Japanese factory automation giant Fanuc’s road to redemption runs through India

Tata Motors Ltd, Mahindra & Mahindra Ltd and Ola Electric are among those moving quickly to ramp up EV output in the South Asian nation, which by one estimate is the fastest-growing market in the world. Meanwhile, Apple Inc — with its supply-chain partners including Foxconn Technology Group and Pegatron Corp — is also boosting output in the country and the next iPhone is already in production ahead of a September launch.

Prime Minister Narendra Modi’s Make in India strategy, and the government’s Production-Linked Incentive program are part of the impetus for autos, joined by the EV-specific “Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India” scheme (FAME India).

Yet a key challenge for Fanuc is the extreme price sensitivity among local buyers, who tend to focus initial investment on cheaper robots and automated machines. Eventually, those manufacturers will upgrade to better equipment, which may be an opportunity for the Japanese supplier to step in and sell its more expensive alternatives.

Back in April, Fanuc, like the rest of the world, was hopeful that some kind of fiscal pump priming by Beijing would get the industrial sector back on track. “If an economic stimulus package is issued in China… there is a possibility that demands may double or increase even more,” it said at the time. It’s increasingly unlikely that such spending will be forthcoming. Now the company is sitting on record high inventories across China, the US and Japan with few signs of growth in any of these places.

While it waits for India’s rise and a recovery in China, Fanuc is also relying on a rebound in the US, which may come sooner. In July, a key predictor of equipment purchases, the US Institute for Supply Management New Orders Index, logged an 11th consecutive month of contraction, though the figure was better than June.

“Declines in Japanese machine tool orders, which correlate with the US ISM new orders index, may start to level off,” Bloomberg Intelligence analysts Takeshi Kitauru and Ian Ma wrote on August 14. This early indictor of an improvement is “a good sign for Japan machinery firms.”

For US manufacturers to be confident enough to increase their spending on equipment, they’ll need clearer signs that the economy is on the rebound and borrowing costs are falling, or at least not rising. With US inflation easing, economists are increasingly predicting that the first US Federal Reserve rate cut will come within a year. But such a move could be taken either way: proof that consumer prices are stable, or that financial markets are shaky enough to warrant the action.

There’s not a lot Fanuc can do as it waits for a Chinese stimulus that might never come, an Indian ascendency whose timing is unclear, and a US rebound that may be in the hands of a few Fed policymakers. The road to investor redemption may be long and bumpy, but it’s path is known.

Tim Culpan is a technology columnist for Bloomberg Opinion. Based in Taipei, he writes about Asian and global businesses and trends. Views are personal, and do not represent the stand of this publication.

Credit: Bloomberg