Company profile: ViSCO Technologies (ViSCO) is a fabless manufacturer of machine vision inspection systems (MVIS), a type of equipment that detects product defects in production lines through image-based inspection. Its MVIS comprises cameras, lenses, lighting equipment, image-processing hardware, and general-purpose image-processing inspection software (developed in-house). Rather than merely selling hardware, the company provides inspection solutions—a combination of optimized hardware and inspection methods—that are tailored to individual customer needs. In FY03/21, ViSCO reported revenue of JPY3.8bn (+8.4% YoY), operating profit of JPY652mn (+40.7% YoY), a GPM of 58.4% (58.3% in FY03/20), and an OPM of 17.3% (13.4% in FY03/20). By region, it generated 61.8% of its revenue from Japan and 38.2% from overseas.
Customers: The bulk of ViSCO’s customers are connector and electronic parts manufacturers. Its MVIS are mainly used to spot defects in connectors (42% of total revenue in FY03/21), electronic parts (such as micro electro-mechanical systems [MEMS], ceramic parts, and LED: 48%), and semiconductors (6%). These applications generated over 90% of revenue in FY03/21. By end product, smartphone parts account for the highest share of revenue (54%), followed by automotive equipment (21%), consumer equipment (such as computers and home appliances; 15%), and industrial equipment (5%). In addition, the company’s MVIS are used to inspect medical devices (such as syringes), plastic parts, and everyday goods (printed text on plastic bottles). In FY03/21, the company sold its systems to some 250 companies. It has several major customers that place orders worth over JPY100mn each year, and receives a large number of orders worth several million yen (corresponding to 1–2 systems) from smaller customers.
Earnings structure: Revenue is a function of order unit prices and the number of orders. Order unit prices are determined by the image-processing hardware (manufacturing cost) and the overall solution provided. The company proposes solutions that are optimized for the inspection needs of individual customers (production lines). It includes solution fees in order unit prices, and targets a GPM of 50–60%. The bulk of the orders fall in the JPY1–5mn price range, and the average price is about JPY2mn. Pricing varies based on the system configuration, which is determined by the level of inspection precision required by the customer. For example, orders that require a high-end lens for 3D inspections will naturally be more expensive. In FY03/21, the company received some 2,000 orders (number of MVIS sold). As a fabless manufacturer, ViSCO is less susceptible to bottlenecks in production capacity.
Cost structure: Procurement costs (for equipment sourced by contracted plants) account for 90% of manufacturing costs, and labor costs (personnel costs for the company’s storage and assembly facility) and other costs (mainly software amortization) for the remaining 10%. The largest component of the procurement costs is the image-processing hardware (which runs the image-processing software), with the peripheral equipment (cameras, lenses, and lighting equipment) making up the rest. R&D expenses (which also include software development expenses) account for roughly 10% of revenue. ViSCO continually improves its proprietary software, designs new hardware, and conducts R&D. As of FY03/21, it had 145 employees, 68 (42%) of whom developed software (the company’s core expertise) in the development and technology division.
Fabless manufacturer: The company outsources virtually all its hardware production to third-party manufacturers. It does not use the same contracted plants, but rather asks several manufacturers to submit bids when it upgrades its systems (taking place at irregular intervals), and selects the most attractive offer. At present, it mostly outsources production to companies in Japan, but it also has subcontractors in Taiwan and China. The company uses a make-to-stock approach under which it produces its image-processing hardware based on demand projections. As a fabless manufacturer, it does not have to make capital investment to upgrade or install new production infrastructure, and can therefore fully channel its financial resources into R&D.
Competitors: The company lists Keyence Corporation (TSE1: 6861, companywide revenue of JPY538.1bn in FY03/21), Omron Corporation (TSE1: 6645, companywide revenue of JPY655.5bn in FY03/21), and Cognex Corporation (NASDAQ: CGNX, companywide revenue of USD811mn [roughly JPY84.0bn] in FY12/20) as its main competitors. It estimates the Japanese market for MVIS is worth roughly JPY30.0bn. It says the market is an oligopoly dominated by four companies including ViSCO. The company is the only listed manufacturer specializing in general-purpose MVIS in Japan (Cognex similarly specializes in machine vision systems). As a dedicated manufacturer of MVIS, ViSCO invests heavily in R&D (related spending accounted for 5.6% of revenue in FY03/21), and it has developed equipment underpinned by proprietary technology, as well as over 60 different types of inspection tools.
Visual inspection market and growth drivers for the company's business: The company expects the visual inspection market to shift from human inspection to machine inspection as a result of the global labor shortage, demand for improved working conditions, and the sophistication of inspection targets. At the same time, the company expects that customers will increasingly require advanced inspection systems that are comparable to human inspection in order to curb the shipment of defective products and reduce product disposal. According to the company, there are only a limited number of companies that can build MVIS, so the company expects business growth to continue.
In FY03/21, revenue was JPY3.8bn (+8.4% YoY, 100.8% of full-year forecast), operating profit JPY652mn (+40.7% YoY, 105.2%), recurring profit JPY640mn (+50.3% YoY, 104.9%), and net income attributable to owners of the parent JPY431mn (+41.8% YoY, 110.5%). Strong demand in Japan and China for electronic parts used in 5G-compatible smartphones and for automotive parts drove demand for MVIS used in related inspections. Operating profit rose thanks to revenue growth and a drop in promotional and marketing expenses amid the COVID-19 pandemic.
In FY03/22, the company forecasts revenue of JPY4.3bn (+13.0% YoY), operating profit of JPY670mn (+2.7% YoY), recurring profit of JPY660mn (+3.1% YoY), and net income attributable to owners of the parent of JPY440mn (+2.1% YoY). It expects revenue to remain strong on demand—in Japan, China, and Southeast Asia—for smartphone electronic parts accompanying the transition to 5G networks, and for automotive electronic parts as electric vehicles (EVs) gain traction. ViSCO forecasts growth in R&D expenses mainly for ongoing development of software. It sees expenses rising in connection with operations to prepare for the post-COVID era. However, it expects the negative impact from higher costs to be offset by revenue growth, and accordingly forecasts 2.7% YoY growth in operating profit.
ViSCO has not unveiled a current medium-term management plan with quantitative targets. It looks to further grow revenue in its core business fields (connectors, electronic parts, and semiconductors) while also expanding revenue in other areas, and aims to pursue a long-tail revenue strategy. In inspection equipment for connectors and electronic parts, the company intends to capture inspection demand for automotive connectors and electronic parts for 5G-compatible smartphones. It looks to branch into new fields and industries (such as medical devices, machinery parts, materials, and food), provide technical support in these areas, and further strengthen its sales organization.
The company's machine vision inspection solutions are appealing to customers because they can detect defects faster and more accurately than those of competitors, with relatively fewer false positives and negatives.
As a dedicated manufacturer of MVIS, the company can invest heavily in image-processing R&D, and thus further differentiate itself from the competition by raising barriers to market entry.
The company secures steady orders and revenue through repeat orders from several customers—including the largest Japanese manufacturer of connectors—in fields that require rapid and high-precision inspections.
Because it specializes in MVIS, the company is at a disadvantage when it comes to expanding its customer base compared with domestic rivals Keyence and Omron, which offer broader product lineups and solutions.
Because the company's solutions are customized for each customer, the top-line growth rate is slower than that of manufacturers that specialize in equipment sales.
