Keyence — Company History

A third start-up after two failures, built on automatic wire-cutting machines

Takizaki Takemitsu (滝崎武光) was born in 1945 and graduated in 1964 from Hyogo Prefectural Amagasaki Technical High School, after which he learned electronic control at a foreign-owned maker of plant control equipment. The electronic-equipment maker he set up on his own was driven to dissolution, and the machinery-assembly subcontractor he founded next went bankrupt. His school years fell in the middle of the campus disputes, but he took the view that ideology will not change the world (Nikkei Business, 22 May 1989) and set his mind on becoming a businessman who could compete with numbers. In March 1972, at 27, Takizaki started for the third time, founding Lead Denki (リード電機) as a sole proprietorship in Itami, Hyogo, and taking up the development, manufacture and sale of automatic control equipment and electronic application equipment. The founding business was automatic wire-cutting machines for cable makers; armed with the miniaturisation that electronic control allowed, he delivered them to cable makers around Amagasaki such as Furukawa Electric and Sumitomo Electric.

The wire-cutting machines of the founding business were unglamorous industrial machines used on the shop floors of cable makers, yet their operating margin reached 20%. In April 1973 the company developed a range of sensors for factory automation and began manufacturing and selling them. In May 1974 Takizaki reorganised the business as a joint-stock company in order to answer the very large demand in industry for rationalisation and labour saving (Securities Analysts Journal, December 1987), establishing Lead Denki Co., Ltd. in Amagasaki, Hyogo. Two years and two months had passed between the sole proprietorship and incorporation. From the question of what it would take to keep a company alive rather than let it fail, Takizaki arrived at the pursuit of rationality — the greatest added value from the smallest capital and the fewest people — and set a criterion that placed the rate of profit ahead of growth in sales.

The double-blank detector for Toyota, and full entry into sensors

In 1973 Takizaki fixed on the problem of dies breaking on press shop floors and developed a double-blank detector, which used magnetism to sense without contact when two metal sheets were fed at once. He put a unit price of $310 (¥85,000) on a sensor that protected dies worth hundreds of millions of yen, laying down a policy of value pricing in which the price was set from the effect the customer gained rather than built up from cost. The product was adopted first by Toyota Motor and spread to the main carmakers — Nissan Motor, Mitsubishi Motors and Honda Motor. As of 1977 the line-up consisted of this detector together with a micro-position detection switch, the D.F DETECTOR, a metal-fragment passage confirmation switch and a seam detector, all concentrated on applications that caught metal without touching it. Takizaki said, because these are products no one else has, promoting them through trading houses and distributors does not carry the value of our products to the customer properly (Securities Analysts Journal, December 1987), and from the founding he built a structure that sold directly to the end user.

In 1982 Takizaki transferred to another company the rights to manufacture and sell the automatic wire-cutting machines that had been the founding business at a 20% operating margin. The cutting machines were a profitable line accounting for about a tenth of sales, but he let them go on two grounds: the difference in product content wasted development effort, and concentrating on FA sensors, which ran at a 40% operating margin, would make earning power stronger. Through the following year, 1983, he also deliberately cut back the large orders from a machinery maker that had come to account on its own for nearly 30% of sales, on the ground that they undermined the stability of the business. The two contractions widened the range of sensor product development, and the customer base reached 35,000 companies. From the year ended March 1981 onwards the company held an ordinary profit margin of 35% or more.

Three principles: direct sales, standard products and value pricing

The three principles laid down in the founding years became the backbone of management from then on. The first was direct sales, in which sales staff went to the customer's shop floor themselves rather than through distributors. The second was a line-up narrowed to standard products that aggregated needs, rather than bespoke items for individual customers. The third was value pricing, set from the effect the customer gained on adoption rather than from cost. The markets for measurement and control equipment and for automation measuring instruments were small, each on the order of several billion yen, and the company created the market in each product, took a high share and held the position of price leader. By 1983 it had competitiveness that outstripped the major electronic-equipment and measuring-instrument companies, and in particular a 30% share in level sensors applying the reed switch (Nikkei Sangyo Shimbun, 1 December 1983), standing first among domestically made level sensors.

