Declining Orders Suggest Headwinds for Harmonic Drive, but Long-Term Outlook Remains Intact

Harmonic Drive System's orders declined 50.7% year on year in the December quarter, which we attribute to weaker demand for semiconductor production equipment and small robots, which are often used in electronics manufacturing. However, this was not surprising given the massive upfront orders in the September-quarter last year, which previously led to about 170% growth. While we lower our fair value estimate to JPY 6,100 from JPY 6,300 due to declining capital spending in the electronics/semiconductor industries in 2023, we expect a top-line recovery in 2024 as semiconductor investments pick up. Over the longer term, we see upside potential, as HDS grows along with demand for high-end industrial robots, collaborative robots, and surgical robots, given its dominant positioning in the strain-wave-reduction-gear market.