TOKYO -- Mitsubishi Heavy Industries and Toyota Motor group member Jtekt are forging an alliance in machine tools to take advantage of unprecedented demand from China and develop new earnings sources.
Mitsubishi Heavy, its subsidiary Mitsubishi Heavy Industries Machine Tool and Jtekt reached a basic agreement on a partnership Friday that they aim to formalize at the end of July.
Nagoya-based Jtekt, which supplies autoparts as well as machine tools, may invest in MHI Machine Tool as part of the deal. Jtekt's machine tool segment took in 156.3 billion yen ($1.38 billion) in sales for the year ended in March, against MHI Machine Tool's nonconsolidated figure of 36.5 billion yen. Together, they would surpass Japanese industry peer Okuma's tally of 162.6 billion yen but remain well behind leader DMG Mori, which had 376.6 billion yen in sales for the year ended December 2016.
Jtekt's strengths include grinding machines that produce shafts and cranks for cars. The company also makes devices that can help manufacturers work more efficiently by networking production equipment -- part of the so-called internet of things. But it has been looking to branch out further because roughly 70% of orders come from the automotive industry, including Toyota.
MHI Machine Tool was spun off from Mitsubishi Heavy in 2015. Its mainstays are large machines for automobile and airplane production as well as gear cutting machines. The company focuses on niche fields but needs a complementary partner to enter new growth areas, Mitsubishi Heavy said.
A partnership could help the companies better market their machines, since their customer bases overlap. The partners also expect synergies in design and parts procurement, among other benefits.
The Japan Machine Tool Builders' Association says monthly orders topped 150 billion yen for the first time in November, and the yearly total likely will set a record for the first time in 10 years. China-bound orders have grown despite fears of a slowdown as investment in automation and other factory upgrades there expands beyond smartphone-related production.
But machine tool orders are easily swayed by economic conditions. "Now is the time to lay the foundation for new growth, while business is good," a Mitsubishi Heavy spokesperson said.
Tokyo-based Mitsubishi Heavy has spun off operations as shipbuilding, nuclear power, the Mitsubishi Regional Jet and other mainstay businesses struggle. A new company for the shipbuilding division will be formed in January, following in the footsteps of operations for thermal power generation machinery and passenger aircraft.