In September last year, Takemitsu Takizaki, the founder of Japanese automatic control machine company Keyence Co., Ltd. (Keyence, hereinafter referred to as Keyence), surpassed the fortune of Chairman Yanai Masao of the Fast Retailing Group, the parent company of Uniqlo, and was listed on the list of Japan's richest people. first place.
KEYENCE's shares are up 96% since 1999, before the COVID-19 pandemic. KEYENCE manufactures sensors and measuring instruments required for factory automation. By June 2020, the total market value of its stocks exceeded 11 trillion yen (about 700 billion yuan), surpassing large Japanese companies such as Sony Group and Nippon Telegraph and Telephone Co., Ltd. (NTT), and ranked No. 1 in total market capitalization among Japanese companies. two. Bloomberg News commented: "Keyence's rapid growth shows that the demand for robots and components in the global market has been strong recently."
The British "Economist" magazine reported that in the more than two years of the new crown pneumonia epidemic, manufacturers around the world have been plagued by shortages of various commodities. But for a small group of companies whose goal is to keep factories running and supply chains intact, these troubles have turned out to be hugely profitable. Among them, the orders of industrial equipment manufacturers in Japan have seen a huge increase - this is because the companies were unable to start normal operations due to the new crown pneumonia epidemic at first, and then due to the shortage of the labor market and the rise in wage costs, the company's employment costs rose sharply, Many companies have begun to turn to more automated production equipment.
Growing global demand
According to the World Robot 2021 Industrial Robot Report released by the International Federation of Robotics, Asia remains the world’s most important industrial robot market, with 71% of the world’s newly deployed robots installed in Asia in 2020 (67% in 2019). %). In 2020, China, the largest adopter in the region, shipped 168,400 devices, a strong year-over-year increase of 20%. This is the highest number ever recorded for a single country. Operating inventory reached 943,223 units in 2020 (up 21%), and crossed the 1 million mark in 2021. Such a high growth rate indicates that China is rapidly roboticizing.
Japan remains the second-largest market for industrial robots after China, despite the country's economy being hit hard by the COVID-19 pandemic, with robot sales down 23% in 2020, with just 38,653 units installed. In contrast to China, Japan's electronics and auto industries have seen weak demand. In 2020, Japan's operating inventory was 374,000 units (up 5%).
Industrial robot installations in Europe fell by 8% in 2020 to 67,700 units. This is the second consecutive year of declines after reaching a peak of 75,560 units in 2018. Demand from the automotive industry also fell by 20%, while demand from the general industry rose by 14%. Germany ranks among the top five robotics markets in the world (China, Japan, US, South Korea, Germany), accounting for 33% of total installations in Europe; followed by Italy (13%) and France (8%).
The United States is the largest user of industrial robots in the Americas, accounting for 79% of the total installations in the region. It was followed by Mexico with 9% and Canada with 7%. New installations in the U.S. slowed by 8% in 2020, with demand for robots in the automotive industry falling sharply (10,494 units, down 19%), while installations in the electrical and electronics industry increased by 7% to 3,710 units. Operating inventory in the U.S. has grown at a compound annual growth rate of 6% since 2015.
The report predicts that the global "post-crisis boom" will fade slightly in 2022. From 2021 to 2024, the average annual growth rate is expected to be in the mid-single-digit range. A slight contraction could appear as a statistical effect, "catching up" or happening in 2022 or 2023. If this anomaly occurs, it will not break the overall growth trend. The world is expected to reach a significant growth level of 500,000 units per year by 2024.
In the past 10 years, the number of industrial robots in the world has tripled. According to the classification of the International Federation of Robotics, robots can be divided into industrial robots and service robots. Industrial robots are used in manufacturing production, mainly including human-machine collaborative robots and industrial mobile robots; while service robots are generally used in non-manufacturing industries, mainly including personal/home service robots and public service robots.
The research of robotics technology began in the middle of the 20th century, mainly based on the rapid development of computer technology and automation technology. The upstream of the robot industry chain covers chips, controllers, servos, perception, etc., the midstream includes the robot body and supporting systems, and its application fields cover manufacturing, national defense and civil services, and the downstream includes intelligent manufacturing and intelligent service solutions. According to the International Federation of Robotics, 45% of the robots added each year in the world are produced in Japan. Japan also produces many other automation equipment, from laser sensors to inspection kits. Even after the recent sell-off in tech stocks, four of Japan's best-known equipment manufacturers - KEYENCE Ltd., FANUC, SMC (a research and development manufacturer of pneumatic and automation components) and Lasertec The total market value of (Japanese semiconductor test equipment manufacturers) is still 2.5 times what it was five years ago. Keyence's founder, Takemitsu Takizaki, has a fortune of $29 billion. While Takemitsu Takizaki's company is not as household name as other similar equipment makers in Japan, the hardware they produce is becoming as important as semiconductors for many industrial suppliers.
Japanese companies accelerate their occupation of the global market
The concept of industrial robots in Japan originated in 1960. In 1980, Japan developed the world's first scara robot. After 60 years, Japan is still a big country in the manufacture and use of robots in the world.