The company operates on a smaller scale than its rivals, and therefore struggles to obtain purchasing volume discounts.
|Gross profit margin||51.7%||54.2%||56.7%||58.3%||58.4%|
|Operating profit margin||12.2%||14.1%||15.2%||13.4%||17.3%||15.8%|
|Recurring profit margin||9.4%||12.6%||13.5%||12.3%||17.0%||15.5%|
|Per-share data (split-adjusted; JPY)|
|Shares issued (year-end; '000)||5,028||5,946||6,322||6,406||6,242|
|EPS (fully diluted; JPY)||-||51.9||63.0||47.0||67.2|
|Dividend per share (JPY)||1.0||50.0||6.3||6.3||8.0||-|
|Book value per share (JPY)||216||322||371||411||458|
|Balance sheet (JPYmn)|
|Cash and cash equivalents||1,051||1,768||1,786||2,004||2,395|
|Total current assets||2,203||2,766||2,937||3,459||3,694|
|Tangible fixed assets||86||110||120||127||132|
|Investments and other assets||54||103||96||98||102|
|Total current liabilities||868||777||527||795||788|
|Total fixed liabilities||518||401||389||347||353|
|Total net assets||1,120||1,980||2,439||2,742||2,991|
|Total liabilities and net assets||2,505||3,158||3,355||3,884||4,133|
|Total interest-bearing debt||767||499||449||452||434|
|Cash flow statement (JPYmn)|
|Cash flows from operating activities||632||629||232||385||794|
|Cash flows from investing activities||-155||-165||-192||-135||-160|
|Cash flows from financing activities||-246||241||-9||-35||-236|
|Total asset turnover||114.9%||116.8%||109.5%||95.9%||93.8%|
|Consumer equipment (PCs, home appliance, etc.)||15%|
|(JPYmn)||FY03/18||FY03/19||FY03/20||FY03/21||Rate of change|
|% of total||69.1%||55.3%||62.8%||61.8%|
|% of total||30.9%||44.7%||37.2%||38.2%|
|% of total||30.7%||44.0%||36.8%||38.0%|
|% of total||0.2%||0.7%||0.4%||0.2%|
On November 11, 2021, ViSCO Technologies Corporation announced earnings results for 1H FY03/22.
|(JPYmn)||Q1||Q1-Q2||Q1-Q3||Q1-Q4||Q1||Q1-Q2||Q1-Q3||Q1-Q4||Q1||Q1-Q2||% of Est.||1H Est.|
|Gross profit margin||55.5%||56.4%||56.4%||58.3%||55.4%||56.9%||57.5%||58.4%||58.7%||58.7%|
|Operating profit margin||-||11.0%||9.0%||13.4%||12.5%||15.6%||16.6%||17.3%||26.3%||18.1%||14.9%|
|Recurring profit margin||-||9.8%||7.9%||12.3%||12.7%||15.4%||16.1%||17.0%||26.8%||18.8%||14.4%|
|(JPYmn)||Q1||Q2||Q3||Q4||Q1||Q2||Q3||Q4||Q1||Q2||% of Est.||FY Est.|
|Gross profit margin||55.5%||57.0%||56.5%||62.5%||55.4%||58.2%||58.6%||60.9%||58.7%||58.9%|
|Operating profit margin||-||18.6%||4.6%||23.6%||12.5%||18.4%||18.4%||19.3%||26.3%||6.7%||15.8%|
|Recurring profit margin||-||17.5%||3.7%||22.6%||12.7%||17.8%||17.6%||19.2%||26.8%||7.6%||15.5%|
In 1H FY03/22, revenue and profit expanded, with revenue increasing 12.6% YoY to JPY2.0bn and operating profit 30.7% YoY to JPY363mn. The growth in revenue was driven by consumer and automotive equipment applications. The company also received a large 5G-related order in Q1. Sales reached a record high in 1H as a result.
On a regional basis, revenue grew in China (24% of revenue in 1H), Thailand (7%), and Malaysia (not disclosed). Revenue in South Korea also recovered after slumping in 1H FY03/21.
Equipment for inspecting connectors recovered in South Korea, primarily for automotive and smartphone applications. MVIS for electronic parts were solid, mainly for ceramic parts and MEMS.
Operating profit was JPY363mn (+30.7% YoY) and OPM was 18.1% (15.6% in 1H FY03/21).
GPM was 58.7%, up 1.8pp YoY, amid growing needs for high-performance inspection.
In SG&A expenses, personnel expenses rose on higher investment in personnel, but marketing expenses (such as advertising and travel) declined YoY due to the pandemic.
The company said that the business environment remained characterized by uncertainty. While the COVID-19 pandemic is moderating, sources of instability include an intensifying US-China stand-off, slowing Chinese economy, and semiconductor shortage.
The company said its key connector and electronic parts maker customers have been spending heavily on capex since 2H FY03/21, and 5G, consumer equipment, and automotive equipment demand continues to grow globally. However, the pandemic has restricted marketing activity due to limits on movements between regions, and the company is also seeing signs of changes to capex schedules amid the semiconductor shortage.
Progress against the company’s full year-forecast was as follows:
Revenue reached 47.1% of the FY03/22 forecast (1H FY03/21 revenue was 47.3% of the FY03/21 result), operating profit 54.2% (42.6%), recurring profit 57.0% (67.7%), and net income attributable to owners of the parent 55.8% (40.4%).
For details on previous quarterly and annual results, please refer to the Historical financial statements section.
|(JPYmn)||1H Act.||2H Act.||FY Act.||1H Act.||2H Est.||FY Est.||1H Act.||2H Est.||FY Est.|
|Cost of revenue||767||796||1,563||826|
|Gross profit margin||56.9%||59.9%||58.4%||58.7%|
|Operating profit margin||15.6%||18.9%||17.3%||18.1%||13.6%||15.8%|
|Recurring profit margin||15.4%||18.5%||17.0%||18.8%||12.6%||15.5%|
As of November 11, 2021, the company maintained its 1H and full-year FY03/22 forecasts (announced on May 10, 2021).
The commentary following is as of September 21, 2021. Shared Research plans to update the report after interviewing management.
The company expects revenue to remain strong on demand (in Japan, China, and Southeast Asia) for smartphone electronic parts accompanying the transition to 5G networks, and for automotive electronic parts as electric vehicles (EVs) gain traction.
It anticipates growth in R&D expenses mainly for ongoing software development. It also sees expenses increasing in connection with sales activities in anticipation of the post-COVID era.
The company forecasts operating profit of JPY670mn (+2.7% YoY) and an OPM of 15.8% (-1.5pp YoY). It looks for growth in revenue and operating profit, but expects higher operational expenses to depress OPM.
In FY03/22, the company sees its consolidated workforce expanding to 161 people (+16 YoY, breaking down as +7 YoY in the development and technology division, and +8 YoY in the sales division; for details, see the Business model section).
In FY03/22, the company will further concentrate on the development of next-generation architectures both from a software and hardware perspective. It plans to strengthen its highly versatile MVIS for factory automation (FA), and ramp up development of even more advanced applications, as well as development that takes advantage of artificial intelligence.
As an example of next-generation architecture, the company points to inspections that rely on near infrared cameras.
In FY03/22, it forecasts R&D expenses of JPY227mn (+7.1% from JPY212mn in FY03/21) and capital investment (in software development) of JPY108mn (-0.9% from JPY109mn in FY03/21).
As of July 2021, the company had not unveiled a current medium-term management plan. At end-FY03/21, it said it will continue to pursue the medium-term business strategies (qualitative targets) in its Medium-Term Management Plan 2020, announced on May 11, 2018. That plan originally spanned the three years from FY03/19 to FY03/21. In November 2020, however, the company withdrew the quantitative targets in the plan due to the impact of trade friction between the US and China and the effects of the COVID-19 pandemic.
The previous medium-term plan targeted FY03/21 (final-year) revenue of JPY5.1bn (JPY3.8bn recorded), recurring profit of JPY770mn (JPY640mn), an RPM of JPY15.2% (17.0%), net income attributable to owners of the parent of JPY530mn (JPY431mn), a net margin of 10.5% (11.5%), and ROE of 17.8% (15.0%)
In FY03/22, the company says it will continue to pursue the four strategies by business field shown in its previous medium-term plan (FY03/19–FY03/21), announced in May 2018. It plans to pursue a long-tail revenue strategy by further expanding revenue in its main business fields (connectors, electronic parts, and semiconductors) while also increasing revenue in other areas.