The product range grew in stages. In April 1980 the company entered photoelectric sensors. In April 1983 it developed fibre-optic sensors for the electronic-components and consumer-electronics industries and made a full entry there, giving it two mainstays: magnetic sensors and photoelectric sensors. In March 1985 it set up a local subsidiary in the United States, KEYENCE CORPORATION OF AMERICA, and in September of the same year established a manufacturing subsidiary, Krepo Co., Ltd. (クレポ), in Takatsuki, Osaka. Even so it carried out no actual production itself: only the roughly 25% of products where know-how was the key were made at the subsidiary, and the remaining 75% were contracted out to partner firms. In November 1984 the head office moved to Takatsuki, Osaka; in 1986 the company began selling sensors using semiconductor lasers, and in 1987 programmable controllers.

In October 1986, to unify the brand with the corporate name, the company changed its name from Lead Denki to Keyence Corporation. Starting with the opening of a Tokyo sales office in September 1979, it spread sales offices across the country and built a network that could sell directly to more users. The Esaka district of Suita, Osaka, where the head office had been, lay five minutes by subway from Shin-Osaka station on the Shinkansen and drew young research-and-development-led firms; it was called a mecca for venture business (Nikkei Sangyo Shimbun, 5 October 1984). Sales for the year ended March 1986 were $36.1M (¥6bn), up 44.1% on the previous year, and the operating margin was 39.4%.

Listing on the Osaka Second Section, and ¥60.1bn raised from the market

In October 1987 the company listed its shares on the Second Section of the Osaka Securities Exchange, raising about $144.5M (¥21bn) in a public offering. The equity ratio, 62.6% in the year ended March 1987 before the listing, jumped to 90.3% for the year ended March 1988 and 90.6% for the year ended March 1989. In December 1989 it listed on the Second Section of the Tokyo Stock Exchange, and in September 1990 on the First Sections of both the Tokyo and Osaka exchanges; the listing and two subsequent public offerings together raised $415M (¥60bn) directly from the equity market. Under a business model with no factories, investment in premises after the listing amounted only to a production control centre established in September 1990 and a new head office and laboratory completed in August 1994.

The capital policy at the listing was framed on the premise that the founder's stake would be maintained. As of 20 March 1989 Takizaki Takemitsu held 25.69% and T.T. Co., Ltd. (ティ・ティ), the Takizaki family's asset-management company, 18.84%. Adding the 1.66% held by Takizaki Miyako (滝崎美弥子), the founding family's side came to roughly 45%. The secondary offering at the listing was limited to the two million shares Takizaki released, of which the lead underwriter Nomura Securities took one million. For the year ended March 1989 sales were $106.3M (¥15bn) and operating profit $45.6M (¥6bn), an operating margin of 42.9%, with net profit of $20.2M (¥3bn). A workforce of 438 sold directly to end users from 21 sales offices nationwide, and exports were only 6.3% of sales.

Pay tied to operating profit, and the loop it set going

In late April 1991 Keyence shares, listed on the First Sections in Tokyo and Osaka, overtook Nintendo to record the highest share price in Japan. Takizaki returned a generous share of that exceptional profitability to his staff. Each month 10% of operating profit was distributed to every employee in proportion to base pay, so that a high operating margin fed straight through into remuneration. In a young company with an average age of 28, annual pay reached $74,344 (¥10m) once past 30. Takizaki said, in future I want not only the share price but the pay to be the highest in Japan (Nikkei Business, 24 June 1991), turning into a system his view that it was only natural for staff doing high-value-added work to be paid highly. The profitability itself came from a management that ran ahead of demand, digging out the latent demand that customers themselves have not noticed (Nikkei Business, 24 June 1991).

Through the 1990s the company owned no factory of its own at all: a single manufacturing subsidiary made the portion of products that required advanced production and development technology, and the rest of production was contracted out to partner plants with no capital ties. Subcontracted processing costs were only 16% of manufacturing cost, with raw materials making up nearly 80%. The structure turned some $15.3M (¥2bn) of processing fees and a little under $76.4M (¥10bn) of materials into products worth about $458.4M (¥60bn). Fabless production cannot answer build-to-order and forces build-to-forecast, but the company made forecasting work by always keeping products launched within the previous two years at 30% of sales. Director Hashimoto Norimasa (橋本憲正) said, the price and the performance are decided before development is even begun (Shukan Toyo Keizai, 4 April 1998), and products that did not pay were never put on the market. As of 1998 rather more than half of the 1,100 staff were in sales, gross margin was just under 80% of sales, and the operating margin was above 40%.

