Harmonic Drive Systems Inc.

Business Details

Domestic subsidiaries, including Harmonic Drive Systems Inc., and local subsidiaries in Asia (excluding China) handle production and sales. The segment develops, manufactures, and sells reduction gears centered on the Harmonic Drive® (strain wave gearing) and Mechatronics products (actuators / controllers) combining motors and sensors. It supplies a wide range of applications including industrial robots, semiconductor manufacturing equipment, automotive, and general industrial machinery, and also serves as the Group's manufacturing base, providing internal supply to other segments.

Recent Overview

Segment profit rose 66% year on year on higher sales to industrial robots and semiconductor equipment plus improved utilization rates

Japan Segment sales (external customers) for FY2026 (ending March 2026) were ¥26,627 million (up 22.5% year on year), driven by increased orders for industrial robots and semiconductor manufacturing equipment. Manufacturing cost ratio improved due to higher factory utilization rates, and segment profit (ordinary income) was ¥3,694 million (up 66.1% year on year). Meanwhile, automotive-related sales declined due to customer production adjustments. HAD (precision planetary reducers) recorded an impairment loss of ¥394 million. Orders were also secured in connection with the transition to mass production for AI robots, and the order backlog increased 42.4% year on year.

Key Products

Growth Drivers

• Expansion of orders for industrial robots (order acquisition driven by continued automation investment and the transition to mass production of AI robots)
• Expansion of demand for semiconductor manufacturing equipment (increased capital investment in advanced semiconductor equipment related to generative AI and data centers)
• Improved manufacturing cost ratio and profitability from higher factory utilization rates
• Steady global trend in automation and labor-saving investment (expectations for expanding demand for collaborative robots and humanoid robots)
• Improved profitability from product price revisions and effects of company-wide cost innovation projects
• Focus on "AI robots," "aerospace and defense," and "e-mobility" under the new medium-term management plan (FY2026-FY2030)

Risks

• Continued decline in automotive-related sales (risk of customer production adjustments)
• Profitability at HAD (precision planetary reducers) remains low, with a risk of additional impairment losses if future business plans are not achieved
• Risk of cost ratio deterioration due to fluctuations in domestic factory utilization rates
• Risk of capital investment restraint due to US tariff policy and geopolitical risks
• Risk of profit pressure from continued increases in material and labor costs
• Risk that the pace of social implementation of the AI robot market falls short of expectations (currently in an early formative stage)
• Risk of order cancellations (¥435 million in order cancellations occurred in the fiscal year under review, mainly in the Japan Segment)

Business Details

The North America Segment is handled by local subsidiaries responsible for the development, manufacturing, and sale of precision reduction gears and Mechatronics products (actuators / control devices). Main applications include industrial robots, semiconductor manufacturing equipment, and advanced medical devices (surgical support robots), among others. The US is a key market accounting for more than 10% of consolidated sales, with sales to external customers of ¥12,108 million in FY2026 (ending March 2026). Orders for AI robots increased, offsetting a decline in orders for defense applications.

Recent Overview

Sales rose 4.1% year on year on increased AI robot orders, but profit declined slightly due to one-time expenses

In the North America Segment for FY2026 (ending March 2026), although orders for defense applications decreased, orders for AI robots increased, resulting in sales to external customers of ¥12,108 million, up 4.1% year on year. Segment profit (ordinary income) was ¥529 million, down 5.0% year on year, due to a temporary increase in expenses associated with core system renewal, among other factors. Orders received grew significantly, with reduction gears up 31.3% year on year and Mechatronics products up 29.0% year on year, and the order backlog also increased to ¥6,342 million (up 6.5% year on year).

Key Products

Growth Drivers

• Full-scale expansion of orders for AI robots (orders secured in FY2026 (ending March 2026) associated with the transition to mass production)
• Increased demand for semiconductor manufacturing equipment driven by expanding capital investment in advanced semiconductors, particularly related to generative AI
• Continued demand for industrial robots supported by the steady global trend in automation and labor-saving investment
• Medium- to long-term expansion of demand for advanced medical devices such as surgical support robots
• Contribution to next-period sales from the accumulated order backlog (¥6,342 million, up 6.5% year on year)

Risks

• Risk of capital investment restraint and customer production adjustments due to US tariff policy and protectionist trade policy
• Continued risk of profit pressure from one-time expenses such as core system renewal
• Risk of continued decline in orders for defense applications
• Risk that the pace of social implementation of the AI robot market falls short of expectations (a divergence is already emerging even under the current medium-term management plan)
• Risk of reduced yen-converted sales and profit due to exchange rate fluctuations (yen appreciation)
• Risk of sales decline due to customer production adjustments for advanced medical devices (surgical support robots) and semiconductor manufacturing equipment

Business Details

This regional segment is handled by Harmonic Drive SE (8 consolidated subsidiaries), headquartered in Limburg, Hesse, Germany. It develops and manufactures reduction gears and Mechatronics products (actuators / control devices) and sells them to customers in industrial robots, machine tools, semiconductor manufacturing equipment, and other fields across Europe, the Middle East, Africa, India, and South America. Sales to external customers for the fiscal year under review were ¥16,777 million, one of the largest among all segments. Germany is the primary market, with sales to Germany of ¥5,999 million for the fiscal year under review.