In FY03/21, the main business fields generated over 90% of revenue. The company supplies solutions to roughly 250 customers, ranging from major customers that generate several hundred million yen in revenue, to customers that place orders for a single system with revenue of JPY2mn. In this sense, ViSCO already has a long-tail revenue structure. Once customers with strong needs for high-precision inspection adopt its products, they often place repeat orders and order additional equipment in later phases of capital investment, leading to further business opportunities. For this reason, the company intends to further ramp up its activity in fields that bring in small-lot transactions.
Over the medium term, ViSCO plans to expand beyond its three core business fields and establish a large number of smaller earnings pillars to expand revenue. This would make it less vulnerable to trends in any particular industry and support earnings stability.
The company aims to capture demand from a broad range of industries. It plans to step up development while expanding its salesforce, has budgeted roughly JPY300mn in R&D expenditures per year, and aims to actively explore M&A opportunities.
The company’s progress toward the four business strategies (qualitative targets) outlined in its previous medium-term plan between FY03/19 and FY03/21, and its corresponding outlook are shown below.
ViSCO says it has steadily captured new MVIS demand for connectors used in 5G-compatible smartphones since FY03/19. It has also seen an increase in shipments of MVIS for automotive connectors.
The company anticipates further growth in demand of automotive connectors, and intends to expand its presence in other fields such as inspections of connectors for consumer-use electrical equipment with an eye toward the post-COVID era.
ViSCO says shipments of MVIS for ceramic parts and micro electro-mechanical systems (MEMS) have increased in tandem with rising demand for 5G-compatible smartphones since FY03/19. As a result, its revenue dependence on connectors is gradually easing (long-tail strategy via diversification of inspection applications).
The company plans to further increase revenue from MVIS for various electronic parts and MEMS. It intends to actively reach out to manufacturers in these fields in Japan and abroad. It also looks to expand inspections of products other than connectors, including LEDs and HDDs. In fields such as MEMS inspections, ViSCO says it can take advantage of its 3D inspection technology accumulated through connector inspections.
Since FY03/19, ViSCO has cultivated new demand for systems that integrate high-precision robotic picking technology and the company’s visual inspection technology (developed in collaboration with a robotics manufacturer). These systems can be used in inspections of medical devices such as ampoules (sealed vials that contain injection solutions) and syringes.
The company intends to further step up collaborations with robotics, artificial intelligence (AI), and equipment manufacturers. It looks to branch into new business fields (e.g., pharmaceutical products, machinery parts, materials, food), provide related technical support, and strengthen its salesforce. It intends to expand its business fields, increase revenue outside its three present business fields, and establish a long-tail earnings structure supported by numerous smaller earnings pillars.
In industries outside its mainstay business fields, such as medical devices and automotive parts, the company will work to provide its solutions to the top three manufacturers by market share.
According to the company, its subsidiaries in China and Thailand set new earnings records from FY03/19 to FY03/21. In 2019, it established an office in Malaysia, and started receiving inquiries from both Japanese companies with a local presence and European and US companies that were operating in the country.
The previous medium-term plan called for “widespread adoption of proprietary ViSCO solutions in production lines around the world as workplace efficiency and automation gain traction.” The company says a relatively large number of overseas companies have little experience with advanced levels of inspection and suitable inspection items, so it is working to raise awareness and discover untapped demand.
The plan outlined a uniform strategy to be pursued in Japan and overseas on the assumption that the company faces little competition in either area.
ViSCO aims to cement its position in China and Southeast Asia in the future, and it will consider setting up additional overseas bases in accordance with regional needs.
The company plans to further expand its operations as a dedicated manufacturer of machine vision systems.
In addition to pursuing organic growth, the company looks to explore M&A deals with companies engaged in image-processing operations to further expand its operations. The purpose of such deals would be to acquire image-processing technology and developers, new customers, and sales representatives that have existing relationships with relevant customers.
ViSCO has previously acquired two companies mainly to absorb the technology of their image-processing divisions.
In 2007, the company agreed to the transfer of the Komatsu Vision business, previously operated by Komatsu, from Cognex Corporation.
In 2010, the company purchased the high-precision image-processing analysis system (IPU) business from Dodwell B.M.S Ltd.
The company expects the market for MVIS to expand over the next five to ten years.
Japan is seeing heightened demand for mechanization (labor-saving technologies) as companies struggle to hire employees for visual inspection work amid a decline in the birthrate and improvements in labor conditions. Overseas, and particularly in China, the surging cost of inspection personnel is similarly raising the need for mechanization.
ViSCO says manufacturing companies are accelerating efforts to automate inspection processes in an effort to reduce manpower in production lines as a measure to counter COVID-19 infections. Automation is also picking up steam at companies that hitherto only relied on naked-eye inspections in the final stages of manufacturing.
Naked-eye inspections have reached their limitations (further discussed below).
In an effort to address various challenges, naked-eye inspections are increasingly being replaced with machine inspections, which contribute to higher quality and increased efficiency.
As products continue to shrink in size, inspections must be performed with increasingly higher precision. Naked-eye inspections are unable to keep pace with this trend, and have started to reach their limitations.
Quality requirements are increasing, and customers are demanding high-precision inspections based on numerical data.
Improvements in manufacturing speed have led to an increase in the number of automated high-speed production lines, where naked-eye inspections have become obsolete.
Integrated production covering all aspects from assembly to packaging is gaining traction, and companies are rapidly realizing the inefficiency of relying on human labor only for inspection processes.
In the pursuit of reliability, companies are increasingly reducing human labor, which is susceptible to inconsistency.
Safety requirements are becoming more stringent, and the number of inspection processes is expanding beyond the available human resources.
Over the medium to long term, the company expects naked-eye inspections to be replaced by MVIS not only for industrial products such as electronic and automotive parts, but also in areas such as inspections of food production quality. For example, companies that produce bread still employ human resources for quality checks of the final products, with defective products being manually removed from product lines. Once human inspection methods are translated into programmatic algorithms, companies will be able to detect product defects through MVIS, facilitating automation of the process.
In response to the expectations of its diverse stakeholders, the company aims to help create a sustainable society and improve its corporate value through its business activities, in accordance with its corporate philosophy “Images all the way.”
Contribute to the resolution of social issues through R&D into advanced, specialized technologies.
Provide products and services tailored to the needs of the external environment and society.
Build an organization that is capable of coping with a changing global environment.
Analyze the impact of products and services on the environment, and appropriately deal with environmental risk.
Foster corporate culture in which employees of all nationalities, genders, and ages can express their full potential.
Design internal systems that contribute to an improvement in work satisfaction.
Flexibly adapt to changes in social conditions.
Ensure thorough compliance, and fairness and transparency in the execution of business tasks.
Promote the establishment and reinforcement of internal control systems.
ViSCO Technologies (ViSCO) is a fabless manufacturer of machine vision inspection systems (MVIS), a type of equipment that detects product defects in production lines through image-based inspection. The company provides image-processing hardware and inspection solutions tailored to individual customer needs, proposing different configurations of parts (such as cameras and lighting equipment) and inspection methods. It operates in a single segment: the Machine Vision Inspection Systems (MVIS) segment.
ViSCO was founded in 2005 by former employees of US-based Cognex Corporation (NASDAQ: CGNX), a leading manufacturer of machine vision systems. It listed on the JASDAQ Standard market in December 2017, and on the Second Section of the Tokyo Stock Exchange in December 2018.
