Kuka AG (KU2), Europe's largest maker of industrial robots, is creating a regional hub in China to tap surging sales in the world's most populous country, where rising wages are lifting demand for automated factory gear.

The German company will boost assembly capacity in China to 5,000 units this year, from less than 1,000 two years ago, Chief Executive Officer Till Reuter said. China will become a center for procurement, production of components and assembly for the entire Asian region, while research, development, and most production will remain in Germany, he said.

"China alone bought 15,000 robots last year, and we expect that number to rise to about 20,000 this year," Reuter said in an interview. A company target for an operating margin of 10 percent at the robot unit "is within reach," after standing at 9 percent in the fourth quarter, he said.

Rising wages, a push for quality, and demands for faster production are prompting China's manufacturing industry to buy more robots, helping European companies including Kuka and ABB Ltd. (ABBN) return lagging businesses into profit centers. Kuka's robots have become twice as profitable as the company's larger systems unit, and ABB turned its robot unit around in 2010.

At Kuka, robotics revenue jumped 84 percent between 2009 and 2011, as customers include Volkswagen AG (VOW3) and Daimler AG (DAI) bought equipment for new factories and China became the world's largest auto market. The company had record order intake, sales, and operating profit last year.

Automobile Demand

While demand from China so far was driven by automobile production, Kuka now seeks more business with customers in other industries. Manufacturers of semiconductors, electronic devices, food products and beverages are among the largest buyers of industrial robots, according data by the International Federation of Robotics, based in Frankfurt.

David Fuller's view Industrial robots have been with us for a long time but the sales figures in this article confirm that growth is now exponential. This trend is driven by intense competition among manufacturers who need to keep costs down, plus the accelerated pace of technological innovation which is now producing machines for factories which previously existed only in science fiction.

There is no limit to the potential for industrial robots. If we think about it, there are very few routine jobs that that machines will not be able to do more efficiently than humans, if not now then within a few decades. If there is a cost saving involved companies and other organisations will opt for the machines, which can work 24-7, over humans.

Kuka AG, mentioned above is not yet in the Library but you can see from the Bloomberg chart that the market is not yet impressed with its earnings potential from the China project mentioned above. It does not pay a dividend. ABB Ltd is also a non yielding underperformer.

Japan's Fanuc is far more impressive being a strong relative performer despite a yield of only 0.75%. In contrast, Yaskawa Electric Corp has been largely rangebound since July 2009 although the pattern has shown some upward dynamics since the October 2011 low. It yields 1.35%.

If I were to buy any of these shares it would be Fanuc. It is not cheap at a current PER of 21, estimated 20, but it certainly has growth potential. Otherwise, companies with top engineers and which use the best industrial robots are likely to be the better performers