The development process of Japanese industrial robots can be divided into six stages, namely the introduction stage, the budding stage, the growth stage, the recession and transformation stage, and the overseas development and diversification stage. From the perspective of the main downstream markets, the rapid development of the automobile industry and the matching of actual needs have played a key role in nurturing, and the guidance and support of the government has further accelerated the development of Japanese industrial robot companies.
The needs of Toyota, Honda, Nissan and other automotive industry chains helped the industry start in the early stages, and drove robot companies to expand overseas in the process of globalization. After the development is mature, the diversified downstream and localized production capacity layout further consolidates the sustainable competitiveness of the Japanese industrial robot industry.
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The Economist believes that in a country like Japan, which is famous for its love of robots, it is not surprising that a strong automation industry has been cultivated. Efficiency-conscious Japanese companies such as automaker Toyota and home appliance maker Panasonic have pioneered just-in-time production (JIT), which has been replacing humans with machines for decades. After Japan entered an aging society in the 1990s, this production method that brought a competitive advantage has become a necessity for Japanese manufacturers to survive. Now, as other developed countries age, their business survival is beginning to depend on this approach. Keyence and SMC now have more than half of their revenue from overseas; Fanuc and Lasertec are more international, with more than 80% of their sales coming from overseas.
The new demand is partly due to the world's insatiable thirst for computer chips. SMC sells pneumatic components to chip makers. Masahiro Ohta, director of SMC, said that their business has been booming recently, especially in Europe and the United States, where more semiconductor manufacturers are trying to move back to the country; Lasertec produces the most advanced semiconductor optics. Masks (templates that engrave circuit patterns on silicon wafers) enjoy a near-monopoly position as inspection tools. Since 2020, Lasertec's share price has soared threefold, making it the best-performing blue-chip stock in Asia; KEYENCE's precision sensors are very important for inspection The role of semiconductor surface defects is also indispensable.
Affected by the new crown pneumonia epidemic, non-face-to-face communication has become a trend, which has allowed Japanese companies to accelerate their penetration into the world market. Half of Keyence's and SMC's sales, and 80% of Fanuc's and Lasertec's sales come from overseas. SMC has recently expanded its industrial coverage by supplying high-voltage control devices to semiconductor companies in developed countries.
Of course, the equipment of these companies is just as useful in other industries. For example, Fanuc, which makes large robotic arms for factory floors, has long been a regular supplier to car assembly lines. Mike Chico, who runs Fanuc's U.S. operations, said the development of electric vehicles requires automakers to have a range of new skills, as well as new robots. Fanuc expects 500 robots will be needed as Ford's Cologne, Germany, plant transforms this year into the Ford Cologne Electrification Center.
Internationalization brings new pressure
It turns out that products becoming indispensable will bring more profits to the business. These four industrial automation star companies in Japan all claim that their profit margins exceed 20%, and Keyence, which has the highest profit margin, even exceeds 50%. In the past three quarters, KEYENCE's net profit has continued to hit new highs. Like chip companies such as Nvidia, Keyence does not manufacture products, but designs them. This capital-light approach helps keep profit margins growing. KEYENCE spends only 3% of its net sales on research and development, and SMC's only about 4%. FANUC produces almost all products independently, and also invests a lot in research and development of production capacity. But it is a very efficient use of investment, especially for customers to create a variety of new robots. At present, Fanuc's largest "lights-off" factory (the full name is the smart factory for flexible assembly operations, which is characterized by lights-off operations in the workshop) means that all production activities are controlled by electronic computers, and the first line of production is equipped with robots instead of workers. factory) can operate without human intervention on site for over a month.
The Economist article believes that part of the success of Japanese industrial automation star companies is also due to their corporate cultural characteristics. SMC's 6,000 salespeople are also system engineers who know customers' equipment very well. KEYENCE's product sales have no middlemen and rely entirely on its own sales team. Like SMC, many of them are engineers and spend a lot of time on customers' workshops figuring out what's been overlooked and needs to be fine-tuned. The return for their efforts is also considerable. According to the "Nihon Keizai Shimbun" report, last fiscal year, the average annual salary of KEYENCE employees exceeded 150,000 US dollars.
Like most Japanese companies, industrial automation stars tend to be less generous to shareholders. Most of them are clinging to cash: Keyence held more than $10 billion in liquid assets last fiscal year. The companies' conservative culture and financial miserliness are ingrained.
Investors have to read in the dark, because the internal picture of these companies is not always so transparent. As British asset manager Baillie Gifford put it euphemistically in 2020, SMC employs "traditional Japanese corporate governance" with limited engagement with shareholders.
But as these companies become increasingly international, they will face pressures to become more transparent and less stingy in terms of shareholder dividends and investments. In 2015, Fanuc raised its dividend significantly under pressure from U.S. activist hedge fund Third Point. As Japan becomes less resistant to "gadfly" investors, its automation industry should receive more of these demands.
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