Following its establishment, the company focused on image-based inspections for connectors as its core business. Connectors feature a variety of shapes, and new products typically adopt novel shapes (typically involving a reduction in size), triggering demand for new inspection equipment and solutions.
ViSCO has engaged in M&A on two occasions. In 2007, it agreed to the transfer of the Komatsu Vision business (MVIS originally developed by Komatsu Ltd. [TSE1: 6301]) from Cognex. In 2010, it purchased the high-precision image-based analysis system (IPU) business from Dodwell B.M.S Ltd.
* Dodwell B.M.S Ltd. is a wholly owned subsidiary of Ai Holdings Corporation (TSE1: 3076).
In FY03/21, ViSCO reported revenue of JPY3.8bn (+8.4% YoY), operating profit of JPY652mn (+40.7% YoY), and an OPM of 17.3% (13.4% in FY03/20). Since its listing in 2017 (FY03/18), revenue has expanded at a CAGR of 6.9%. In FY03/20, revenue dropped 2.7% YoY. In FY03/22, the company forecasts revenue of JPY4.3bn (+13.0% YoY) and operating profit of JPY670mn (+2.7% YoY).
Revenue is a function of order unit prices and number of systems. The company in principle generates one-time revenue through outright sales. MVIS on average cost around JPY2mn. The unit price reflects the cost of the hardware and the solution (building of the inspection system). The GPM per order is about 60%. The company does not generate recurring revenue from maintenance.
A visual inspection looks for abnormalities in the appearance of objects. Such abnormalities vary by part or product, but they can include scratches, adhesion of foreign matter, chipping, deformations, and misalignments. Visual inspections are one of the many inspections that occur in manufacturing processes. Other examples are strength inspections, durability inspections, and touch-panel sensitivity inspections.
Visual inspections detect defective products by comparing images of products in production lines with images of conforming (approved) products stored in memory. In naked-eye inspections, inspectors visually determine whether products conform to the quality standard or are defective. Visual inspection equipment emulates this process to spot defects. The function of the naked eye is performed by the lens and camera (image sensor), the evaluation of the product status is handled by the image-processing equipment and software, and human memory is substituted with digital data.
Installing visual inspection equipment in production lines contributes to productivity enhancement through improved inspection improved efficiency.
Elimination of quality fluctuations: Eliminates differences in quality of conforming products that occur in naked-eye inspections, and reduces human error stemming from fatigue (diminished inspection capabilities, products slipping through inspections)
Improvement in inspection precision: Enables inspections of micromachined products and invisible light regions, which cannot be performed with the naked eye
High-speed inspections: Allows for inspections at speeds of 0.001 seconds through mechanical processing
Reduction of labor: Reduces personnel expenses and space required for plant equipment
Improvement in work efficiency and environment: Facilitates recruiting (reduction in inspectors), and shortens training time
Image-based inspections are a type of visual inspection method in which an image of a target product is captured and analyzed to determine whether the product conforms to the quality standards. Image-based inspections cover the following five areas.
Visual inspection (narrow sense): Checks for defects (such as flaws, dirt, chipping, unevenness, and foreign matter)
Measuring: Measures dimensions of target products
Recognition: Recognizes code or text
Alignment: Guides the position of the target product based on visual information captured by a robot (positional information is transmitted to a robot)
Tracking, direction: Keeps track of target products (confirms product count and presence/absence of defects), and the positional direction of target products
The inspection items vary by target product. For example, over 70 items are inspected for connectors.
The table below shows applications of image-based inspections by industry. The inspected products tend to have a size (scope) of roughly 10 cm2 per field of view. Larger products require the camera (image censor such as CMOS) to cover a wider scope per pixel, reducing the detection precision.
|Electronic parts industry||Inspection to detect dirt, scratches, or foreign materials on micro electro-mechanical systems [MEMS]|
|Inspection to detect scratches, dirt, or cracks in capacitors|
|Connector industry||Inspection of width, dimensions, and bending|
|Semiconductor industry||Inspection of lead frame deformation, deficiencies|
|Automotive industry||Inspection of printing quality on display panel|
|Robotics industry||Robotic picking|
|Pharmaceuticals industry||Inspection of hypodermic needles|
|Inspection of foreign materials in wet compresses|
|Inspection of foreign materials in syringes|
|Inspection of foreign materials in tablets|
|Daily necessities industry||Inspection of printing on caps of bottles containing beverages|
|Inspection of labels (misalignment, foreign materials, incorrect labels)|
|Food industry||Inspection of cracks and chipping in solid foods|
|Inspection of damage or scratching of food packaging|
ViSCO’s revenue is a function of order unit prices and number of orders. Order unit prices are determined by the procurement cost for the image-processing hardware and the overall solution provided. Revenue is recorded once products are shipped from the company’s assembly factory.
The company’s MVIS are priced between JPY1mn to JPY5mn, and on average cost roughly JPY2mn. The GPM per order has remained steady at around 60%.
Order unit prices vary based on the hardware specifications of the inspection system (components such as image-processing hardware, cameras, and lighting equipment). For example, orders that require a high-end lens for 3D inspections will naturally be more expensive. ViSCO maintains a GPM of about 60% per order regardless of the unit price.
The company does not sell standalone hardware.
In FY03/21, it sold roughly 2,000 image-processing hardware units.
The maintenance of the MVIS delivered by ViSCO is in principle handled by its customers. The company in some cases does provide maintenance support at the request of customers, but it rarely generates recurring revenue from such work.
During the warranty period for its products, ViSCO replaces parts for its MVIS as necessary. The support period for its products extends until five years following the end of production (end of life [EOL]). However, if the company runs out of parts in its inventory, the support period may end before those five years have elapsed.
The lifespan of the company’s image-processing hardware units is about 10 years. However, these devices are seldom used for their entire lifespan, and are typically renewed when companies upgrade their production lines.
As of July 2021, the company offered five image-processing hardware units (product name: VTV-9000 Series). The price of the units varies based on their image-processing speed and the number of cameras that can be connected to them. ViSCO’s website lists 39 camera model numbers that can be incorporated in its systems, with resolutions ranging from 0.3 to 65 megapixels. The company internally develops the inspection tools (software) installed on its image-processing hardware. As of July 2021, it offered over 60 inspection tools.
Its inspection tools include general-purpose tools for a wide range of products, and specialized inspection tools for specific objects and shapes (such as connectors and semiconductor substrates).
ViSCO says it maintains a GPM of roughly 60% on all orders, regardless of the unit price. In FY03/21, it reported a companywide GPM of 58.4%. Since FY03/17, its cost of revenue ratio has hovered at about 40–45%, and its SG&A expense ratio at around 40%.
In FY03/21, manufacturing costs broke down into materials costs (90.4%), labor costs (0.9%), and other costs (8.6%).
Materials costs reflect procurement costs for the image-processing hardware (which runs the image-processing software) and peripheral equipment (cameras, lenses, and lighting equipment), both sourced from contracted factories. The image-processing hardware accounts for the bulk of the materials costs.
Manufacturing costs (non-consolidated) also include amortization, which mainly corresponds to expenses accompanying capital investment in software development. ViSCO plans to continue investing some JPY90–100mn per year in software development.
Outsourced processing and storage fees are product assembly fees and temporary inventory storage fees recorded by ViSCO Technologies Logistics Center (the company’s assembly plant).
Labor costs reflect personnel expenses at ViSCO Technologies Logistics Center.
ViSCO does not pay royalties to other companies for image-processing technology.
|Total manufacturing costs||1,327||1,459||1,444||1,340||1,508|
|Cost of goods manufactured||1,327||1,459||1,444||1,340||1,508|
|Depreciation and amortization||90||98||104||105||102|
As a fabless manufacturer, the company does not incur expenses to acquire fixed assets (equipment and machinery) related to production facilities (plants), or related depreciation expenses. However, it develops the software installed on its products, and records software development expenses to enhance the features of its existing products as capital investment, and development expenses for next-generation hardware and software as R&D expenses. Personnel expenses make up the lion’s share of software development expenses and R&D expenses.
