Nov. 24 (Bloomberg) -- At the base of snowcapped Mount Fuji sits a bright yellow compound that is home to one of Japan’s most profitable -- and secretive -- companies.
Fanuc Ltd.’s systems tell lathes, grinders and milling machines how to turn steel into an Apple Inc. iPhone case or aluminum into the rib of a Boeing Co. 747. More than half of the world’s computerized tools, including those used by suppliers to Toyota Motor Corp. and General Motors Co., use Fanuc controls.
“They’re the Microsoft you’ve never heard of,” said Scott Foster, an analyst at BNP Paribas in Tokyo. “If Mount Fuji erupted and took them out, the world would stop running.”
Fanuc’s operating margin rose to a record 44 percent last quarter, the company said, making it the third highest on the Topix 100, according to data compiled by Bloomberg. To further boost profits, President Yoshiharu Inaba is focusing on China and India, Asia’s two fastest-growing major economies.
“We’re working harder than ever to penetrate the Chinese and Indian markets,” Inaba, 62, said last month at company headquarters. “All of our capacity is running full-out.”
Fanuc boosted net income to 31.1 billion yen ($373.1 million) last quarter, an almost eightfold increase from a year earlier. That’s more than double the growth reported by 1,605 companies on the Topix, according to data compiled by Bloomberg.
China, India Focus
The company’s success contrasts with Japan’s net exports, or shipments less imports, which were unchanged in the third quarter as the yen traded near a 15-year high. Worldwide spending on machine tools this year will rise 12 percent to $56 billion, U.K.-based researcher Oxford Economics Ltd.
“They’re the industry standard,” said Osamu Matsuda, an assistant manager for Jtekt Corp., Japan’s biggest listed toolmaker.
China’s $19.5 billion machine-tool market, the world’s biggest, is forecast to grow by as much as 20 percent a year through 2015, Oxford Economics said. India is forecast to grow by as much as 30 percent a year.
Fanuc’s biggest rival is Munich-based Siemens AG, Europe’s largest engineering company, which introduced a simpler product lineup to appeal to Chinese manufacturers. Shenyang Machine Tool Co., China’s biggest tool maker, is developing its own controls.
Fanuc’s headquarters are a sprawling, yellow campus surrounded by forest in the shadow of Japan’s tallest mountain. Workers in yellow jumpsuits bearing paramilitary-style badges trot between yellow buildings as yellow cars hum along pine-lined roads.
Inaba’s father, Seiuemon, who ran the $35 billion company for almost three decades after it spun off from Fujitsu Ltd. in 1972, picked the color because it “promotes clear thinking,” workers said. Fanuc’s website also features yellow.
The 85-year-old electrical engineer once gave researchers a clock running 10 times faster than normal to remind them to stay ahead of the competition.
Yellow robots work nonstop cranking out Fanuc’s mainstay product: the computer numerical controls, or CNC, that run more than 50 percent of the world’s automated machine tools, the company said.
Fanuc also makes yellow robots that help Nissan Motor Co., based in Yokohama, Japan, weld cars. Its machine tools are used by Foxconn Technology Group, the world’s largest contract manufacturer of electronics.
Boeing, General Electric
The company rarely allows visitors inside its factories, and workers not engaged in research don’t have access to laboratories. Most board members can’t get in, the company said.
“In a factory floor as big as a football field, you might see four people,” said Morten Paulsen, an analyst at CLSA Asia-Pacific Markets in Tokyo. “The rest are robots reproducing themselves.”
Fanuc dominates shop floors in Japan, where its CNC panels run as much as 70 percent of machine tools, including those at suppliers to Toyota City-based Toyota, the world’s biggest carmaker.
In the U.S., Fanuc panels help automate production for Chicago-based Boeing, the world’s largest aerospace company, and Fairfield, Connecticut-based General Electric Co., the world’s biggest provider of power-generation equipment.
Fanuc shares have surged 40 percent this year even as it keeps shareholders at arm’s length. The company doesn’t have an investor relations department, doesn’t meet investors one-on-one and doesn’t hold conference calls or briefings at the stock exchange.
Shareholders seeking information from Fanuc go to its campus, a two-hour ride west of Tokyo, where the younger Inaba takes questions four times a year in his yellow blazer.
He irked investors in July by canceling the first-quarter briefing and filing an earnings report without sales breakdowns and orders data.
“I understand we have an obligation to present earnings, but my job is to make sure we have earnings,” Yoshiharu Inaba said last month. “Part of the strategy is to make sure our competitors don’t get information.”
Fanuc also prohibits workers from using e-mail, except on designated terminals. Most business is done by phone and fax.
At Japan’s International Machine Tool Fair this month, Fanuc showed off a swiveling, 6-meter-tall (20-foot-tall) yellow arm that moves car chassis for Detroit-based GM. A swarm of salesmen in yellow blazers fielded questions, some in Chinese.
Fanuc makes about 70 percent of its sales in the global auto industry, Yoshiharu Inaba said. China’s auto sales rose 46 percent last year to make it the world’s largest market.
China, no longer content to be the world’s low-cost manufacturer, is automating. Strikes by factory workers this year drove up wages, tipping cost calculations in favor of CNC and robots, said William Montgomery, a Tokyo-based analyst at MF Global Ltd.
Foxconn, the Apple supplier that doubled factory pay after a spate of worker suicides, buys 800 programmable Robodrills from Fanuc every month -- for about $62,000 each -- to make the stainless steel band that wraps around the iPhone. The Taipei-based manufacturer also uses a Fanuc robot to plug chips into circuit boards at speeds of more than 100 pieces a minute.
“They used to have women with hairnets doing it,” Montgomery said. “Now this robot is replacing them, and they’re going to run that factory 24 hours a day.”
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