Recent Overview

Achieved a turnaround to profit amid weak European economy through improved sales mix

In the Europe Segment for FY2026 (ending March 2026), although orders from major customers increased, the recovery in orders from smaller customers was delayed due to the sluggish European economy, and sales rose only slightly year on year to ¥16,777 million. Meanwhile, an improvement in gross profit margin due to changes in the sales mix led segment profit (ordinary income) to turn positive at ¥645 million, up from a loss of ¥52 million in the prior period. This improvement occurred even as amortization expenses of ¥1,008 million related to intangible assets recorded upon the acquisition of Harmonic Drive SE shares continued. Since HDSE Group's operating profit exceeded the amortization expenses on customer relationship assets and other items, no indications of impairment were identified for the fiscal year under review.

Key Products

Growth Drivers

• Increased gross profit margin from improved sales mix (achieved a turnaround to profit in the fiscal year under review)
• Securing a stable sales base through increased orders from major customers
• Expansion of automation investment in Europe, the Middle East, Africa, India, and South America (demand for industrial robots)
• Continued expansion of capital investment demand related to generative AI and semiconductor manufacturing equipment
• Strengthening of local production and sales capabilities in Europe through Harmonic Drive SE
• Capturing European demand in the focus areas of "AI robots," "aerospace and defense," and "e-mobility" under the new medium-term management plan (FY2026-FY2030)

Risks

• Delayed recovery in orders from smaller customers due to the sluggish European economy
• Ongoing amortization expense burden (¥1,008 million in the fiscal year under review) related to intangible assets recorded upon the acquisition of Harmonic Drive SE shares (customer relationship assets of ¥9,187 million and technology assets of ¥2,454 million)
• Risk of additional impairment if the HDSE Group's business plan is not achieved (book value of ¥18,179 million)
• Foreign exchange risk (impact of yen appreciation on Europe Segment earnings)
• Restraint on capital investment within Europe due to geopolitical risks (prolonged situation in Ukraine, tensions in the Middle East)
• Given the large-scale impairment (¥12,914 million) recorded in the Europe Segment two fiscal years ago, there remains a risk of additional impairment if the business environment deteriorates

Business Details

The China Segment is a pure sales base where the local subsidiary handles the sale of reduction gears and Mechatronics products. It has no manufacturing function (zero production output), selling products manufactured by the Japan Segment and others into the China market. Major customers are industrial robot manufacturers, but in FY2026 (ending March 2026), a decline in demand for industrial robots directly impacted the segment, with sales falling sharply by 28.0% year on year. Meanwhile, profitability improved due to changes in the sales mix.

Recent Overview

Sales fell 28.0% year on year due to declining demand for industrial robots, while profitability improved

China Segment sales for FY2026 (ending March 2026) were ¥4,047 million, down 28.0% year on year, mainly due to a sharp decline in sales of reduction gears for industrial robots. Meanwhile, segment profit (ordinary income) increased 26.5% year on year to ¥382 million, and profitability improved due to changes in the sales mix (including a surge in Mechatronics product sales). Orders received were also weak, with reduction gears down 38.1% year on year, reflecting continued softness in demand for industrial robots in the China market.

Key Products

Growth Drivers

• Improved profit margin from better sales mix of Mechatronics products (profit up 26.5% year on year in the fiscal year under review)
• Expectations of increased demand for semiconductor manufacturing equipment driven by expanding investment related to generative AI and data centers
• Medium- to long-term recovery expectations for industrial robot demand amid the global expansion of automation investment
• Development of new customers and applications in the early formative stage of demand for AI robots
• Opportunities to secure orders from China-based local robot manufacturers pursuing high-end positioning

Risks

• Risk of fluctuating demand for industrial robots (high dependence on this key application; sales fell sharply by 28.0% in the fiscal year under review)
• Risk of capital investment restraint due to the real estate downturn and weak domestic demand in China
• Geopolitical fragmentation risk from changes in US-China trade friction and tariff policy (concerns over restrained capital investment)
• Foreign exchange risk of reduced yen-converted sales denominated in local currency due to yen appreciation
• Risk of intensified price competition from the rise of competing products from China-based local robot manufacturers