Japanese Robot Maker Fanuc Reveals Some of Its Secrets

Friday, Mar 27, 2015

Twin statues of Ebisu, Japan’s Shinto god of prosperity, guard the gates. A stone marker proclaims that this is “Fanuc Forest.”

It’s the home of the best-kept secret in corporate Japan, a $50 billion-plus industrial powerhouse that hides away in the woods near Mount Fuji.

Inside the complex, scores of bright yellow robots toil away 24 hours a day in 22 factories, replicating themselves. Watched over by a handful of human workers, they build more robots and other factory machinery—and rake in profits for their owner, Fanuc Corp.

Until recently, most outsiders were stopped at the gates—especially investors who coveted a piece of the more than $6.8 billion in cash that Fanuc has amassed. In the last year, sales of machine tools and industrial robots have surged to smartphone providers such as Apple Inc., auto makers such as Tesla Motors Inc. and other customers.

But now Fanuc says it is opening up, answering a call from Prime Minister Shinzo Abe for Japanese companies to be more responsive to investors. Foreign investors are pouring money into Japan’s stock market, fueling a rally that has lifted the Nikkei 225 stock average to its highest levels in 15 years.

Fanuc Chief Executive Yoshiharu Inaba said in an interview Thursday that the company would detail plans to boost shareholder returns by the end of April. Fanuc has also created, for the first time, a “shareholder relations” department.

“I would like to build up mutual trust with our shareholders by creating opportunities for active dialogue,” Mr. Inaba said.

The company has long been known for eschewing quarterly briefings and other investor contacts that are standard elsewhere. Email exchanges with the outside world have been restricted to customers, who are required to use a special encryption system. Others are asked to send faxes.

Mr. Inaba’s father, Seiuemon Inaba, oversaw the birth of Fanuc as a division of the electronics giant Fujitsu Ltd. in the 1950s and led the company after its spinoff from Fujitsu in 1972.

The younger Mr. Inaba, now chief executive, may be moving to modernize Fanuc, but he clings to some of its quirks, greeting a visitor in a canary yellow blazer, the same color as Fanuc’s robots and most of its factory buildings.

Mr. Inaba uses military metaphors to explain why Fanuc has been wary about opening up.

“Business is war, with rules,” he said. “To disclose information such as what kinds of products are sold in which markets and how profitable they are is like, if I may say so, letting your enemy know how many tanks, aircraft or troops are mobilized in which theater.”

Big cash balances drew the interest of Daniel Loeb, who runs a New York hedge fund, Third Point LLC. The firm shined a spotlight on Fanuc in February when it disclosed that it had taken a stake. Mr. Loeb said the company “reminds us of Apple in product approach’’ but criticized it for what he described as insufficient shareholder returns. Since then, Fanuc shares have risen 32%.

Mr. Loeb called on Fanuc to increase its dividend and buy back shares.

The approach has worked well for Fanuc, which is riding a wave of factory automation in China. Its Robodrill machine tools are used to help shape the aluminum cases for smartphones from Apple, Xiaomi Inc. of China and other brands, according to analysts and other people familiar with Fanuc’s business. Apple and Tesla didn’t respond to requests for comment, and Xiaomi declined to comment.

Protocon Engineering Ltd., a family-owned maker of aircraft parts in Southend-on-Sea, England, last year took delivery of its seventh Fanuc machine. The Japanese company’s tools are “fast, accurate and extremely reliable,” said Geoff Smith, managing director of Protocon.

Fanuc’s traditional strength is computer numerical control, or CNC, equipment, which is used to control the movement of machine tools—both its own and those from other providers. Mr. Inaba said Fanuc makes 22,000 to 23,000 CNC units a month.

Its industrial robots, traditionally used by car makers, are now in demand elsewhere. In the company’s technical center, a demonstration robot takes a container full of pills, detects the color of each and sorts them into piles by color in a matter of seconds.

Sal Spada, an analyst at Arc Advisory Group, said Siemens AG of Germany has an edge at the high end, with customers seeking the most precise CNC equipment, but Fanuc has an advantage in volume. It is helped by the efficiency of its factories, which rely on the company’s own robots to do much of the work.

One 86,000-square-foot (8,000-square-meter) factory in Oshino, making industrial robots, is staffed by only four people at a time. In another factory, robots can assemble an industrial motor in 40 seconds.

The huge investments that such plants require present a high barrier to entry. Lately, Fanuc has also been helped by the weakness of the yen, because it does all its manufacturing in Japan. In February, the company said it would spend more than $1 billion to build additional factories and research sites.

“They want to own the factory floor,” Mr. Spada said.

Fanuc, which had a market capitalization of about $53 billion as of Thursday, has forecast an operating profit of $2.3 billion for the year ending March 31 on sales of $5.7 billion. That is a margin of nearly 40%.

Mr. Inaba said Mr. Loeb’s investment wasn’t the reason for Fanuc’s decision to improve communications with investors and to increase shareholder returns. Instead, he said, the shift was prompted by the government’s campaign for better corporate governance and by his own sense that change was due.

To avoid distractions, Mr. Inaba said the company would outsource much of the shareholder-relations department’s work to a consulting firm.

“I am the kind of person who would want to talk about everything, and I am trying hard to restrain myself,” he said.

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