Back on July 11 I wrote a Sector Monday post on the robotics sector on my subscription site JubakAM.com. I’ve already added Fanuc (FANUY) to my long-term 50 Stocks portfolio. And tomorrow with this post I will be adding Nidec (NJDCY) to that same long-term portfolio. That leaves only Autodesk (ADSK) from that post as a potential stock pick. On July 11 I wrote that I’d wait to see if we got any kind of a dip during technology earnings season, which goes into high gear next week, before adding Autodesk to any of my portfolios.
In my post I wrote that “we’re in the middle a boom in the market for machines that replace workers in manufacturing but that is also spreading to jobs in warehouses and hospitals. Global spending on robots is forecast to grow, according to the Boston Consulting Group, to $67 billion by 2025 from $27 billion. Another projection, this one from International Data Corp (IDC,) sees worldwide spending on robots doubling by 2019. If you define the universe slightly differently, as IDC does, to include robots and robot services the current market is larger–$71 billion in 2015–and the end point is $135 billion in 2019. That’s a compounded annual growth rate of 17%. (By 2019 revenue from services will exceed sales of hardware, IDC says.)”
“The growth hasn’t been coming all from the developed world. Five countries dominate global purchases of robots–Japan, the United States, Korea, Germany, and China. China has become, by far the biggest market in recent years. In 2013 China bought 1 in 5 of all robots sold in the world or a total of 36,560 industrial robots, according to the International Federation of Robotics. Japan bought 26,015, and the United States bought 23,679. In 2014 China bought 57,096 units (56% more than in 2013), Japan bought 29,300 and the United States 26,200. Asia as a whole has become the world’s biggest market with 139,300 units purchased in 2014. Makers of semiconductors and electronics are among the biggest and fastest growing markets with sales up 35% in 2014. The auto industry, the traditional largest purchaser of robots, remains the biggest market.
“Even with all these purchases by China, there’s still lots of headroom there. In 2012 China had just 23 robots for every 10,000 people working in manufacturing. Korea had 396 per 10,000 manufacturing workers. By the end of 2015 those figures had changed to 49 for China versus 176 for the United States and 531 for Korea, the world’s leader in robot deployment. The economic appeal of robots is the driver here. German robot maker Kuka estimates a typical robot costs about 5 euros ($5.70) an hour to operate over its life. The hourly compensation (wages plus benefits) cost of U.S. manufacturing was $36.49 per employee in 2013.
“The robotics industry is dominated by the Big Four–Japan’s Fanuc (FANUY or FANUF in New York and 6954 in Tokyo), Japan’s Yaskawa Electric (YASKY or YASKF in New York or 6506 in Tokyo), Swiss ABB (ABB in New York) and Germany’s Kuka Roboter. (China’s Midea Group, a maker of household appliances, recently completed its acquisition of 76% of Kuka’s shares.) The Big Four, for example, made half of all robots sold in China, according to Bernstein Research. Their dominance is even greater in specific segments of the robotics market. Fanuc, for example, has a 60% share of the market for the computer numerical control equipment for machine tools.”
But, I noted, trends in the sector point to the increasing importance of software (hence my strong look at Autodesk) and small precision motors. Like those made by today’s pick Nidec.
Nidec (NJDCY:US in New York) is a Japanese maker of brushless DC motors. Don’t know whether you’ve noticed but more and more devices are adding small motors–a NIDEC specialty–to perform tasks that we once did manually. And in more and more cases those motors have to be at least semi-smart and it doesn’t hurt if they’re energy efficient too. Those demands add up to a big push toward rising sales in traditional markets such as robotics and new markets such as automobiles.In the fiscal year that ended in March 2016, sales of small precision motors were Nidec’s fastest growing segment by sales with a year over year increase of 26.6%. In the company’s Vision 2020 plan, however, Nidec sees its biggest growth–aided by acquisitions–in the automotive market for small motors (forecasted growth of 158% to 269% from fiscal 2015 to fiscal 2020) and commercial and industrial uses (41% to 112%). For the fiscal 2017 year that ended in March the company saw sales increase 2% and earnings per share climb 24.7%. For fiscal 2018 Nidec is forecasting a 12.6% increase in sales. (In the automotive sector Nidec looks well positioned to profit from the shift to electronic from hydraulic systems in auto power trains. In robotics the company’s brushless DC motors combine limited intelligence with energy savings. In other uses, such as the motors used to feed currency in ATMs, Nidec’s motors offer substantial energy savings.)
The company’s restructuring about five years ago has put Nidec in a position to pursue that kind of growth. The company went net cash positive in fiscal 2015 for the first time in six years. And that has given Nidec the room to make capital investments and to pursue acquisitions. In February Nidec completed the acquisition of the motors, drives and electric power generation businesses of Emerson Electric (EMR.) In March it announced that it had acquired Vamco International, a privately owned U.S. company wth a leading position in high-speed feeding equipment. In April it moved to acquire Germany’s Secop Holding. And this month Nidec announced that it acquired LGB Elettropompe Srl, an Italian commercial pump and motor manufacturer. I don’t know what’s more important–Nidec’s continued expansion into worldwide markets or its addition of new product lines–but the company seems like it’s moving on both fronts. (And in what is still an unusual use of cash for a Japanese company, in January Nidec approved the purchase of 5 million of its own shares.)
I will be adding Nidec’s New York traded ADRs to my long-term 50 Stocks portfolio tomorrow. The ADRs are up 19.55% in 2017 through July 17 and ahead 30.25% in the last 12 months. They carry a 0.79% yield.