In January 1995 Takizaki said, we never had any intention of becoming a specialist sensor maker; this is a provisional form (Nikkei Business, 16 January 1995), placing the continuity of profit above the field of business as his criterion of judgement. In 1998 the company came third in a corporate value creation ranking that picked out companies using shareholders' equity efficiently. As of 2003 its high profitability rested on three things: the development strength to turn out a stream of products that were the first in the world or the first in the industry, fabless production, and consultative selling through direct sales. Takizaki said, what creates added value is technology and science. Not the past (Nikkei Business, 27 October 2003), and explained the fossil displayed at the head office with the line Keyence has no need of a past (Nikkei Business, 27 October 2003), disclosing his policy of never compiling a company history.

Succession away from the founder, and presidents from outside the family

In December 2000 Takizaki stepped down as president to become representative director and chairman, handing management to Sasaki Michio (佐々木道夫). He had been president for 26 years counting from the incorporation of 1974. The year ended March 1999 brought a sharp fall in both sales and profit, but the combination of direct sales and fabless production was not changed. As he put it in later years, when people say charisma, the image is of someone who decides everything himself. It is not like that — unless you delegate authority, convey the way of thinking and think together with the front line, good ideas do not come out (Nikkei Business, 27 October 2003); he avoided decisions that rested on one person and moved them along by delegation instead. In 2015 he retired to director and honorary chairman, standing back from day-to-day management.

Yamamoto Akinori (山本晃則) became president in December 2010 and Nakata Tamotsu (中田有) in December 2019. Both were promoted from within, and no one was brought in from the founding family. In April 2023 Takizaki again said, I have no intention of handing it to my own son either (Nikkei Business, April 2023), rejecting family succession. On taking office Nakata positioned the company's competitive advantage as something rivals could not imitate, saying, changes in the environment cannot be forecast. We do not even draw up a medium-term management plan; we concentrate on steadily working out what should be done (Nikkei Business, 18 February 2022). Yamamoto's presidency ran nine years and Nakata's six, to October 2025.

After the founder stepped back, the three principles of direct sales, standard products and value pricing remained the criteria of management. The remuneration system kept its link to operating profit: as of 2015 a fixed share of each month's profit was paid out once every three months, from directors down to ordinary employees. Average length of service lengthened from 8.0 years around 2005 to 11.1 years in 2015, and over the same period the headcount rose by more than half. Average pay rose from $136,054 (¥14m) for the year ended March 2014 to $189,130 (¥21m) for the year ended March 2018, and reached $162,195 (¥23m) for the year ended March 2023. For the year ended March 2021, sales and operating profit were three times what they had been ten years earlier, and the headcount, just under 8,400, about 2.7 times.

Twenty years of run-up, then more than half of sales from overseas

Overseas expansion began with the American subsidiary of March 1985, but until the middle of the 2000s most sales stayed at home. A German subsidiary followed in May 1990 and a Chinese one in September 2001, the bases going in first. For the year ended March 2006 sales by region were $749.9M (¥87bn) in Japan against $68.8M (¥8bn) in North America and $101.5M (¥12bn) elsewhere, Japan making up about 80% of the total. In September 2004 the president, Sasaki Michio, declared: we want to run sales bases around the world and build a three-pole structure across Asia, the United States and Europe. We want to raise the overseas share of sales, a little over 20% on a consolidated basis, to 50%. (Nihon Keizai Shimbun, 9 September 2004). That November he set out a plan to raise the number of Chinese bases to ten during the year ending March 2006 and to add about ten more across North and Central America and Europe, for a worldwide network of 70.

Sales for the year ended March 2009 were $1.8B (¥165bn), down from $1.9B (¥201bn) the year before under the impact of the Lehman shock. Under Yamamoto Akinori, who became president in December 2010, the company took its global expansion in earnest. Subsidiaries were set up in Brazil in May 2011, India in August of the same year, Indonesia in July 2013 and Vietnam in March 2014, carrying the consultative selling built at home straight overseas. By March 2015 the overseas network reached 200 bases in 44 countries (Shukan Toyo Keizai, 28 March 2015), and average overseas sales growth over the previous five years ran at 30%. The company had held an operating margin of 50% or more for the five years from the year ended March 2004, and the year ended March 2015 was the first time in seven years that it passed 50% again.

