Fanuc Still Under Pressure From The Automation Slowdown

Since my last update on Japanese factory automation specialist Fanuc (OTCPK:FANUY) (6954), the shares have declined about 6% - broadly in line with other Japanese automation plays like Yaskawa (OTCPK:YASKY) and THK (OTCPK:THKLY), but lagging Western players like Rockwell (ROK) and ABB (ABB). Fanuc has also been one of the weaker stocks in the group over the past year, an issue that I believe ties back just as much to the overheated valuation as fundamental deterioration in the business.

I still see a lot of challenges for Fanuc. The company’s extensive investments in capex have created a lot of operating overhead, and it’s no better than unclear to me as to whether significant increases in R&D spending over recent years have really improved product vitality and competitiveness. Worse still, I see more competition eroding the company’s former strength in CNC controls and I haven’t been all that impressed with the company’s leverage to opportunities like cobots or industrial IoT.

Fanuc still enjoys a strong reputation as arguably the go-to name in Japanese automation, and I think that is reflected in the share price. I expect business to pick up significantly in the coming years, and I see significant potential to improve FCF margins, but I can’t make the valuation work.

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Fanuc Still Under Pressure From The Automation Slowdown