Description

Roland is an international electronic musical instruments company listed in Japan which struggled from 2008-2013 due to severe price competitions. Roland delisted in 2013-2014 with an MBO backed by a U.S investment-VC fund, Pacific Partners, which has a subsidiary, Taiyo Pacific Partners LP. Roland.

With improvements by changing manufacturing and sales distribution, Roland decided to relist in 2019-2020. Roland has been improving their return on capital and, for the past 2 or 3 years, has allocated capital better than the market leader Yamaha.

Roland aims to increase users through a subscription service for software and will continue to sell hardware licensed under their name instead of having the capital-intensive manufacturing bits. Roland has sales (approx. usd700 to 750M) approximately a quarter of Yamaha (approx. usd3 to 3.2B). Taiyo Pacific is still a 34% shareholder.

The launch of of Roland Cloud subscription business in 2020 software streaming has offered customer from entry level to professional the pleasure of creating music.

There’s a lot of technology in search of a customer. Just because things are technically possible does not mean people will buy them. The Nintendo switch isn’t as powerful as an Xbox or PlayStation, but its interface brings value allows it to penetrate a niche market.

The hard thing is to figure out what people really truly want and make sure it can’t be easily replicated by other companies. They need a definite reason to purchase new instrument, i.e., extremely compact design, dream features and the like that give them satisfaction and greater progress in performance or value that satisfies the user.  When people think of electronic drums, or piano players, they know Roland provides high-end instrument and you’re going to get quality.

CEO turnover a problem

Despite recent changes for the better, Jyunichi Miki retired in 2022, and Gordon Raison who was CFO since 2013 became CEO. His biggest contribution was acquiring Drum Workshop. He will step down on June 30, 2024, due to “family issues,” and current COO and CIO, Masahiro Minowa will assume the role of CEO.

This churning of CEOs is a warning sign, be it internal politics or “family issues,” 2 years for Gordon Raison is a very short tenure.

Expansion overseas

Founded in 1972, Roland manufactures and sells digital pianos, synthesizers, guitar-related instruments, and electronic drums in Japan. Roland started expanding overseas aggressively in 1976 by setting up sales subsidiaries in major countries, with sales mainly directed towards musical instrument stores.

In 1996, Roland developed a mesh head which was revolutionary as it was able to duplicate the feel of acoustic drums. As a result, Roland was able to become a global leader in the electronic drum market.

Roland is now a global brand, with 90% of sales generated overseas— 28% from Europe, 36% from North America, 10% from Japan, 10% from China, and 16% from other countries.

In North America, Roland expects demand to continue to be steady, but dealer inventories are currently high and will be normalized in 2024. The demand in Japan and Europe are stable, while in China, short term recovery will be difficult.

Roland is trying to enter markets with faster growth. They entered Indonesia (+36.1%yoy) and India. Improved comparable store sales in Czech Republic, Denmark, Latin America (+5.3%yoy) and USA. China is (-11.9% yoy)

Sales Mix

Keyboard instruments make up 31% of sales, wind and percussion instruments make up 24% of sales, guitar related instruments make up 25%, and creation related products and other sales make up the last 20%. Roland also handles DJ equipment (think spin discs), proprietary sound source LSIs, as well as “Roland Cloud” subscription services for music.

Total Addressable Market and Competitors

Global musical instruments market of approximately 19 to 20B, with 50% of the market driven by North America. Yamaha is by far the market leader, but Roland is catching up.

Depending on the model, electronic pianos and drums are usually cheaper and more customizable than their acoustic counterpart. With the purchase of Drum Workshop, Roland not only has the leading market share for electronic drums in the United States, soon their acoustic drum sales will be reflected in the bottom line.