In FY03/21, ViSCO had a consolidated workforce of 145 employees, 61 (42.1%) of whom were assigned to the development and technology division.
|Capital investment (software development)||97||113||106||93||109|
|% of total||21.5%||25.2%||24.8%||22.6%||20.0%||18.0%|
|Development and technology||39||43||48||53||61||68|
|% of total||41.9%||41.7%||39.7%||39.8%||42.1%||42.2%|
|Purchasing and production control||8||7||9||8||10||11|
|% of total||8.6%||6.8%||7.4%||6.0%||6.9%||6.8%|
|% of total||28.0%||26.2%||28.1%||31.6%||31.0%||32.9%|
ViSCO outsources the production of all components of its MVIS—namely, the image-processing hardware and all peripheral equipment—to manufacturers outside its group. It develops its inspection tools (software) in-house.
The company outsources the production of its image-processing hardware and cameras through a bidding process. It requests bids from manufacturers and selects the most attractive proposal. These manufacturers then produce MVIS components based on the company’s demand projections. It sources the bulk of the lenses and lighting equipment from external manufacturers.
The final products are assembled and equipped with software at the company’s logistics center in Tokyo, from where they are shipped to customers.
ViSCO does not retain dedicated contracted plants to produce its image-processing hardware and cameras. It says it selects a production plant whenever it upgrades its hardware models. At present, it mostly outsources such production to companies in Japan, but it also works with subcontractors in Taiwan and China.
For its image-processing hardware, the company selects a manufacturer through a bidding process. It sends the product design specifications to several companies, requests bids, and selects the most attractive offer. As a general rule, the company does not specify suppliers for the materials used in its products. The only exception to this rule is the CPU, which must be supplied by Intel Corporation (NASDAQ: INTC) to ensure the precision demanded for its MVIS.
ViSCO selects manufacturing plants for cameras through the same bidding process as for its image-processing hardware.
The company determines the annual production volume for its image-processing hardware based on internal estimates, giving rise to annual fluctuations. Annual production volume has hovered at around 2,000–3,000 units per year.
ViSCO uses a make-to-stock approach for its image-processing hardware and cameras. It procures its lighting equipment and lenses from external manufacturers.
The company outsources production some three to six months in advance, but it says lead times widened marginally in FY03/21 due to partial shortages of parts such as semiconductors.
In addition to the lead times for manufacturing, the company holds roughly three months’ worth of product sales in inventory. However, its inventory turnover period (calculated as inventory divided by daily sales) lengthened from 48.2 days in FY03/20 to 62.0 days in FY03/21.
Inventory is stored at the company’s logistics center in Tokyo.
It takes roughly one month for an order to be recorded as revenue, and because the company keeps some three months’ worth of inventory, it generally does not carry large order backlogs.
However, at end-FY03/21, ViSCO reported an order backlog of JPY732mn (+47.3% YoY). According to the company, orders are skewed toward the end of the fiscal year, which may give the appearance of a bloated order backlog at the end of March. It says that its mainstay customers—smartphone connector and ceramic parts manufacturers—have invested in production facilities in January–March or April–June in recent years. As a result, its orders also tend to concentrate in January–March (Q4).
As of FY03/21, the company supplied its products to some 250 customers (this number fluctuates each year).
Several major companies place individual orders that are worth several hundred million yen. In FY03/21, the company generated revenue of JPY718mn and JPY256mn, respectively, from major customers Takebishi Corporation (TSE1: 7510) and Japan Aviation Electronics Industry, Ltd. (TSE1: 6807).
The company also has a large number of smaller customers that order a single device (roughly JPY2mn) per year. It says it pursues a long-tail revenue strategy. Over the medium to long term, it plans to grow its business fields and increase the share of revenue from smaller customers.
By inspection application, the company generates 40–50% of its revenue from connectors (based on historical data for FY03/17–FY03/21). Connector manufacturers require new inspection equipment every time they launch a new product. ViSCO possesses the technical capabilities and inspection tools to provide products and solutions tailored to new connector products (and shapes), and therefore supplies virtually all domestic connector manufacturers, including Japan Aviation Electronics Industry.
|% of total||1.5%||13.0%||-||6.1%||19.1%|
|Japan Aviation Electronics Industry||421||241||-||522||256|
|% of total||14.6%||7.3%||-||15.0%||6.8%|
|% of total||9.7%||12.2%||-||-||-|
|Consumer equipment (PCs, home appliance, etc.)||15%|
|(JPYmn)||FY03/18||FY03/19||FY03/20||FY03/21||Rate of change|
|% of total||69.1%||55.3%||62.8%||61.8%|
|% of total||30.9%||44.7%||37.2%||38.2%|
|% of total||30.7%||44.0%||36.8%||38.0%|
|% of total||0.2%||0.7%||0.4%||0.2%|
The bulk of the company’s revenue comes from direct sales. In principle, it does not sell its products or software through agents, mainly because it always optimizes inspection equipment and software for the inspection needs of its customers (factors such as optical conditions and production line structures).
The company explains that the process from receiving an order to booking sales broadly consists of the following five stages.
(1) Negotiate adoption, (2) evaluate sample, (3) propose and demonstrate system, (4) submit cost estimate, and (5) launch and support
In this stage, the company discusses which inspections the customer is considering. Topics covered include the types of products to be inspected, inspection items (such as presence/absence of scratches, measurement of dimensions, and misaligned printing), installation space, and the cost assumptions of the customer.
In the second stage (“evaluate sample”), the company obtains a sample of the product to be inspected, and assesses the feasibility of the inspection envisioned by the customer. It also studies and fine-tunes the optical conditions (arranging the conditions to produce images conducive to inspection), and tweaks its software to ensure optimal inspections.
After a series of tests, the company prepares a free evaluation report. In this report, the company proposes a solution to the customer. At this stage, a rough estimate of the order value is also provided. The following items are included in the evaluation report.
According to the company, developing solutions that meet customers’ requested inspection precision and speed can sometimes be a challenge.
The proposal of optical condition setting (optical solution) is based on the company's unique know-how. According to the company, this second stage of the process is what differentiates the company from its competitors.
In the third stage (“propose and demonstrate system”), the company conducts an image-based inspection based on the evaluation report, and compares the results against the inspection specifications requested by the customer. The company discusses the results and pricing with the customer, and arrives at a ballpark cost estimate.
In the fourth stage (“submit cost estimate”), the company provides a cost estimate to the customer. After the customer installs the inspection equipment, the company moves to stage five (launch and support). Basically, the customer does the start-up work for the inspection process, but ViSCO provides optional training on the launch of inspection processes and equipment usage.
In addition, the company offers software and hardware support services for one year after adoption.
ViSCO is a dedicated manufacturer of machine vision inspection systems (MVIS) that operates under the management philosophy “Images all the way.” Image-based inspections involve detecting product defects based on captured images. Other companies that compete in this space are listed factory automation (FA) companies such as Keyence Corporation (TSE1: 6861) and Omron Corporation (TSE1: 6645). Shared Research understands that ViSCO is the only listed company in Japan that exclusively produces MVIS.
Keyence and Omron do not disclose the share of revenue they generate from MVIS.
According to company and other materials, Keyence is the domestic market leader in MVIS by revenue, with ViSCO commanding the second or third largest market share.
Cognex Corporation, an unlisted company headquartered in the US, has the fourth largest market share in Japan. Together, the four leading companies by market share dominate the Japanese MVIS market.
At present, ViSCO has no plans to expand into FA equipment other than MVIS (its business field is reflected in its management philosophy “Images all the way”).
