(FORTUNE Magazine) – THE FUTURISTIC SETTING could serve for a James Bond thriller. Within huge, bumblebee-yellow assembly plants in a pine forest at the foot of Japan's Mount Fuji, the yellow robots of Fanuc Ltd. work through the night in eerie darkness. The reclusive figure who presides over all this, Dr. Seiuemon Inaba, Fanuc's 62-year-old chief executive, has been likened to Ian Fleming's Dr. No because of his dictatorial ways and the trappings that surround him. They ; include a cavernous conference room with a huge electronic projection screen and a stunning view of the snow-capped peak, a yellow helicopter on a nearby landing pad, and pretty yellow-smocked young women who bow waist deep and trot off to execute their master's soft-spoken commands. Everything at Fanuc (pronounced Fa-NUKE) is yellow. In Inaba's words, it is ''the emperor's color.'' Unlike the Dr. No character, who was thwarted in his scheme to take over the earth, Dr. Inaba -- he has a Ph.D. in engineering -- is proving successful in his somewhat more limited plans for conquest. Fanuc has become the No. 1 supplier throughout the world of devices that control the machines in automated factories. It is also the leading producer of industrial robots, on which it consistently makes money; U.S. competitors' profits are sporadic or nonexistent. At a time of disappointing growth in the factory automation business, Fanuc is exploiting its rivals' weakness to further consolidate its grip. The latest triumph came in January. General Electric, Fanuc's principal competitor in computerized numerical controls, surrendered by forming a fifty- fifty U.S. joint venture with Inaba's company. Computerized numerical controls, or CNCs for short, are boxes stuffed with electronics that serve as the brains and nervous systems of such tools as lathes and milling machines. Under CNC direction they become, in the words of one specialist, ''as nimble as a troupe of belly dancers,'' able to sculpture anything from aircraft wings to submarine propellers. Through the joint venture, Fanuc also gains entry to the market for so-called programmable logic controllers, or PLCs, which it did not previously make. These electronic boxes are less complex than CNCs but are more widely used. THE JOINT VENTURE is quite a comedown for executives in GE's factory automation division, who not many years ago vowed that they would overwhelm Fanuc and the rest of the Japanese competition. Didn't GE have more software experts than all of Japan? But the big U.S. company lost at least $200 million in an abortive attempt to become ''a supermarket of automation'' (FORTUNE, November 11, 1985). Now GE will cease making its own CNC units. Next year the joint venture, called GE Fanuc Automation Corp., will switch over to making Fanuc models at a GE plant in Charlottesville, Virginia. They incorporate refinements that a GE executive calls ''awesome.'' Barely five years have elapsed since another giant of American industry threw in with the diminutive Inaba. General Motors, unable to expand industrial robot production fast enough to meet its own needs and sell to others, and failing to find a suitable U.S. partner, formed a joint enterprise called GMFanuc Robotics Corp., which soon became the world's largest supplier of robots. Fanuc's latest coup has the rest of the industry looking on in wide-eyed amazement. Says Dennis E. Wisnosky, president of Wizdom Systems, a factory automation firm in Naperville, Illinois: ''Inaba has both GE and GM selling his products. How much better can you be?'' Fanuc marches profitably on even at a time when the automation business has fallen into the doldrums, at least as measured against earlier expectations. Glen Allmendinger, president of Harbor Research, a Boston firm that follows the industry, estimates that worldwide sales of automation equipment, including computer-run machine tools, rose from $24.7 billion in 1982 to $37.8 billion in 1986. Sales of industrial robots climbed from $160 million to $380 million. While that kind of growth would prompt orgies of delight in a mature industry, it's disappointing in a business that was counting on a rocket's ascent. Worse, robot sales are expected to turn down in 1987, in the U.S. if not in Europe and Japan. Security analysts offer many explanations. Eli Lustgarten of Paine Webber notes, for instance, that in recent years manufacturers who buy automation equipment found themselves with weak cash flows; survival rather than investment became the byword. Other analysts cite poor payoffs from big efforts to automate, such as those at GM. Robot users were often sold performance that was never attained on the factory floor. Partly because of cutbacks at GM, Fanuc's sales were down 29% for the fiscal year ended March 31. At the late-April exchange rate, the revenue figure worked out to $800 million; the percentage decline is measured in yen to eliminate the effects of the dollar's steep decline. Inaba says he doesn't care because he feels the industry's slump is temporary and sales will come back. He's rightly proud that Fanuc continued to generate profits that are lush by Japan's rice-paper-thin standards: 28% of sales before taxes in the latest fiscal year, vs. 37% in fiscal 1986. This was achieved even though Fanuc held the line on prices in the