Are Robots All Hype? One Company May Have the Answer

(Bloomberg Opinion) -- Will robots run the factories of the world? There may be clues in Japan.

Tokyo-listed Nidec Corp. makes motors of all sizes that show up in just about everything: your car, your washing machine, even hard-disk drives from back in the day. The company was founded in 1973 by Shigenobu Nagamori, an acquisitive and ambitious Japanese billionaire who counts Masayoshi Son, SoftBank Group Corp.’s chief, among his inner circle.

Nidec effectively created its now-crucial market, becoming a key supplier to computer hardware and consumer-electronics makers. The firm has since acquired more than 40 companies. 

This ubiquitous yet low-profile company has a knack for anticipating major business trends; and its capital-expenditure cycles have become something of a leading indicator for Japan’s manufacturing sector. So when Nidec starts ramping up investment in robots,an important trend could be in the offing. 

Nagamori’s latest splurges could also hint at how the world’s future factories will look. “The decline of the global work age population is creating a huge demand [for robotics], coming not only from manufacturing industries, but also from food, logistics and service industries,” the company’s CFO, Akira Sato, said in an earnings call in July. Nidec reported record operating profits and raised its full-year sales and profit targets in the first quarter.

Nidec is now set to buy five German companies and will spend 50 billion yen ($450 million) this year shopping for firms that make things like robot parts, the Nikkei reported this week. The report also noted that Nidec will spend as much as 20 billion yen a year on each of the acquisitions through March 2019. On Monday, the company confirmed it had acquired Germany’s MS-Graessner GmbH — one of the five.

Cue Japan’s capital-spending data, which this week showed the fastest pace of growth in over a decade for the second quarter. Companies’ profit margins have increased in tandem with robot shipments.

For all the skepticism around the future of robots, the smartphone cycle and its impact on machinery, demand continues to hum along. Longer-term data show that industrial-robot exports from Japan have increased over the last year, especially to Europe. Global capital expenditure continues to grow as well. 

Nidec is now converting a factory in the Philippines — once used to make spindle motors for hard-disk drives — to one that will make compact reducers, key parts that account for as much as 40 percent of the cost of advanced robots. It’s building a factory in Pinghu, China, for traction motors needed in electric cars, a market that could grow to around $19 billion by 2030, according to Goldman Sachs.

Capital spending isn’t the whole story. The flip-side is a labor shortage, as Nidec noted on its earnings call. Global manufacturing will be short 7.9 million workers by 2030, despite being the only sector with an excess of highly skilled workers in two years, according to a Korn Ferry study in May. In Japan, the trend is even more acute, as the number of factory workers has declined over the last two decades.

Japan produces more than half of the world’s robots. But while the density of installed industrial robots per 10,000 workers is relatively high, the figure remains below that in Germany, Singapore and South Korea. There’s a vacuum that needs to be filled.

Even with concerns that U.S.-China trade frictions could unwind manufacturing supply chains, there’s no escaping the need for automated factories. Here, investors’ perception is out of sync with reality: Nidec and its peers are trading at price-earnings multiples that, while still high, are at a 20 percent to 40 percent discount from the start of the year. Market ructions aside, it may be time for a reassessment of Japan’s robots. Nidec’s pattern of prescience is worth heeding. 

To contact the editor responsible for this story: Rachel Rosenthal at rrosenthal21@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. She previously worked for the Wall Street Journal.

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