[This Week's Industry Insight] Localization of High-Performance Gear Reducers Accounting for 30-40% of Robot Product Costs

SPG, Korea's No.1 Precision Geared Motor Company
Mass Production of All Three Major Robot Reducers: Yuseong, SH, and SR
Expecting High Growth with Full-Scale Product Supply to Collaborative Robots
Intense Competition with Japanese Companies... Also Competing in High-Precision Fields

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Earlier this year, Samsung Electronics' investment in collaborative robot manufacturer Rainbow Robotics ignited interest in robot-related stocks in the domestic stock market. After a brief lull caused by the secondary battery stock craze, robot-related stocks are heating up again as Doosan Robotics actively pursues its IPO.

Recently, labor shortages and rising labor costs have increased interest in automation and efficiency through robot adoption. According to the overseas research and analysis firm Markets and Markets, the global robot market size is expected to reach $73 billion by 2025. Markets and Markets forecast an average annual growth rate of about 14% for the robot market from 2020 to 2025. Among industrial robots, collaborative robots are expected to grow at an average annual rate of about 36% by 2025. Collaborative robots refer to robots that work cooperatively alongside humans.

Researcher Yang Seung-yoon of Eugene Investment & Securities said, "Next year is expected to be the first year of full-scale growth for the robot industry," adding, "We anticipate active investment in robot companies, expansion of product lineups, and accelerated overseas expansion." He continued, "Doosan Robotics plans to invest in autonomous mobile robot (AMR) companies for logistics alongside factory expansion," and "Rainbow Robotics will expand its business into serving robots and AMR fields after next year and will also broaden its collaborative robot product lineup."

Successful Localization of Core Robot Component: Reducers

Samsung, LG, Hyundai Motor, Doosan Group, and others are nurturing robots as new growth engines. Although domestic conglomerates have planned to develop robots and enter overseas markets, the high dependence on foreign core components has been identified as a risk factor. Reducers for robots have been virtually monopolized by Japanese products in the global market, including South Korea. Japan's Harmonic Drive Systems (SH reducer division) and Nabtesco (SR reducer division) account for about 75% of the global robot reducer market. To avoid a crisis similar to Japan's export restrictions on semiconductor materials including photoresists in 2019, the domestic robot industry is accelerating research and development to localize core components.

SPG, the number one domestic company in precision geared motors, mass-produces all three major robot reducers: planetary, SH, and SR reducers. The three major components of robots are reducers, controllers, and sub-motors. Reducers are considered core components, accounting for 30-40% of the robot product cost.

Precision reducers, which act as joints in industrial robots, connect gears to motors that perform rotational motion to produce the desired force and speed. The energy transmitted from the motor must be designed to avoid deformation and damage at the micrometer level. High precision and durability are required. Robot reducers require advanced technology and precise manufacturing capabilities, and the market is supplier-driven, dominated by Japanese companies.

Robot reducers are classified into planetary, SH, and SR reducers based on precision and reduction ratio. SH reducers are ultra-compact precision reducers mainly applied to collaborative robots, while SR reducers are medium-to-large precision reducers mainly used in industrial robots. Planetary reducers have relatively lower precision compared to SH and SR but are mainly used in applications requiring high force.

Researcher Choi Jong-kyung of Heungkuk Securities explained, "SPG is recognized as the only domestic company capable of mass-producing planetary, SH, and SR reducers and was designated as a top-tier company in materials, parts, and equipment by the Ministry of Trade, Industry and Energy in March this year." He added, "Demand to replace imported reducers with domestic products is increasing."

The government plans to select domestic robot reducer technology, which can compete with Japanese products, as a core strategic technology and focus on its development. SPG will receive up to 10 billion KRW in research and development (R&D) funding over the next five years to invest in upgrading existing products and developing high-precision reducers. SPG plans to further strengthen its competitiveness as the sole supplier capable of providing precision reducers needed for everything from industrial robots to collaborative robots.

Founded in 1991, SPG has led the localization of reducers and motor control technologies for 32 years. Its product technology and reliability are recognized globally, with major companies such as Amazon and Coca-Cola using SPG products. SPG exports to the U.S., Europe, China, Japan, and other regions, with overseas sales accounting for 77% of total revenue. Initially, Japanese products dominated the domestic geared motor market, but now SPG exports to the Japanese market as well. Last year, SPG achieved sales of 440.5 billion KRW and operating profit of 25.5 billion KRW. Based on its long experience, SPG has improved production efficiency, securing price competitiveness against competitors while maintaining high operating profit margins. In the first half of this year, it recorded sales of 199.3 billion KRW and operating profit of 10.9 billion KRW.

The driving force behind the development and mass production system of precision reducers within a few years is the craftsmanship derived from its long history. An SPG official explained, "The most important factor in mass-producing precision reducers is production technology," adding, "Only companies with at least 30 years of accumulated know-how can mass-produce precision reducers at the level required for collaborative robots."

Fierce Competition with Japan in Overseas Markets... Sufficient Experience

SPG possesses the technology and production know-how to compete with any global company in all fields except aerospace and precision surgical robots. SPG supplies SH reducers to wafer transport equipment (OHT) and semiconductor equipment companies. Rainbow Robotics is also one of its major clients. SR reducers are supplied to semiconductor equipment companies and overseas precision equipment manufacturers.

With the rapid growth of the collaborative robot market recently, demand for SH reducers is expected to increase. The difference between collaborative robots and conventional industrial robots lies in whether they collaborate with humans. Industrial robots require safety fences to prevent human access. Collaborative robots with built-in safety features can be used in the same space as workers. Unlike industrial robots, sensors prevent collisions. Their application is expanding beyond manufacturing to service sectors.

SPG, which has received high marks from globally competitive collaborative robot companies, has participated in various overseas exhibitions to secure new clients. CEO Yeo Young-gil, who has been focusing on securing technological competitiveness internally, personally met potential customers in the U.S. and Europe. To grow into a world-class precision reducer company, SPG plans to participate in six domestic exhibitions and seven overseas exhibitions in the U.S., Germany, China, India, and other countries this year alone. Over the past 20 years, it has established a sales network of 75 dealerships in 25 countries. Based on its overseas network, SPG plans to export precision reducers. Overseas companies in the U.S., China, Israel, Turkey, and other countries are testing SPG precision reducers for application. SPG is also pursuing precision reducer business related to defense and security projects.

Expansion to meet overseas demand is accelerating. Within this year, SPG plans to establish facilities capable of producing 150,000 SH reducers and aims to have the capacity to produce 80,000 SR reducers annually by 2025. It is preparing to supply precision reducers for logistics robots, wearable robots, and quadruped robots following collaborative robots.

SPG, which maintains quality on par with global companies while securing price competitiveness, has secured various clients in overseas markets. Through small-lot, multi-product production, it has maintained profitable management despite the global economic crisis. It is expanding its business into high value-added products through continuous R&D. However, competition is fierce as Chinese companies rapidly catch up in product lines that do not require high technical levels. Chinese companies are penetrating the market by mass-producing general-purpose motor products. An industry insider explained, "In the small-to-medium motor market, minor companies are showing movements to share overseas market information and related technology trends," adding, "Large companies are relocating production bases overseas to secure price competitiveness and reduce production costs."