY 55.0 billion, or a year-on-year decrease of 1%, but raise net income attributable to shareholders to JPY 4.0 billion from a loss of JPY 0.5 billion as previously estimated, simply reflecting the gains from the sale of all of its Nabtesco shares. Although we appreciate the company’s recent actions to enhance capital efficiency through the execution of the dissolving of cross-shareholdings and the share buyback plan, we think the shares are currently overvalued as the market is overreacting. The company plans to buy back up to JPY 1.2 billion, or up to 400,000 shares, which only accounts for 0.4% of total outstanding shares from today (Feb. 10, 2025) through June 30, 2025.

We lower our fair value estimate for wide-moat Harmonic Drive Systems to JPY 2,800 per share from JPY 5,100, as we have lowered our midterm outlook in terms of profit margin and growth rate. We lower our stage II EBI growth rate to 8% from 12.5%. This is as we expect the business to grow at a more moderate pace as key end markets such as industrial robots have shown an apparent slowdown compared with the past decade. In its latest World Robotics report, the International Federation of Robotics lowered the rolling forward four-year (2024-27) compound annual growth rate projection for annual industrial robot installations to 4%, from the 7% in the previous report for 2023-26. In addition, due to the higher fixed costs from aggressive capacity expansion over the past six years, we cut our operating margin assumption for fiscal 2028 to 18% from 21%. As a result of continuous capacity expansion in recent years, HDS' monthly production capacity has now reached to 270,000 units (including 90,000 units for automotive applications), up from 50,000-60,000 units in 2017. Based on its recent quarterly performance, we expect HDS to achieve operating income breakeven when quarterly revenue reaches JPY 14 billion, and operating margin of 17%-18% when quarterly revenue reaches JPY 20 billion. Although we assume the company is not likely to achieve the current midterm sales target of JPY 90 billion in fiscal 2026, we believe the market is being overly pessimistic about HDS’ longer-term prospects, as headwinds in key end markets such as industrial robots and semiconductor production equipment persist.

Harmonic Drive Systems has been able to capitalize on demand growth with industrial robots and semiconductor production equipment; its compact strain wave reduction gears (also known as speed reducers) serve as critical components of both. The company seeks to refine its product quality toward existing applications as well as find new applications that can serve as new long-term growth drivers. We think small industrial robots and semiconductor equipment will continue to serve as key target markets.

Wide-moat Harmonic Drive Systems marked a year-on-year revenue decline of negative 1.4% in the September quarter, largely in line with our forecast. However, the operating margin for the quarter dipped further to negative 3%, way below our positive 3% forecast. The Europe business dragged profitability as the top line is weaker than expected, with the ordinary income margin decreasing to negative 5.3% from positive 2.1% in the previous quarter. On the other hand, we see a gradual demand recovery in Asia (including China) and North America, with orders received on a consolidated basis growing by 15.5% and 69.4% sequentially, suggesting the worst has passed. We will review our forecast for fiscal 2024 and fair value estimate for HDS after getting more details from the result meeting on Tuesday.

Harmonic Drive Systems’ June-quarter orders declined 5% sequentially, which was a negative surprise, as channel inventory adjustments of healthcare equipment in North America and industrial robot makers in Japan are progressing slower than expected. Due to weak demand/capacity utilization, quarterly operating margin of negative 1.8% was below our estimate, making it the fourth consecutive quarter of unprofitability. Although we expect the company to return to profitability in the September quarter, we expect a slower recovery in utilization levels in fiscal 2024, ending March 2025. Therefore, we cut our fiscal 2024 operating income estimate by 18% to JPY 3 billion and lower our fair value estimate to JPY 5,100 per share from JPY 5,500. Despite the downward revision, we project operating income to increase to JPY 10 billion in fiscal 2025, driven by top-line growth of 17% year on year (after 5% growth in 2024) and operating margin expansion of 9.3 percentage points to 14.5%.

Harmonic Drive Systems has been able to capitalize on demand growth with industrial robots and semiconductor production equipment; its compact strain wave reduction gears (also known as speed reducers) serve as critical components of both. The company seeks to refine its product quality toward existing applications as well as find new applications that can serve as new long-term growth drivers. We think small industrial robots and semiconductor equipment will continue to serve as key target markets.

Harmonic Drive Systems has been able to capitalize on demand growth with industrial robots and semiconductor production equipment, by having its compact strain wave reduction gears (also known as speed reducers) serve as critical components of both. The company seeks to continue refining its product quality toward existing applications as well as to find new applications that can serve as new long-term growth drivers. We think small industrial robots and semiconductor equipment will continue to serve as key target markets.