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Fanuc Still Strong In Robots And Automation, But Trouble May Lie Ahead

by:QY Precision      2019-10-24
I never liked it as much as I did in Japan (OTCPK:FANUY)(6954. T)
As many readers seem, you can do better in the last five years with other automation names such as Yaskawa (OTCPK:YASKY), Rockwell (ROK), Keyence (OTCPK:KYCCF), or HollySys (HOLI)(though the two-
The music of the year is more tolerant).
While Fanuc has done better than I expected in terms of revenue growth over the past two years, taking advantage of the strong rebound in machine tool and robot orders, profit margins and FCF generation are not so impressive, because the business has tilted in a lower direction. Margin products.
There are now macro clouds on the horizon.
The weaker smartphone capital expenditure demand seems likely to put pressure on 2018, and we may be close to the peak of machine tool orders, laying the foundation for a situation that could fall significantly in the next few years.
I do want Fanuc to continue to see strong growth in robotics and robotic components, but given these challenges and potential risks, I am not excited about today\'s valuation.
The machine tool cycle in Japan usually runs for about 18 months, and the larger \"super\"
Cycle \", usually extended to 10-15 years. The current up-
The cycle is 18 months (
And close to 10-
Year mark starting from the last trough)
Although Mei\'s machine tool orders in Japan have increased by 15%, the 18 thstraight year-over-
One year improvement, orders began to shrink in a monthto-
The monthly base and orders outside Japan have slowed significantly (
Up 10% in the month).
There are a lot of moving parts in the machine tool industry, but car OEMs are usually one of the biggest customers.
Although some parts of the automotive industry still have strength (
Keenshi and Connex (CGNX)
Machine vision orders always look good)
Overall car capital spending has slowed significantly.
Coupled with signs of weakness in many other industrial sectors, this could be bad news for Fanuc and its FA system business.
I also noticed that when those super
The cycle peaks and orders can plummet twice as much
Thirty in two years.
Perhaps this decline will not be so serious, or the life cycle of this cycle may be more than the recent figures suggest.
Nevertheless, I have noticed that Fanuc has been losing some share in its core CNC business (
\"Brain\" of machine tools \")
Face more servo business competition from companies like THKOTCPK:THKLY).
Fanuc has a considerable exposure to smartphone capital spending, especially Apple (AAPL)
Production/supply chain.
In the past, the business followed the \"one year great, two years weak\" model, and after strong orders and revenue in 2017, 2018 looks like a tough year.
To some extent, about half of the robot business is related to smartphones, about 15% of the FA system business, about 5% to 10% of the robot business-all of which tell us, accounting for about 20% of the income of the family.
Fanuc\'s main competitor, Brother, in robodrills\', has provided very severe guidance to its business, noting that the annual revenue of 20% has dropped by 2019 (
Ended March 2019, so covers most of 2018).
As far as the company is concerned, it has seen a significant decline-Goldman Sachs analyst Isayama Yuichiro tracks customs data to try to understand shipping trends in the company, and it looks like Robodrill shipments have dropped more than 50% this month.
And Apple\'s discussion of its capital expenditure plan (
Likely in early November)
This may help to address some of the concerns of many players in the automation space, especially Japanese companies, which may or may not be good news for good news, which is still a long wait.
The robot of the main participants in the family, but ABB (ABB)
Yaskawa and Kuka (OTCPK:KUKAY)
In their own right are serious, focused competitors.
Although growth has slowed in the past three quarters, this is in line with the idea that auto OEMs spend less on capital spending (
The car here is about 50% of the business)
Last quarter, the business was still up 13% year on year and the order growth was still in the medium term.
A teenager with a bookto-bill above 1.
As a global leader in robotics, I think Fanuc
Positioned for the continuous expansion of robots outside traditional positions such as car assembly.
However, I do have some concerns about the speed of innovation here.
Although the hair section did do a very high job.
High quality robots, the company does not seem to make the same investment in new markets like Yaskawa (service robots), ABB (cobots), or KUKA (
Aerospace assembly.
This is likely to be a product of self.
Promotion, but I also believe that, as more and more people accept cheaper products in China, there is a certain vulnerability in the company --
Manufacturing robots in markets such as China.
I really don\'t worry about the long term of Fako.
In the future, I believe the company can generate revenue growth in the medium term. single-digits.
However, the next few years may be risky, depending on how smart phones, cars and general industrial capital expenditures go.
I don\'t worry too much either.
Profit margin and long-term outlook for FCF.
Despite the sudden rise in recent years
I anticipate the decision of the margin business order and management to re-invest the business
The FCF generation is strong.
That being said, short again-
The term prospect is that cloudier-Fanuc operates at a relatively high fixed cost and is significantly close
Long-term slowdown in profit margins will affect operating margins.
In my opinion, according to discounted cash flow, the stock of fannaco is not undervalued, but, this is the norm in the field of automation today, according to this standard, fannaco does not seem to be much more expensive than keenshi or anchuan.
By EV/EBITDA, there seems to be some modest increase, but given the potential near-term end-
Market headwinds.
Although I know that Fanuc is
Favorite name in space (
A position it has won over the years)
I believe many readers will be sure of them.
Long term support for stocks, I am not interested in today\'s risk/benefit tradingoff.
I am/We are long ABB.
This article was written by myself and expressed my views.
I received no compensation (
In addition to Seeking Alpha).
I have no business relationship with any stock company mentioned in this article.
Editor\'s note: This article discusses one or more securities that are not traded on major US securitiesS. exchange.
Please note the risks associated with these stocks.
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