- Like Rodney Dangerfield, FUNAC Corp “don’t get no respect”
- Partly that's because FANUC eschews the spotlight
- And yet… FANUC enjoys a global 50% market share of factory automation systems
- And a 20% share of the world market for industrial robots
- I guess this just isn’t sexy enough for some investors
- Weniger Teile (German for “Fewer parts”)
- Reliability Up
- Costs Down
FUNAC Corporation (OTC:FANUY) just doesn’t fire the imagination the way the robotics companies pumping out weekly press releases about their latest highest-tech applications do. That’s a shame.
What too many 'robotics-are-cool, great-story, neat-concept' investors are looking for in a robotics company is something 'Sexy!' 'Young!' Beautiful people (OK, robots!) The future!
Yet FUNAC might be the considerably more interesting story, if only investors were willing to learn more about it.
FANUC (an acronym for Fuji Automatic Numerical Controls – Fujitsu spun it off decades ago) is not in the artificial intelligence business. No clever Watson thumping humans at Jeopardy here. And one of the ETFs I like for the broadest exposure to the field of robotics, Robo-Stox Global Robotics and Automation (NASDAQ:ROBO) has FANUC as only the 11th largest holding, well below UAV maker AeroVironment (NASDAQ:AVAV) and Roomba vacuum cleaner marketer iRobot Corporation (NASDAQ:IRBT).
(Of course, that’s what Morningstar says as of 7/31. If you go to xtf.com they say it is the #2 holding as of 7/31. Most likely, If you went to a third site, you’d see something else. ROBO doesn’t report daily so who knows? There’s an object lesson here: just because the “data” is readily available on your favorite research sites don’t expect the “data” to be correct at any given time!)
Whether FANUC is second or 11th or somewhere in between, I’d buy ROBO first for its overall exposure to the sector. But if you want a steady if boring market leader, you might want to conduct your due diligence on FANUC next. FANUC makes the mostly-programmable machines that do the heavy lifting in industrial and manufacturing processes. No sexy robotic surgery here. Just the most profitable machines with the steadiest revenue stream.
FANUC is the Big Dog in industrial robots that many who don't know think is a wallflower. The company holds the most patents in the “Robotics” category of any company in the world. With offices in 46 countries, it is a constituent of both the Nikkei 225 and the TOPIX 100. In computerized numerical controls, FANUC’s market share worldwide is 65%. Their biggest clients are the Japanese and American automaker giants and global electronics manufacturers. For example, using FANAC robotics technology Panasonic (OTC:PCRFY) turns out 2 million mostly high-end LCD television screens per month – with just 25 workers.
You won’t find FANUC sponsoring fancy road shows or begging to be interviewed on CNBC or Bloomberg. They let their results do the talking.
As for the press? FANUC brings new meaning to inscrutable. For most of its history, FANUC has not only eschewed the limelight, it has also turned down most requests for the time-consuming and typically less profitable “custom” work that many companies in this category pursue, the sort of business where they send their engineers all over the globe to design and bid on a particular factory’s needs with no guarantee of winning the contract.
Instead, FANUC has traditionally followed the three very basic guidelines below for all its R&D:
What all this means is that FANUC will manufacture and sell the simplest-to-operate, fewest-moving-parts technology, consistent with fully satisfying the needs of the client, preferably using off-the-shelf parts that others in similar businesses have found to be successful. This means a machine that has been tested for long periods of time in different workplace environmental conditions on different continents and in different cultures and levels of workplace skill.
Reliability is the holy grail for a firm that makes 2 million LCD TV screens a month. One down day screws up the whole process.
Finally this kind of compulsive attention to small details, fewer parts, standardized parts and processes not only yields higher reliability, it also keeps costs down and profits up. The result is that FANUC’s gross margins are often above 40%. Their net margins are seldom less than 20%. No one else in the robotics business even comes close.
The company’s weighted average cost of capital is 6.3%, their return on invested capital is 21.5%. They carry no debt whatsoever. Their annual revenues are just under $8 billion for the trailing 12 months, the enterprise value is just over $33 billion and the market cap is 40 billion.
This is all very nice if you are only looking for a rock-solid company with a small dividend (1.8%) and steady growth. But where is the catalyst that will unlock its value and entice more people to invite it to The Dance?
