FANUC CORPORATION

Q&A Summary of the Telephone Conference
on Financial Results for the Third Quarter ended December 31, 2023
(January 26, 2024)
Q: What is the current status of inventory adjustment of each product line, and when do
you think these adjustments will be completed?
A: First, regarding FA, FA products are seen as being components by our customers who aremachine tool builders, hence there were cases in which they placed orders in advance.
Especially as there was a shortage of electric and electrical parts, which vastly prolonged
the delivery of our FA products, FA was the first to experience an excess in inventory.
Though the appropriate level has yet to be reached, inventory adjustment is progressing ata relatively fast pace. The inventory in China, which is highest in volume, has substantiallydecreased, and though some countries still have inventory slightly more than required, it
can be said that inventory adjustment is gradually proceeding. Next, as for ROBOTs, orders
have continuously been received actively, but inventory adjustment was started late so it isstill ongoing. The forecast for the duration of inventory adjustment includes factors whichcannot be foreseen. For example, if local demands are weak, inventory adjustment will takelonger, and if orders are higher than expected, an earlier completion can be possible.
Though there are differences between countries, the United States, Europe and China havea high level of inventory locally. Therefore, we presume that it will take around half a year
at the minimum for inventory adjustment to be completed. As for ROBOMACHINE, theinventory is almost at a suitable level.
Q: Tell us about the inventory in the United States.
A: FANUC America’s inventory can roughly be categorized into two types. One is where orders
are received from customers, but due to minor delays in their plans, FANUC America keeps
the ordered items in their inventory. The second is the case in which FANUC America
presumed orders would be placed by customers and ordered to FANUC Headquarters attheir own risk. These ordered items are included in their inventory. In the second case,
immediate delivery is possible, so items can be sold quickly under the favorable conditionof a short delivery time. However, the percentage of the second case is not very large.
Therefore, decreasing inventory is expected to take time.
Q: What is the order status of ROBOT and FA and details according to region?
A: From Q2 to Q3, orders for ROBOTs have increased by an amount close to 5 billion yen. The
decrease in China has been compensated by increases in the United States and Europe.
In the United States, the performance of Q2 was low, which in comparison makes Q3 look
good. In Europe, orders for the automotive industry, mainly for EV related products, haveincreased, which is the background for this increase. The performance of each quarter1changes substantially depending on whether a large order is received or not, so pleaseconsider this as reference information.
As for orders for FA, inventory adjustment in China has progressed to some extent andHeadquarters is starting to gradually receive orders from our group company in China. On
the other hand, in other regions, demands for machine tools continue to be weak, and being
in the midst of inventory adjustment, we are still monitoring the situation carefully. By
considering the overall situation as described above to calculate the total, recovery isbecoming realistic for FA in terms of volume, due to the gradual rise in orders, though limited
to China.
Q: Can you provide details on the backlog of ROBOT and FA?
A: Compared to other products, the backlog of ROBOTs was large for a longer time, but atpresent, delivery time has become normal. The same applies to FA. Though inventory
adjustment has not been completed, inventory has decreased considerably. Though there
was a gap in the past, we are receiving orders from our overseas group companies at alevel that is close to the volume that is sold to machine tool builders.
Q: What is the present production status and forecast for the future?
A: The current situation is that in proceeding with inventory adjustment, we are adjustingproduction within the company. Compared to Q2, production has slightly decreased in Q3.
A drop in sales is expected in Q4, so we presume that production will also be reduced inline with this drop.
Q: Are there any negative factors for Q4 that you are presently aware of?
A: Compared to Q3, sales is forecasted to decrease. Up to now, the order backlog was large
which resulted in the high level of sales compared to orders. However the backlog will soon
become appropriate, so the level of sales is predicted to match the level of orders.
Q: If orders in Q4 retains the same level as Q3, and the backlog of orders is cleared,
profits will probably decrease. What countermeasures are you taking in light of thisscenario?
A: If the state of orders continues as it is, a decrease in sales can be expected. To deal withthis situation and raise profits, even if minimal, we are cutting costs and trying to increase
sales and profits by enhancing added values. Especially, software functions are being
developed, and we are thoroughly making efforts to improve profitability, no matter how
little the amount is.
Also, inflation is becoming an overall trend, but compared to a certain period in the past,
the increase in prices of materials has settled down, so we will focus on cutting costs evenmore seriously than in the past.
It is FANUC’s tradition for all employees to take part in lowering the cost of sales ratio andincrease profits by even one yen. I feel that it is necessary to do this extensively.
Q: Teachingless Robots, CPS: What does FANUC think about robots using Cyber
Physical Systems (CPS)?
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A: For more than 20 years, we have been using robots in our own factories which moveautonomously using sensors, and have also been selling them to customers. Connecting
robots from different manufacturers, or moving robots by having robots recognize theoutside world with sensors to generate paths in a virtual world using CAD data are possible
with our ROBOTs as well.
We presume that our customers understand such technology, but we feel that there is aneed to make efforts to have our securities analysts and shareholders understand byexplaining our technology in a manner that is easier to comprehend.
Q: Can you explain the state of shares in the Chinese robot market?
A: It is a fact that local manufacturers in China are increasing their shares. On the other hand,
FANUC, from the start, does not focus on robots without requirements for high performanceand that are extremely low priced.
Q: Did people from non-manufacturing industries visit the International RobotExhibition (iREX)?
A: There were many visitors from industries related to logistics. At this exhibition, we displayed
the palletizing of cardboard boxes. There was also an abundance of visitors from foodrelated industries. A great number of visitors were interested in the exhibit of robots
decorating cakes. Our display consisted of a system that was set up being conscious of
how robots are actually used in factories. There were many visitors who said they would
like to take our system back to their companies in the state in which it was displayed.
Q: It is said that the number of visitors and business discussions have substantiallyincreased at the International Robot Exhibition. What do you think is necessary toturn such opportunities into orders?
A: It is necessary for robot manufacturers like ourselves and system integrators to explain thebenefits to customers and make efforts to motivate capital investments. When a situation
turns into one in which “we have to hire people but there are no applicants, yet we must
manufacture,” this will result in investments in robots, which will gradually increase in thefuture.
Q: Looking ahead, if logistics costs increase, will you consider manufacturingoverseas?
A: It is our view that manufacturing overseas will not reduce costs by much. The increase inlogistics costs that is expected at present will not be reason enough to contemplate
manufacturing overseas. It is our belief that concentrating production in Japan andexporting overseas will cost less.
(Note: Any reference in this material about the future may be affected by uncertain factors,
such as supply and demand trends, industry competition, and economic climate.
Therefore, actual outcomes may differ.)3