U.S. despite the dollar's drop. Says Inaba: ''I think Fanuc is the only Japanese company that could have done that.'' Its secret? Certainly not advanced technology: Fanuc gets most of that from others. Inaba hopes to tap a new source in his venture with GE, just as he continues to draw technology from GM. No, Fanuc bowls over the competition by being the lowest-cost producer of crucial automation components of unsurpassed quality. FANUC'S SUCCESS is inseparable from Dr. Inaba, as he is universally known. Once a student of cannon design at the University of Tokyo, he went on to get his Ph.D. from the Tokyo Institute of Technology. In 1955, a few years after going to work for Fujitsu, the big Japanese electronics company, Inaba was picked to lead a team of 500 engineers spearheading Fujitsu's entry into the factory automation business. The new organization was named Fujitsu Fanuc, the second word an acronym for Fuji Automatic Numerical Control. The first word was dropped in 1982, though Fujitsu continues to own 41.8% of the company. The other major shareholders are Fuji Electric, with 4.8%; two Japanese banks with 1.6% each; West Germany's Siemens AG with 1%; and Chase Manhattan's London subsidiary with 0.9%. In a land known for circumlocution, Inaba is unusually direct. Asked about some Americans' accusation that he had put Fanuc at the foot of Mount Fuji so that visiting dignitaries could be photographed with Japan's symbol in the background, Inaba matter-of-factly replies: ''I did have something like that in mind.'' His actions can be similarly pointed. He once told his engineers, ''No matter how excellent a product may be produced, we will not be able to win a war if we should fail to market it at the proper time.'' Reinforcing the message, he gave Fanuc's product development lab a wall clock that runs at ten times the normal speed. ''That saved me making a speech,'' he says. NO QUEST for consensus delays decision-making at Fanuc, because Inaba runs it like a military organization. Underlings don't speak in meetings unless he addresses them. But he pays them exceptionally well: Managers earn up to 50% more than their counterparts at other Japanese companies, engineers up to 30% more. In return, Inaba gets amazing loyalty. Fanuc research engineers may be among the busiest in workaholic Japan; they often sleep in beds provided on the premises. Inaba's 39-year-old son, Yoshiharu, is one of them. ''I've never seen him taking days off,'' brags the father. ''I've never seen him resting.'' At the Fanuc complex, dormitories are available for workers and managers who commute on weekends to see their families in Tokyo, 75 miles from the plant. ''They work till 9 or 10 P.M. and then are back in their offices at 6:30 in the morning,'' says an American executive. Inaba attributes Fanuc's success to what he calls ''walking a narrow path.'' The company makes a fairly broad line of products, including some machine tools. But control devices and robots account for 75% of sales, and Inaba pays overwhelming attention to control technology and the motors that run robots and other factory machines. ''It is within this narrow path that I try to come up with innovations,'' says Inaba, ''and I think that is what made me competitive. I have never tried to get away from these two basic technologies.'' Few companies have driven down costs more ruthlessly. Fanuc has automated its own plants to a degree perhaps unknown anywhere else in the world. Behind the yellow walls is a manufacturing engineer's paradise, where robots equipped with electronic vision thread wires through motor housings, and the nighttime production of machine tool parts is supervised by a single human controller at a TV screen. Inaba claims that robots, numbering more than 400, slightly outnumber production workers at the Fuji complex. The rest of the 1,700 workers are research engineers, administrators, and salesmen. Five years ago, the U.S. National Science Foundation financed a study at Carnegie Mellon University on possible ways to assemble electric motors automatically. By then Fanuc was already assembling 10,000 electric motors a month in a fully automated plant; that plant, with 70 workers and 130 robots, has since boosted production to 18,000 motors a month. The plant cost $32 million to build, about one-tenth what a conventional facility would cost, and requires only a tenth as many workers. To make such assembly possible, Fanuc had to redesign the motors and drastically reduce the number of parts. The German engineering slogan ''Weniger Teile'' (fewer parts) is prominently displayed at Fanuc; Inaba, an admirer of German precision and efficiency, speaks the language well. In the current ''rationalization'' effort to counteract the yen shock, Inaba says, his engineers reduced the number of parts in a motor controller -- a device that regulates a motor's speed -- from 1,070 to 573 and eliminated all cables and metal-stamping processes. Robots now assemble the controllers in six minutes instead of the previous 90 minutes. INABA IS ALSO uncompromising in his insistence on product reliability. Everything is tested to a degree probably unknown elsewhere. Says Gordon Richardson, a consultant in industrial electronics at Arthur D. Little and a longtime Fanuc watcher: ''U.S. manufacturers