Ramping Robodrill for the iPhone windfall — and the swings demand concentration brought (2011)

The bet of matching capacity to a windfall

The heart of this decision is that a company which had long professed a frame “able to turn a profit even if sales fall by two-thirds,” in the volatile world of machine tools, went out to match its production capacity to the demand of a single end product: the smartphone. The windfall was fruit added on top of the core oligopoly’s earnings, but its size was left to the product cycles of Apple and of the Chinese contract manufacturers that assemble its phones. The more capacity Fanuc piled on, the greater the surplus when demand receded.

As a result, two faces appeared in Fanuc’s accounts: the stability of generic NC and the swing tied to smartphones. One cannot flatly call the decision to seize the windfall a mistake; the record profit of the year ended March 2015 was demand that could be caught only because the capacity was there. The question is how much of the amplitude brought by concentration on one customer and one product a company should take onto its own earnings structure. How to combine the oligopoly built on generic NC with the volatility of a smartphone windfall is a problem that will be posed again each time the next large source of demand appears.