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Fanuc posts 42% profit drop on China machinery orders plunge

October-December results suffer as trade war rages on

Fanuc industrial robots faced weak demand as many customers curbed capital spending. (Photo by Shintaro Terai)

TOKYO -- Fanuc's operating profit fell 42% on the year for the three months ended Dec. 31, with the Japanese company blaming a sharp decline in Chinese orders amid the Sino-American trade war.

Profit came to 35.7 billion yen ($328 million) on sales of 151.1 billion yen, down 20%, in results released Thursday.

In Japan and Europe, sales rose 4% and 9% amid active investment by manufacturers to improve efficiency. But China, which supplies a fifth of Fanuc's overall sales, logged a 56% decline. The Americas business registered a 19% drop as industrial robot investment by the automotive sector ran its course.

"We don't believe we will fall further from current levels, but the biggest problem is that we have no idea when we will see a recovery," Fanuc Chairman and CEO Yoshiharu Inaba told reporters. He cited the U.S.-China trade frictions as the chief drag on earnings.

The trade spat slowed capital investment by manufacturers in China, and smartphone-related robotic machinery languished. Automation equipment with broad applications, like numerical control systems, took a serious hit from the decline in demand.

"We started seeing the signs last summer and fell into the current conditions in autumn," Inaba said. "We have since crawled sideways at the bottom."

Orders for the quarter, seen as a key gauge of future earnings, decreased nearly 30% on the year to 137.2 billion yen. China orders sank 66%, more than the 49% logged for the July-September quarter.

Fanuc trimmed its full-year net profit projection from October's forecast by 400 million yen to 141.9 billion yen -- down 22% on the year. Operating profit is now seen dropping 36% to 147.9 billion yen, or 3 billion yen below the October outlook. Sales are expected to shrink 14% to 626.9 billion yen.

Fanuc's operating margin has fallen to the low 20% level -- a comedown from more than 40% in fiscal 2014. Besides lower sales, depreciation charges from investments for the future and research and development spending are weighing down profit for the time being.

Views differ on when demand will recover. A prolonged slump would erode Fanuc's profit next fiscal year as well. But there are also hopes that capital investment to support ultrahigh-speed 5G data service and China's economic stimulus will boost machinery demand.

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