In fiscal 2014 the overseas share of sales passed half. Sales by region grew from $1.4B (¥165bn) in Japan, $537.9M (¥65bn) in the United States and $856.9M (¥104bn) elsewhere in fiscal 2014 to $2.4B (¥310bn) in Japan, $978.2M (¥129bn) in China, $840.4M (¥110bn) in the United States and $1.6B (¥206bn) elsewhere in fiscal 2021. A Philippine subsidiary was added in July 2016. Net profit for the year ended March 2017 was $1.1B (¥121bn), as sales of sensors useful for factory automation and quality improvement were strong overseas, in the Americas and Europe (Nihon Keizai Shimbun, 28 April 2017). Yamamoto took the view that if the job growth and reshoring of factories promised by the Trump administration in the United States came about, it would lead to wider investment in automation. In May 2024, at the fiftieth anniversary of the company's establishment, the fourth president, Nakata Tamotsu, set a target of 60% of sales from overseas.

Criticism over disclosure, and governance after the founder stepped back

Alongside the high profitability, the level of shareholder returns and of disclosure drew criticism, and from around 2015 investors pointed to the opacity of what the surplus cash was for. At the annual general meeting of June 2017, opposition was conspicuous to the proposal for the appropriation of surplus, including the dividend; behind it lay a payout ratio of 7.5%. The average among companies listed on the Tokyo Stock Exchange in fiscal 2016 was 33%, far above the company's level. At the general meeting of June 2021, votes in favour of re-electing Nakata Tamotsu as a director came to only 80.88%. In April 2009, to rescue the struggling software house JustSystems, the company had acquired 44% of its shares for $48.1M (¥5bn) through a third-party allotment of new shares.

In April 2022, with the Tokyo Stock Exchange's revision of its market segments, the company moved from the First Section to the Prime Market. Sales for fiscal 2023 were $6.4B (¥967bn) and net profit $2.4B (¥370bn), a record high following $6.6B (¥922bn) of sales and $2.6B (¥363bn) of net profit the year before. In fiscal 2024 sales passed ¥1trn for the first time at $7.1B (¥1.06tn), with operating profit of $3.7B (¥550bn) and net profit of $2.7B (¥399bn). The operating margin was 51.9%. For the year ended March 2022, sales were $5.7B (¥755bn) and operating profit $3.2B (¥418bn), an operating margin of 55.4%. The founder, Takizaki Takemitsu, has not stood at the front of management since retiring to director and honorary chairman in 2015.

New businesses and research: the options ahead

With sensors and measuring instruments as its axis, the company has widened its range into vision systems, control equipment and business information equipment, and operates as a single segment centred on the manufacture and sale of electronic application equipment. In November 2007 it opened a logistics centre in Takatsuki, Osaka, and in July 2009 a Quality Lab in the city of Osaka, equipping itself for immediate delivery and for quality evaluation. For the year ended March 2026 sales reached $7.4B (¥1.17tn), operating profit $3.8B (¥596bn) and net profit $2.8B (¥445bn). Average pay for the same year was $137,709 (¥22m), and the consolidated headcount 12,784, 2.4 times the 5,299 of ten years earlier.

In October 2025 Nakano Tetsuya (中野鉄也), aged 44, was promoted to become the fifth president, and Nakata Tamotsu retired to director and special adviser. All four handovers of the presidency counting from Takizaki were internal promotions, and not once was anyone brought in from the founding family. Fifty-three years after the sole proprietorship of 1972, sales were above ¥1trn and the operating margin above 50%. Thirty-eight years after the listing of October 1987, direct funding from the equity market still amounted only to the $415M (¥60bn) raised at the listing and in two public offerings. Ordinary profit for the year ended March 2026 was $4.0B (¥636bn), an ordinary profit margin of 54.4%. The three principles laid down in the founding years — direct sales, standard products, value pricing — still work as the criteria of judgement even after the product fields have widened.