Japanese automation leader Fanuc (OTCPK:FANUY) (6954.T) has a loyal shareholder base that can lean toward the fanatical, but the last couple of quarters underline that for all of Fanuc’s quality, it’s not immune to macro-driven cyclicality. What’s worse, competition has ramped up in many of the company’s businesses and management’s projections that conditions won’t get significantly worse may prove too optimistic.
From where I sit, the argument that Fanuc is too cheap now only works if you expect a pretty dramatic reversal (basically a V-shaped recovery) in recent machine tool and automation demand trends in China and a quick return to double-digit ROEs. I don’t believe that’s going to happen, and I think Fanuc has more vulnerability to traditional rivals like ABB (ABB) and Yaskawa (OTCPK:YASKY), non-traditional rivals like Teradyne (TER) and local Chinese automation companies, and shifting market trends than its more bullish supporters acknowledge.
A Tough Situation Gets Ugly
Fanuc was already showing some cracks back in the summer of 2018, and that was before machine tool industry order numbers went definitively and dramatically negative. Now those cracks are quite a bit wider and the question has shifted to how much worse things will get before Fanuc recovers.
Revenue fell 20% in the fiscal third quarter (the December quarter) after falling 9% in the second quarter, driven by a 48% decline in the robomachine business and a 23% decline in the automation business (largely CNC systems for machine tools). The robot business was relatively stronger, with revenue down just 3% yoy and up about 5% qoq.
Sales to China were down 56% yoy in the third quarter, and the company has been hammered by the weakness in smartphone capex demand. Unit sales (volume, that is) of robodrills are now running about 10% of where they were in mid-2017, and a host of Japanese machine tool companies (including
