April 13 (Bloomberg) -- Kuka AG, Europe’s largest maker of industrial robots, is creating a regional hub in China to tap surging sales in the world’s most populous country, where rising wages are lifting demand for automated factory gear.
The German company will boost assembly capacity in China to 5,000 units this year, from less than 1,000 two years ago, Chief Executive Officer Till Reuter said. China will become a center for procurement, production of components and assembly for the entire Asian region, while research, development, and most production will remain in Germany, he said.
“China alone bought 15,000 robots last year, and we expect that number to rise to about 20,000 this year,” Reuter said in an interview. A company target for an operating margin of 10 percent at the robot unit “is within reach,” after standing at 9 percent in the fourth quarter, he said.
Rising wages, a push for quality, and demands for faster production are prompting China’s manufacturing industry to buy more robots, helping European companies including Kuka and ABB Ltd. return lagging businesses into profit centers. Kuka’s robots have become twice as profitable as the company’s larger systems unit, and ABB turned its robot unit around in 2010.
At Kuka, robotics revenue jumped 84 percent between 2009 and 2011, as customers include Volkswagen AG and Daimler AG bought equipment for new factories and China became the world’s largest auto market. The company had record order intake, sales, and operating profit last year.
While demand from China so far was driven by automobile production, Kuka now seeks more business with customers in other industries. Manufacturers of semiconductors, electronic devices, food products and beverages are among the largest buyers of industrial robots, according data by the International Federation of Robotics, based in Frankfurt.
While China doesn’t publish broad data on wages, the government sets goals for minimum wage increases, targeting an annual rise of 13 percent for the five-year period through 2015. Between 2000 and 2007, the measure almost doubled, according to the International Labour Office’s global database.
Some 13 Chinese provinces raised minimum wages in the first quarter of 2011 by an average 21 percent, the ILO said in its Global Employment Trends 2012 report published Jan. 24, and wages will rise further over the medium term as labor force growth starts to slow for demographic reasons.
“Salary inflation is the driving force behind robot demand in China,” Michel Demare, the ABB chief financial officer, said on Feb. 27 at company headquarters in Zurich.
ABB is Europe’s second-largest industrial robot maker, and one out of three robots it sells goes to customers in Asia. The business had record deliveries in 2011, said Per-Vegard Nerseth, who heads the subsidiary, and he expects unit sales to rise further this year.
The value of the global industrial robot-system market will double to $41 billion by 2020, according to an estimate by Christine Wang, an analyst at Daiwa Capital Markets in Hong Kong. Global unit sales last year jumped about 30 percent to a record 150,000 units, the IFR said. Kuka forecasts growth at its robotics unit to outpace the industry this year, which it expects to expand by about 2 percent.
Japanese rivals are also preparing for the boom. Fanuc Corp, which sold more than 18,000 units in 2010, last year increased production capacity to 60,000. Yaskawa Electric Corp. said it is building new plants in Japan and China to meet rising demand.
China will leapfrog South Korea and Japan to become the largest robot market next year, according to an IFR forecast. Units in operation worldwide will top 1.3 million by 2014, the lobby group said. Kuka held the number four position in China by market share in 2010, behind Yaskawa, ABB, and Fanuc, Daiwa’s Christine said.
Reuter, the Kuka CEO, said higher wages in China make investing in robots a simple trade off.
“It comes down to the question: at what cost can a robot do the job more efficiently?”
To contact the reporter on this story: Richard Weiss in Frankfurt at email@example.com
To contact the editor responsible for this story: Benedikt Kammel at firstname.lastname@example.org