FANUC CORPORATION

Q&A Summary of the Telephone Conference
on Financial Results for the Second Quarter ended Sep. 30, 2023
(Oct. 31, 2023)(April 26, 2022)
Q: Has there been any changes in the situation compared to three months ago?
At the Conference for Q1, orders for Q3 and Q4 were forecasted to improve to someextent. Is this forecast still the same?
A: Three months ago, it was anticipated that China would slightly recover. However the paceof recovery was slow, and the “wait and see” attitude for capital investments remains to thisday. In our overseas group companies, inventory of finished products has increased. This
has led to inventory adjustments, resulting in the decrease in orders to FANUC
Headquarters. Inventory is gradually decreasing but is taking more time than what wasexpected three months ago.
Orders for Q3 and Q4 are likely to maintain the same level as Q2. The reason is the overall
trend to “wait and see” regarding capital investments, which is not limited to China. In
Europe and in the United States as well, high interest rates among other factors, haveinduced this attitude.
Q: Regarding inventory adjustments especially for FA, do you have an estimate of when
this will end? Please inform us of your present situation.
A: Inventory adjustments are still continuing. The majority of FA inventory is accountable toChina, but since the Chinese economy is not in a good state, the pace of inventory
adjustments is slower than expected, and will take time.
Nevertheless, even if inventory adjustments will not be completed, if actual demands
increase, orders will grow in parallel. The situation must be monitored carefully.
Q: Please explain the status of ROBOT orders by region and industry.
A: The inventory of ROBOTs as well has increased in overseas group companies. This is due
to advance orders being placed during the period when delivery time became longer. At
present, inventory adjustments are in progress, resulting in the decrease in orders toFANUC Headquarters.
Since there is a backlog of orders accumulated from the past, overseas offices areexperiencing good sales. Still, the “wait and see” attitude for capital investments is prevalent
in China, and in addition, the same attitude is starting to appear in Europe and in the UnitedStates, due to inflation and high interest rates. The impression is that orders in overseas
group companies is becoming slightly sluggish.
Currently, we are encountering a temporary phase of making adjustments, accompanied
by a “wait and see” attitude for capital investments. However, the problem of labor shortageis a reality that has not changed, and it is expected that the trend for automation using
robots will grow stronger in the mid-to-long term.
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Q: Please tell us about the completely renovated CNC (FANUC Series 500i-A). How will
this increase added value?
A: The lineup of FANUC CNCs consists of the middle-end 0i series and the high-end 30i series.
The new 500i-A is the successor of 30i.
In terms of volume, China is the formidable market for 0i, while Japan and European
countries prefer high-end CNCs. The presence of FANUC CNCs in Europe is currently
rather weak due to historical reasons, and to make further inroads into the European market,
30i could not be said to be sufficient. Also, European customers are used to operating
locally-made CNCs. To supersede this familiarity, it was assessed that performance had tobe further enhanced, and this is the background in which the 500i-Ａwas born. This CNC
will be exceedingly useful in not only winning European machine tool builders, but also formachine manufacturers in Japan and other countries to penetrate the high-end markets inEurope and other regions.
Compared to ROBOTs, the increase in sales volume of CNCs is not substantial. Therefore,
we believe that emphasis should be placed on how to increase added value. Software
options such as Servo Learning Oscillation, AI thermal displacement compensation, and AIServo Monitor will add more value, and through these options, we are striving to raise theunit price.
In order to facilitate our approach to improve added value, we have high hopes that thisnew CNC platform will make a contribution.
Q: What is the situation of channel inventory?
A: Of FANUC’s overseas group companies, the only joint ventures are the companies in China.
Basically, we sell our ROBOTs to our overseas subsidiaries. Besides our subsidiaries’
inventories, dealers also have our products in stock, but the volume is small. Each overseas
group company sells products to end users and dealers while having to decrease their own
inventory. This has brought on a situation in which orders to FANUC Headquarters has
decreased. If the economy was healthy as in the past, with capital investments being madeactively, inventory would have decreased more quickly. However, the “wait and see” attitude
for capital investment has slowed down the pace of inventory adjustments. In order tospeed this up, our approach is to proactively promote our added values to customers,
instead of lowering prices.
Q: For inventory adjustment, is decreasing the production volume being considered?
A: Needless to say, inventory adjustment would be accelerated if less were produced. However,in light of our relationship with suppliers, a sharp decrease in production would entail
negative aspects. Although the rate of the decrease in inventory will be lower and will takemore time, it is perceived that inventory will decrease at a moderate pace without having
to significantly lower our current production level.
Q: Is there a risk that channel inventory will generate uncertainty in next year’s
forecast?
A: Such risks certainly exist, but after various simulations, the approach we have presently2adopted was deemed to be the best. Depending on the future environment, such as themarket getting worse, a more aggressive approach will be required, but for now, we shallwork on reducing our inventory at a modest pace.
Q: Compared to the operating income after the downward revision in Q1, there has been
an upward revision of 3.6 billion yen. Is this upward revision of sales and profits
attributable to the currency rate?
A: The changes in the currency rate have indeed increased sales and profits. However, theyen weakened dramatically in Q1, which increased the amount of elimination of intra-groupprofits in inventory. This had an impact on Q1 results and is the foremost reason why Q2
improved relative to Q1.
Q: Despite business confidence being low worldwide, your service results wereextremely good. Are services that did not exist in the past, such as FIELD system,contributing? Please explain the background.
A: Our efforts to increase the profitability of our service business has gradually borne fruit andhas become evident. This is the basic reason.
Customers’ adoption of our IoT platform has just begun, and making its use widespread isa challenge for the future. We are increasing the sales of service bit by bit, such as byrecommending maintenance agreements which are beneficial to customers, andconducting preventive maintenance. We feel there is much more room for growth.
As FANUC expands its business going forward, service will occupy a substantialpercentage. Our CNCs, ROBOTs and ROBOMACHINEs are installed in great numbers
throughout the world. By leveraging these products to connect to the service business,further opportunities will be created.
Q: What is the state of ROBOSHOT orders?
A: The injection molding machine market on the whole is in a poor state, and this is the samewith our ROBOSHOT business. On the other hand, according to our calculation, the shareof ROBOSHOT has not dropped. Therefore, it can be said that we are putting up a goodfight in an unfavorable market.
There are various applications for ROBOSHOT such as those related to smartphone lenses,
light guide plate and precision connectors. Regarding connectors, the volume will increase
tremendously for EVs. However, the mindset to invest is not positive, so it is difficult topredict when this will happen.
Besides these applications, there are many injection molding machines which are notelectric in the world. Especially as Europe has been slow in adopting electric technology,
there is great potential to increase ROBOSHOT sales by focusing on saving energy.
(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