The company’s inspection systems are versatile, facilitating the inspection of a broad range of industrial products. MVIS are often dedicated systems geared toward specific target products. For example, there are systems that exclusively inspect LCD panels, electric circuits, or processed foods (inspection of package printing). The inspection systems developed and manufactured by the company are not these specialized machines, but general-purpose machines (inspection tools). If equipped with the company's general-purpose inspection tools, the same inspection equipment can be used to inspect both electronic components and food products.
Some products are difficult to inspect. For inspections of products with a size of over 10 cm2 per field of view, ViSCO generally proposes an approach of dividing the target product into multiple sections, and inspecting each of these (for details, see Value chain section above).
The company believes its MVIS are superior to those of other companies in that they can detect defects or measure objects more precisely and distinguish between conforming and non-conforming products more accurately (i.e., without mistakenly judging conforming products to be faulty).
MVIS are installed to replace naked-eye inspections. ViSCO explains that its products use proprietary technology to conduct image-based inspections that approximate naked-eye inspections. According to the company, inspectors do not simply observe products in naked-eye inspections, but they have to assess whether a product is defective. The value of ViSCO’s products lies not only in the high-precision images captured by its systems but also in its software solutions that replace the assessment previously made by seasoned inspectors. The technology required to provide this value to customers is described below.
According to the company, there are five advantages that differentiate it from its competitors.
An image that is easy to inspect is one that has been captured under optimal optical conditions according to the type of defect—examples include scratches, dents, bulges, foreign matter contamination, and stains. For example, blue lighting is applied from behind to bring out the shape of the object, or light is cast from an oblique direction to make scratches and burrs—protrusions on the material processing surface—stand out.
According to the company, in order to capture images that are easy to inspect, appropriate optical conditions, which refers to the way light is applied, are necessary. The company proposes a solution to its customers in the form of an evaluation report on how to shine the light in a manner that makes defects easily visible. Optical conditions include the lighting method, frequency (color), and shape. Seasoned inspectors who adjust the angle at which they observe a target product effectively alter the optical conditions to facilitate detection of product defects.
Lighting method: selected based on the surface shape and unevenness of the target object and inspection items (presence/ absence of scratches, measurement of dimensions, text recognition)
Lighting color (frequency): involves brightening or darkening the target product or the location to inspect in order to emphasize the part that needs to be observed
Lighting shape: selected based on the shape or the size of the target product, the lighting method, and the location where the machine vision system is installed
The optical conditions that facilitate inspections of captured images vary by inspection product, and cannot be set uniformly. Nevertheless, seasoned inspectors understand how to find the optimal angle of vision for inspections by determining the optical conditions for a production line and experimenting with various viewing angles. The company has accumulated analog know-how on how to determine optical conditions. This is what differentiates the company from its competitors, according to the company.
Setting the optimal optical conditions leads to a high degree of inspection precision. This is one of the key added value provided by ViSCO.
The company does not disclose information on how it selects lighting or casts light on target products in line with varying optical conditions. However, it explains such expertise is rooted in analog technology and will take time for competitors to emulate.
When inspecting connector pins (shaped like comb teeth: see the figure below), it is necessary to stably image the contours of each pin. For this purpose, the stability of luminance, or the brightness of the light reflected by the object, is important. According to the company, its products have a more stable luminance than those of other companies, so they can capture images that can detect targets more reliably.
Based on the fact that even conforming products have variations, the company has equipped its MVIS with a software tool that can distinguish between defects and the variations of conforming products that are not defects.
DefFinder® is an inspection tool that creates a statistically accurate image of a conforming product based on several prerecorded models of such products, enabling stable detection and inspection of visual defects such as scratches, dirt, and foreign materials. Industrial products are never identical across the board as they cannot be consistently manufactured in the same environment or with the same materials. This means there will invariably be minor differences between product lots. Human observers do not recognize such differences as defects, and DefFinder® reproduces this evaluation capability in software. DefFinder® has already been in use for more than 15 years.
VISCO’s CrackFinder® is an inspection tool that can recognize cracks in surfaces with the same accuracy as naked-eye inspections. It can single out such cracks on images of materials where the contrast between the crack and background is unclear, making it difficult to distinguish the defect. CrackFinder® is a patented technology that reproduces the evaluation capabilities of inspectors with experience in identifying shapes that represent cracks.
In standard image-based inspections, uneven surfaces of target products are distinguished based on the color shading on the output image. However, this approach has its limitations, especially when attempting to distinguish cracks from the background in images of target products with a matte finish. In such cases, cracks may not be distinguished when compared to prerecorded images of conforming products.
High accuracy means to produce correct results (quality judgment) and accurate values (measurement results) each time, even after repeated inspections and measurements. The company explains that the accuracy of its MVIS is higher than competitors’ equipment.
For example, even if the captured image is different in lightness, shading, degree of focus, or noise compared to the correct image registered in advance (i.e., the image of conforming products), inspection and measurement can be performed without being affected by it—meaning it will not be judged as a defect.
In 2013, the company released a MVIS equipped with an ultra-depth camera (patented) that used proprietary technology to capture images of 3D objects. This solution helps overcome inspection problems stemming from the depth of target products. The company has made it possible to detect defects that other companies' equipment cannot find by combining analog and digital technologies.
The MVIS with an ultra-depth camera is a solution that replicates the expertise of naked-eye inspections, which often involve observing target products at an angle. The objective is to change the lighting angle, making it easier to spot defects. This approach also reveals the depth of the target product. The ultra-depth camera can view the target products at an angle while keeping the whole image in focus.
Standard cameras can only focus on one part of an image. Capturing the depth of an object will create a perspective image, which means details in the foreground or background will become blurry. Such images are therefore not suitable to detect product flaws.
The benefits of the ultra-depth camera, as explained by the company, are as follows.
By capturing images at an angle, scratches and unevenness that are difficult to detect on images captured from above become visible. This approach also facilitates detection of defects inside connector holes, which cannot be seen on images captured from horizontally or vertically positioned cameras (see image below). In this way, the ultra-depth camera achieves results that rival naked-eye inspections.
Whereas cameras and lighting equipment normally need to be prepared for each product side to be inspected, the ultra-depth camera can simultaneously capture precise images of three sides of 3D objects. As a result, inspections can be conducted with fewer cameras and image captures, speeding up the entire inspection process while reducing costs.
The company explains the human eyes can detect product defects with higher precision in general. By interfacing with the brain, they can recognize whether linear marks on the surface of a target product correspond to qualitative deficiencies. However, due to the acceleration in trends such as the automation of production equipment and the adoption of labor-saving technologies, the company believes demand for MVIS that replace naked-eye inspections will increase in the future.
The company expects demand for MVIS to rise because they offer the following benefits.
MVIS can operate round the clock while maintaining stable results. They also reduce variation in inspection results stemming from differences in experience, and mistakes resulting from fatigue.
MVIS can be deployed in micro-processing and high-speed inspections, which are out of the reach of naked-eye inspections.
In full inspections, MVIS leave an image and a record of the conforming status (“OK” vs. “NG”) for each product.
Generally speaking, ViSCO believes MVIS continue to lag naked-eye inspections in the following areas.
MVIS have trouble inspecting 3D objects. Such inspections normally involve capturing images from each side of the object, which is cumbersome to do with machinery compared to visual inspections. Present 3D inspection technologies, which function by casting a light on the target product and analyzing the reflections, are limited in their detection precision. However, Shared Research understands that ViSCO’s ultra-depth camera (discussed earlier) is equipped with technology that overcomes many of the existing challenges in 3D inspections.
Another area where MVIS struggle compared to naked-eye inspections is large objects such as car bodies, which have many curved surfaces. Because the pixel size for captured images rises with increases in the size of the target product, minor defects become hard to spot. This limitation can be overcome by installing multiple cameras, but not without driving up the cost. According to the company, the threshold for effective image-based inspections is about 10 cm2 per field of vision.