FANUC has developed an integrated IoT (Internet of Things) system which will gain revenue from software developers using the platform to build applications for robots. (Sort of like the way Alphabet (NASDAQ:GOOGL) and Apple (NASDAQ:AAPL) charge app providers using the Google Play and iOS app stores.)
The following is from a November article in Manufacturing Automation Magazine; It is titled, “How FUNAC’s FIELD platform is poised to change automation.”
“Analytics are found in most facets of our society today, and manufacturing is no exception. Analytics — colossal and powerful software programs able to automate or semi-automate tasks and decisions — are becoming more prevalent …around the world, and for good reason.
“Simply put, the use of analytics in manufacturing provides improved machine reliability, product quality, process flexibility and assembly speed by enabling machines to intelligently coordinate and collaborate in a flexible manner in real time. One new analytics system expected to take manufacturing automation to a new level is the FUNAC Intelligent Edge Link and Drive (FIELD), created by Japan-based global robotics specialist FUNAC. Partners in its development include Cisco (NASDAQ:CSCO) (digitization), Rockwell Automation (NYSE:ROK) (industrial automation) and Preferred Networks (artificial intelligence or AI).
[Author's Note: Excellent choice of partners!]
“The FIELD platform combines AI and huge computational power to analyze data generated by robots and peripheral devices used in tasks such as bin picking, anomaly detection and failure prediction. In addition, it’s also an open platform, so application developers, sensor and peripheral device makers, system integrators and others can use it as a launch pad to build solutions to help improve their equipment efficiency, manufacturing output and product quality. Some applications will be offered in a continuously growing portfolio to other robotics suppliers for download to their own robots, much like one downloads an app on a smartphone, says FUNAC.
[Author's Note: FANUC is shedding its reticence to engage with others – note this is now an open platform to ensure maximum input and speed of change.]
“While it is one of several existing platforms for integrating the automation of industrial systems, some experts believe FIELD could become the standard for fully automating factories, and that it will allow much faster integration of robots and digital technologies compared to the existing pace of adoption. For its part, FUNAC says FIELD is nothing less than a system that will result ‘in sophisticated manufacturing practices not before possible.’ ”
“…FIELD will take manufacturing automation to the next level by allowing devices to intelligently coordinate and collaborate in a flexible manner to achieve sophisticated manufacturing practices. Basically, it all comes down to the way FIELD connects parts of a factory to its central analytics ‘brain,’ so that incoming data from many sources can be analyzed on an ongoing basis by the analytics program. The analytics can therefore produce an updated ‘big picture’ on which improved decisions can be made. “…With all the communications involved in FIELD, potentially among hundreds of devices, a key feature of the system is the way it strives to maintain secure communication. Working with Cisco, the FIELD system promises to provide network security that is essential to the manufacturing production operation, where the performance and integrity of the network must be maintained… “… the data on the FIELD system from various machines is used to do a variety of tasks, from setting up collaborations among equipment, optimizing individual asset performance, and to improve both tractability and quality control. In addition, having the system architecture in place on the manufacturing floor significantly increases the potential to incorporate new automation capabilities.
“…Much of FIELD’s power lies in its deep learning algorithms, developed by FUNAC in partnership with Preferred Networks. An example of deep learning implementation is robotic bin-picking applications — selecting a single part at the right orientation from a pile of similar parts laying randomly in a bin. “Bin picking has been considered a challenging application for robots, requiring skilled programmers,” Tsai explains. “By utilizing Preferred Network’s deep learning technology, and having the FIELD system’s edge-heavy processing provide the computing power, FUNAC has been able to improve the bin pick success rate significantly with minimal teaching to the robot. The robots would learn by itself which part in the bin is positioned most optimal for picking through multiple trials.” The deep learning includes “distributed learning capabilities,” which means that robots on the FIELD network can share their knowledge, which significantly reduces bin picking learning time and provides other advantages. “Rowan Trollope, senior vice president of Internet of Things (IoT) and Applications at Cisco, is unequivocal in his belief that FIELD is a true manufacturing game-changer.”
See, we've just transformed this stock for you: from Math Club president to Tony Manero (Saturday Night Fever). Sexy enough for ya?
Disclaimer:
(1) Do your due diligence! What's right for me may not be right for you.
(2) Past performance is no guarantee of future results. Rather an obvious statement, but most people look solely at past performance instead of seeking the alpha that comes from a solid, rational approach they can agree with.