Medium- to long-term growth prospects are emerging for precision gearbox maker Harmonic Drive Systems of Japan. Small robots for industrial use have entered the Food manufacturing, medical, and logistics fields. The opportunity has arrived for Harmonic, which holds a quota of 8 percent in the field of gearboxes for robots that can move up to 10 kg, but behind it are the footsteps of Chinese companies that are constantly catching up.
Trade statistics show that Japan’s industrial robot exports in January were 13,249 units, up 54% from the same month the previous year. Demand for industrial robots is also picking up as investment in equipment resumes in China, which was the first to contain the new crown Epidemic and achieve economic recovery.
One trend noted by Yuichiro Hayama of Goldman Sachs Securities is that as the number of units exported increases, the unit price per unit is declining. In a report sent to clients in February, Yukiyama maintained his bullish view on Hammonaco, saying that “this trend will continue in the future due to changes in product composition.
Hammonaco raised its earnings forecast for fiscal 2020 (ending March 2021) in February. Consolidated final profit or loss is expected to turn from a loss of 450 million yen to a profit of 500 million yen. As a leading indicator of results, order bookings increased 58% from October to December 2020 compared to the same period of the previous year.
One of the reasons for the decline in the unit price of export robots is the growth of small “collaborative robots” that can be set up right next to workers on production lines. Research firm MarketsandMarkets forecasts that the world market for such robots will increase eightfold to 860 billion yen by 2026 compared to 2020, with models that can carry less than 5 kg becoming mainstream.
Precision reducers for industrial robots
Another survey shows that the proportion of collaborative robots is currently around 5% from the overall view of robots in manufacturing, but will reach more than 10% by 2025.
FANUC, a Japanese industrial robot manufacturer, plans to increase the production capacity of the CRX series of collaborative robots, which will be available in June 2020, to about three times its original capacity in 2021. In addition to the original labor shortage, non-contact demand is also increasing due to the new crown epidemic.
Hammonaco’s involvement in “swing gear” reducers is suitable for miniaturization of robot structures, and the expansion of the market for collaborative robots is expected to boost the company’s profits.
Hammonaco’s investment in increasing production was almost completed as of last fiscal year. Investment in equipment such as the construction of a new factory in Nagano Prefecture amounted to 23.8 billion yen in fiscal 2018, compared with 7.8 billion yen in the previous fiscal year, but only 2.8 billion yen in fiscal 2021.
The monthly production capacity of Hamonaco reducers in Japan was 85,000 units in 2018 and is expected to reach 200,000 units in the future. The company’s President Kei Nagai said that “investment in equipment in difficult times will bear fruit in the future,” despite cash outflows due to the downturn in orders and iterative investment in large-scale equipment caused by friction between the U.S. and China.
Hammonaco’s shares hit their highest price since going public in late 2020, but the rise of competing companies could pose a threat in the long run. Hammonaco still maintains an edge in terms of refinement and durability built up through fine-tuning for different customers. However, Chinese company Green’s Harmonic Drive Technology (leaderdrive, hereinafter: Green’s Harmonic), which launched commercial production of gearboxes in 2014, saw its sales increase 16% year-on-year to 3.6 billion yen in 2020, and its total market capitalization rose to 180 billion yen.
Green Harmonic’s customers are mainly local robotics companies in China. China is working to develop and support the robotics industry through its high-tech industry support policy “Made in China 2025”. This is dismantling the “stronghold” of Japanese and European companies.
China’s national goal is to increase the ratio of domestic brands of robots and core components to 70% by 2025, and in 2016 Chinese appliance maker Midea Group acquired German robotics major KUKA. China’s large robotics maker ESTUN AUTOMATION of Nanjing has acquired German and British counterparts in recent years, and its share price rose to 2.6 times in 2020.
In general, collaborative robots do not require high levels of precision and durability compared to those used in production lines for automobiles and electronics. If collaborative robots from Chinese companies rise to prominence, the impact of price competition is likely to spill over to Japanese and European companies that work with Hamernach. If caught in a war of attrition with cost competition, Nidec-Shimpo, which has the financial strength, may be more favorable.
In the case of collaborative robots, Japanese securities analysts say that “15% annual growth is expected in terms of the number of units, but it is difficult to further expand the market size” and that price competition is bound to come in the future. If Hammonaco is to achieve a further increase in its share price, it will have to come up with more evidence to prove its prospects for continued growth.