The company’s business model is premised on replacing naked-eye inspections performed by inspectors with image-based inspections conducted by machines. To this end, ViSCO supplies equipment (MVIS) and solutions (inspection methods that utilize the MVIS) to its customers.
ViSCO explains that the function of the eyes in naked-eye inspections is simply to observe the target product, and argues that inspection (the detection of product defects) is the result of a mental process. It defines this mental process as a combination of “perceptual judgment,” “experiential judgment,” and “recognition.”
Perceptual judgment refers to making the decisions necessary to increase the visibility of certain parts of an object. This includes, for example, changing the orientation of target objects (or the viewing angle), changing the lightening method (by dimming or darkening the target product, or changing the lighting angle). The optimal viewing conditions (lighting method and camera angle) to detect product defects are not configured automatically by the MVIS, but require human input.
Experiential judgment is the ability to identify variation in conforming products, which is grounded in experience. Inspectors understand that industrial products are never identical across the board as they cannot be consistently manufactured in the same environment or with the same materials. The ability to distinguish conforming from non-conforming products in lots that exhibit some variation among individual products, is underpinned by experience. In MVIS, this is achieved by measuring the amount of statistical deviation from average values.
Recognition refers to the understanding that defects come in various form and shapes. Inspectors immediately grasp that cracks and scratches have a linear pattern, and can therefore identify a defect on sight. Although cracks and scratches may appear in an infinite number of patterns, human observers can recognize them as such thanks to an awareness of the many shapes defects can take. This is generally difficult to achieve with MVIS. To overcome this problem, ViSCO developed its CrackFinder® inspection tool that is equipped with patented technology.
Connectors are electronic parts that transmit electric power and signals between other components. They are available in various shapes and sizes, and are used in equipment such as smartphones, computers, cars, airplanes, industrial machinery, and satellites. Their performance and shape are dictated by the designs of the equipment they are incorporated in. For example, Japan Aviation Electronics Industry, Ltd., a leading Japanese manufacturer of connectors, currently produces over 30,000 types of connectors (as of March 2021; source: Japan Aviation Electronics Industry website).
The 2020 Current Production Statistics published by the Ministry of Economy, Trade and Industry (METI) broadly divides the numerous types of connectors into four categories: coaxial connectors, printed circuit board connectors, circular connectors, and rectangular connectors. In 2020, these four types accounted for 73% of the connectors produced in Japan (in terms of value).
|Coaxial connectors||Broadcasting equipment, audio-visual equipment, measuring instruments, etc.|
|Printed circuit board connectors||Mobile devices (smartphones, smartwatches, wearables), tablets, notebooks, digital cameras, augmented and virtual reality headsets, other compact mobile devices, etc.|
|Circular connectors||Industrial equipment (such as robots resistant to vibrations and water, automated machines, and machine tools), servomotors, semiconductor production equipment, communication equipment, measuring instruments, etc.|
|Rectangular connectors||Computers, office equipment, communication equipment (terminals, mobile devices), measuring equipment, audio-visual equipment, home appliances, factory automation (FA) equipment, automotive electronic control units (ECU), switches, etc.|
ViSCO says that new connectors often feature novel shapes, which in turn drive fresh demand for inspection equipment.
ViSCO expects mobile devices to further shrink in size or improve in performance (without a change in size), and looks for the shape of connectors to change in tandem with these trends. Smartphones, in particular, are incorporating a growing number of components as manufacturers aim to deliver slimmer designs, increased features and performance, larger screens, and improved battery capacity. Smartphones with support for 5G networks have also seen a rise in power consumption compared with older 4G models.
Assuming these trends will continue, the company believes connectors for internal smartphone components will similarly need to become thinner and smaller. For example, among board-to-board (B2B) connectors for smartphone printed circuit boards, the adoption of fine pitch* connectors (pitch of 0.4 mm) has increased as products evolve toward smaller profiles and footprints (shift to fine-pitch products). Manufacturers of high-end smartphones have started adopting 0.35 mm pitch connectors in earnest. The company believes the reduction in size of connectors in the pursuit of finer pitch will create demand for high-precision machine vision inspection systems (MVIS).
* Pitch refers to the distance between adjacent pins on a connector, measured from the center of each pin. The pins are the contacts in a connector that transmit electricity. For a conceptual diagram, see the Business model section.
According to METI’s Current Production Statistics, domestic connector production value totaled JPY301.7bn in 2020 (-7.5% YoY), with corresponding unit sales of JPY33.2bn (+1.9% YoY). Connectors for printed circuit boards account for the bulk of connectors sold in Japan, making up 54.6% of the units sold and 62.6% of the sales value.
|CY||2014||2015||2016||2017||2018||2019||2020||% of total|
|Sales volume (mn units)||28,918||29,770||31,185||34,253||33,155||32,607||33,219||100.0%|
|Sales value (JPYmn)||379,706||380,702||376,689||409,957||367,560||326,066||301,728||100.0%|
|Sales volume (mn units)||3,007||3,859||3,244||3,642||3,061||2,628||2,866||8.6%|
|Sales value (JPYmn)||33,842||41,441||29,539||27,027||22,966||18,307||20,565||6.8%|
|Printed circuit board connectors|
|Sales volume (mn units)||15,953||16,763||17,429||19,454||19,653||19,711||18,145||54.6%|
|Sales value (JPYmn)||240,907||244,541||255,098||276,248||239,789||218,802||188,930||62.6%|
|Sales volume (mn units)||386||341||374||385||390||307||267||0.8%|
|Sales value (JPYmn)||22,828||21,682||21,606||25,541||25,567||18,283||16,470||5.5%|
|Sales volume (mn units)||866||746||849||1,007||1,049||967||2,979||9.0%|
|Sales value (JPYmn)||24,270||21,061||21,116||24,278||23,670||20,637||27,166||9.0%|
|Sales volume (mn units)||8,706||8,062||9,288||9,765||9,002||8,994||8,961||27.0%|
|Sales value (JPYmn)||57,859||51,977||49,330||56,863||55,568||50,037||48,597||16.1%|
|Shipment volume (worldwide)||1,244,740||1,423,900||1,495,959||1,536,536||1,555,613||1,540,657||1,347,870|
|('000 units)||2020||2021||2022||2023||2024||2025||% of total|
|Mobile phone sales||3,781||3,734||3,682||3,626||3,586||3,539||100.0%|
|of which, 5G-compatiable||74||257||682||1,122||1,656||1,982||56.0%|
|Consumer equipment (PCs, home appliance, etc.)||15%|
ViSCO regards the following three companies as its main competitors: Keyence Corporation (TSE1: 6861, companywide revenue of JPY538.1bn in FY03/21), Omron Corporation (TSE1: 6645, companywide revenue of JPY655.5bn in FY03/21), and Cognex Corporation (NASDAQ: CGNX, companywide revenue of USD811mn [roughly JPY84.0bn] in FY12/20). The company estimates the Japanese market for machine vision inspection systems (MVIS) is worth around JPY30.0bn. Four companies (including ViSCO) control the market, giving rise to an oligopoly. ViSCO is the only listed Japanese company that specializes in MVIS (US-based Cognex specializes in machine vision systems).
The company places more emphasis on R&D than competitor Keyence—another fabless manufacturer. In FY03/21, it had an R&D expense ratio of 5.6%, exceeding the 3.0% spent by Keyence. After factoring in software development costs, the company’s R&D expense ratio rose to 8.5% in real terms.
