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Fanuc says China business is back and lifts earnings forecast

But Hitachi Construction struggles as coronavirus threat looms

Fanuc, a major Japanese producer of factory robots, had been squeezed by dwindling capital expenditures in China.   © Reuters

TOKYO -- Japanese factory device maker Fanuc on Wednesday upgraded its full-year net profit forecast by around $70 million due to improved orders from China.

Fanuc now predicts it will earn a 65.9 billion yen ($603.8 million) profit for the year ending March, down 57% from the previous fiscal year. The bottom line had previously been downgraded twice to a level not seen in a decade.

The improved outlook is credited to Chinese enterprises that have relaxed strictures on capital expenditures put in place to cope with the trade war, prompting a recovery in sales of numerical control devices there.

"We have made progress in rationalizing inventory," Fanuc President and CEO Kenji Yamaguchi said in an earnings call. "Although it still doesn't compare to better periods, the factory automation business has staged a comeback."

Sales in China shrank 9% on the year during the three months ended December, marking the fourth straight quarter in which the negative margin has narrowed. Along with numerical control devices, sales of smartphone manufacturing machinery have also been robust.

"There has also been activity in the 5G space to an extent," said Yamaguchi, speaking of the next-generation wireless communication technology.

At Hitachi Construction Machinery, however, there are no signs of a recovery in China. The company announced Wednesday that Chinese sales plunged 39% in October-December compared to a year earlier. Overall net profit for the nine months through December sank 30%.

Because of aggressive price competition by Chinese rivals, the company's earnings there have underperformed year-earlier numbers for five consecutive quarters.

In normal years, Chinese sales of construction machinery would peak after the Lunar New Year holiday, and demand for factory automation devices would rise as well. But the coronavirus outbreak has induced the Chinese government to extend the break.

Cities like Shanghai and Suzhou have notified businesses to postpone resumption of operations, creating the potential for lost sales opportunities. If factory closures persist, it could negatively impact the automotive supply chain.

Both Fanuc and Hitachi Construction Machinery are maintaining a cautious stance on business outlooks.

"There is a risk of a decrease in sales if the [coronavirus outbreak] is prolonged," said Tetsuo Katsurayama, chief financial officer at Hitachi Construction Machinery.

"The forecast is uncertain, and we should closely monitor the effects that are forthcoming," said Yamaguchi.

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