Fanuc, the Japanese robotics leader, has been taking a conservative approach by withholding investment and reducing excess inventory. This strategy has led to a substantial increase in its free cash flow, which now stands at 560 billion yen ($3.8 billion). Investors are keenly watching to see how and when the company will deploy these funds.
Initially, Fanuc considered building a new plant in the mid-2020s at one of its three Japanese production hubs. However, President Kenji Yamaguchi announced in July that the company would instead focus on maximizing output from its existing facilities. “We can cope for the next few years without building a factory,” he stated.
Fanuc’s capital expenditures have been minimal, with last fiscal year’s spending at 52.5 billion yen, a 1% decrease from the previous year. The company recently completed a $110 million facility in the U.S., focusing on sales and maintenance rather than manufacturing. This conservative stance responds to fluctuating demand for industrial robots, influenced by economic slowdowns in China and rising interest rates in Europe and the U.S.
Despite challenges, Fanuc has recently raised its full-year operating profit forecast by 22 billion yen, thanks to a market recovery, particularly in China. The company’s inventory turnover time has improved, with expectations of normalizing by early next year.
While Fanuc’s cautious handling of inventory and investment has strengthened its cash reserves, the company risks falling behind competitors like Yaskawa Electric and ABB, who are ramping up their capital investments to capitalize on long-term growth in the robotics market.
Fanuc’s current stock valuation reflects these concerns, with shares trading at 4,042 yen, just over 60% of their January 2018 peak. Although the company’s factory automation business is performing well, its profitability, with an operating margin of 17% compared to over 40% in 2014, indicates challenges ahead. Whether Fanuc can regain its once-dominant profitability remains uncertain as the market evolves.