Although ViSCO lags Keyence in terms of sales capabilities, the company explains that it can provide various solutions in its proprietary inspection tools (over 60 tools geared toward specific and general-purpose inspections) that are superior to the corresponding offerings of Keyence.
|Cost of revenue||1,390||1,516||1,545||1,448||1,563|
|Gross profit margin||51.7%||54.2%||56.7%||58.3%||58.4%|
|Operating profit margin||12.2%||14.1%||15.2%||13.4%||17.3%|
|% of revenue||3.4%||4.8%||4.6%||5.5%||5.6%|
|R&D expenses (incl. software development)||196||271||271||283||321|
|% of revenue||6.8%||8.2%||7.6%||8.2%||8.5%|
|Number of employees||93||103||121||133||145|
|Cost of revenue||60,477||94,174||103,623||100,406||97,250|
|Gross profit margin||80.9%||82.1%||82.3%||81.8%||81.9%|
|Operating profit margin||53.7%||55.6%||54.1%||50.3%||45.9%|
|% of revenue||2.7%||2.5%||2.7%||2.9%||3.0%|
|Number of employees||5,673||6,602||7,941||8,419||8,380|
|Cost of revenue||482,399||502,170||505,389||374,278||357,178|
|Gross profit margin||39.3%||41.6%||41.2%||44.8%||45.5%|
|Operating profit margin||8.5%||10.0%||8.9%||8.1%||9.5%|
|% of revenue||6.4%||6.9%||6.7%||6.8%||6.6%|
|Number of employees||36,008||36,193||35,090||28,006||28,254|
|Cost of revenue||131,070||187,289||206,052||189,754||206,421|
|Gross profit margin||75.2%||75.6%||74.4%||73.8%||74.5%|
|Operating profit margin||29.1%||33.8%||27.4%||19.7%||21.1%|
|% of revenue||14.8%||12.9%||14.4%||16.5%||16.2%|
|Number of employees||1,421||1,771||2,124||2,267||2,055|
Since its inception, the company has been providing solutions for image based inspection of connectors, semiconductors, and electronic components that can detect defects more accurately than other companies’ solutions. The company maintains that its superiority over its competitors has remained unchanged, as its equipment makes fewer errors in judging between conforming and non-conforming products. ViSCO also says its equipment is capable of capturing images that are more suitable for defect detection. It achieves this by increasing camera resolutions—resulting in a higher number of pixels—and optimizing lighting methods. Optical conditions vary by target product, and the company still relies on inspectors to visually confirm the optimal lighting method (optical solution).
One of the company's differentiating factors is its accumulated expertise in optical solutions, a non-digital technology. By combining proprietary hardware and inspection tools (software), ViSCO proposes the optimal inspection processes and conditions for each customer. Shared Research understands that the analog technology built into the solutions of the company appeals to customers that require high-precision inspections.
In FY03/21, the company recorded R&D expenses of JPY212mn (under SG&A expenses), accounting for 5.6% of revenue. It spent an additional JPY109mn on software development (software amortization booked under manufacturing costs; 2.9% of revenue), which the company also regards as a form of R&D investment. In real terms, therefore, its R&D expense ratio stood at 8.5%, which is above the corresponding levels for rivals Keyence (3.0% of revenue, booked under SG&A expenses) and Omron (6.6%). ViSCO lags Keyence in terms of sales capabilities, but the company invests heavily in R&D and has developed over 60 software tools for specific and general-purpose image-based inspections. Shared Research also understands that the company can customize its proprietary inspection tools for customers, which is something Keyence does not offer.
From FY03/17 to FY03/21, the company generated 40–50% of its revenue from connector manufacturers, which upgrade their inspection equipment when they launch new products. ViSCO possesses the technical capabilities to provide products and solutions for new connectors (featuring various shapes) and has built an extensive lineup of inspection tools (software). As a result, it has attracted several major customers that place repeat orders amounting to over JPY100mn per year, including the largest Japanese manufacturer of connectors. In a typical year, ViSCO supplies MVIS and inspection solutions to some 250 companies, and it anticipates many of its small to medium-sized customers will expand into major customers.
The company specializes in MVIS and inspection tools that are deployed in inspection processes of production lines. Its rivals Keyence and Omron offer a broader lineup of products. Keyence—a fabless manufacturer like ViSCO—not only provides MVIS used in inspection processes, but supplies products that can be deployed in all processes of production lines. For example, it sells sensors that analyze the operating conditions of machine tools used in machining processes for metal products. Omron similarly sells products deployed in processes other than inspection. Because ViSCO targets a smaller customer segment, it has less scope to expand its customer base than its domestic competitors.
The value of the company's offerings lies not in the MVIS itself, but in the customized solutions that the company proposes for each customer. For example, the company provides details on how to set optical conditions and how to adjust inspection software tools in its evaluation reports to customers. The company's proposal utilizes the unique know-how it has accumulated, and its inspection systems have been highly evaluated by customers for being faster and more accurate than those of competitors. On the other hand, because the company creates each solution for each customer, the time from the start of a business meeting to the recording of revenue tends to be longer than for a manufacturer specializing in equipment sales. As a result, Shared Research understands that providing solutions for each customer has become a bottleneck to revenue growth.
We note that Keyence, also a fabless manufacturer does not provide customized solutions to its customers, its focus being on bulk procurement and sales of general-purpose MVIS, as well as rapid customer response (same-day shipping). VISCO's customized solutions are highly evaluated for their ability to provide inspection accuracy that no other company can match, but there are restrictions in terms of speed of response when demand increases.
ViSCO outsources production for some 2,000–3,000 MVIS per year, with an average unit price (manufacturing cost) of below JPY1mn. Shared Research understands that few suppliers can accommodate such small-lot production. We therefore think the company has less leverage when negotiating prices with suppliers, and faces difficulties in reducing manufacturing costs through volume discounts on purchasing.
Keyence, a fabless manufacturer that competes with the company, had JPY65.8bn in non-consolidated material costs (purchases of products) under its manufacturing costs in FY03/21. This was more than 50x the company's non-consolidated material costs of JPY1.1bn.
|Cost of revenue||1,390||1,516||1,545||1,448||1,563|
|Gross profit margin||51.7%||54.2%||56.7%||58.3%||58.4%|
|Operating profit margin||12.2%||14.1%||15.2%||13.4%||17.3%||15.8%|
|Foreign exchange gains||-||2||-||-||0|
|Foreign exchange losses||44||-||22||6||-|
|Recurring profit margin||9.4%||12.6%||13.5%||12.3%||17.0%||15.5%|
|Implied tax rate||21.2%||21.6%||12.0%||23.4%||28.0%|
|Net income attributable to non-controlling interests||10||25||18||22||30|
|Net income attributable to owners of the parent||203||302||406||304||431||440|
|Salaries and allowances||301||335||390||446||470|
|Provision for employee bonuses||49||55||45||51||75|
|Retirement benefit expenses||14||16||19||19||23|
|Depreciation and amortization||34||40||54||59||71|
|Traveling and transportation expenses||106||111||127||140||50|
|Balance sheet (JPYmn)||FY03/17||FY03/18||FY03/19||FY03/20||FY03/21|
|Cash and deposits||1,051||1,768||1,786||2,004||2,395|
|Notes and accounts receivable||801||649||689||966||626|
|Raw materials and supplies||188||214||241||284||343|
|Deferred tax assets||38||-||-||-||-|
|Allowance for doubtful accounts||-||-||-6||-1||-0|
|Total current assets||2,203||2,766||2,937||3,459||3,694|
|Buildings and structures||16||14||23||20||18|
|Construction in progress||1||-||-||-||-|
|Total tangible fixed assets||86||110||120||127||132|
|Total intangible assets||162||178||202||200||205|
|Deferred tax assets||-||47||40||35||38|
|Investments and other assets||54||103||96||98||102|
|Total fixed assets||302||392||418||425||439|
|Notes and accounts payable||371||296||213||368||299|