were caught napping. They were trumpeting all sorts of advances, but they had not done the underlying job of making reliable systems.'' Just like Japanese cars, Fanuc's CNC units have the reputation of running longer between repairs than those of competitors. Fanuc aims to sell anywhere in the world, including the Soviet bloc. With an assist from Uncle Sam, in fact, Inaba helped Eastern Europe set up its numerical control industry. In the 1970s the United Nations Industrial Development Organization, financed primarily by the U.S., helped Third World countries build up their machine tool industries. The idea was to enable backward agricultural nations to make their own rakes and hoes. Bulgaria was chosen as the Eastern bloc's major recipient of the U.N.'s largess. The effort did not stop with helping Bulgaria to make simple farm implements. In 1974 Fanuc licensed the manufacture of controls and motors to the Bulgarians and later helped build a production plant in Sofia -- a copy of a Mount Fuji plant down to its yellow color. Since then Bulgaria has blossomed into the Eastern bloc's principal supplier of machine tool controls used in both civilian and military production. Next to a small technical museum at headquarters, Inaba displays his decorations and awards from all parts of the world. One is the first degree Madarski Konnik (Equestrian of Madar) medal from a grateful People's Republic of Bulgaria. Fanuc devices far more sophisticated than those licensed to Bulgaria also seem to find their way behind the Iron Curtain. Along with the U.S. and a number of West European countries, Japan is a signatory of the so-called Cocom (Coordinating Committee) agreement banning the sale of advanced manufacturing equipment to the Soviet bloc. But Richard W. Kuba, international marketing director for the National Machine Tool Builders' Association of the U.S., has recently spent three weeks visiting Soviet machine tool plants, and he reports seeing advanced Fanuc controls in use there. When asked about this, Inaba says Fanuc has adhered ''faithfully'' to export controls, which in Japan are administered by the Ministry of International Trade and Industry. MITI is ''extremely zealous and diligent in its implementation,'' he adds. The market for robots in the U.S. has been Fanuc's oyster ever since it linked up with GM. The market has been sickly of late, and predictions of a billion-dollar robot industry have proved premature at best. Except at Fanuc, the industry's losses have amounted to half of sales year after year. When GMFanuc Robotics entered the battle -- taking away the industry's biggest customer -- competitors retreated in disarray. Westinghouse, which in 1983 had bought the original U.S. robotics company, Unimation Inc. of Danbury, Connecticut, is in the process of shutting down the Danbury operation and transferring the remains of the business to Pittsburgh. GE quickly got out of the robotics business, and Sweden's Asea terminated robot production in the U.S. For the moment, GMFanuc has fallen on hard times too, laying off 220 of its 700 employees. Eric Mittelstadt, president and C.E.O., once expected $1 billion in sales by 1990; now he hopes to reach the target in 1995. This year the company will wind up with sales down about 35%, to just over $100 million, and a tiny profit at best. Both Mittelstadt and Inaba, chairman of the joint venture, claim to be optimistic about the future. Says Inaba: ''Once sales hit bottom, they can only go up.'' To be victorious in computerized numerical controls, Fanuc does not need its new alliance with GE. In the early 1970s Japanese machine tools, mostly equipped with Fanuc's control units, began to penetrate the U.S. market in force. In 1980 Fanuc startled its principal competitor, GE, by exhibiting a wide assortment of CNC units at a big trade show. Simple to operate, with such ''user friendly'' features as a picture of a spigot on a push button instead of the word ''coolant,'' Fanuc's CNCs grabbed nearly a third of GE's 65% market share in 18 months. Today Fanuc has 70% of the market worldwide. The remaining U.S. producers of CNCs are scrambling. They include Allen- Bradley, Cincinnati Milacron, Giddings & Lewis, and Westinghouse. Though a second-rank player in CNCs, Allen-Bradley has been one of the dominant producers of programmable logic controllers along with Gould. Will GE become a mere Sears Roebuck marketing Japanese products? ''GE has a nationwide distribution network, and Fanuc has the best products,'' says Frank Curtin, a former GE executive. Robert P. Collins, president and C.E.O. of the North American division of the new joint venture, sees GE Fanuc Automation making a profit this year on worldwide sales of $250 million. Collins's target is revenue growth of at least 15% a year. GE executives decry talk of a sellout. Says Marion S. Richardson, the company's executive vice president for factory automation products: ''God knows, we've heard enough of that comment. This is a very natural marriage that is going to make one of the most competitive worldwide enterprises in the field. It's as simple as that.'' THE INDUSTRY is already abuzz with speculation that Fanuc will someday ditch its U.S. partners. Wisnosky of Wizdom Systems says Fanuc will be in a position to break away from both GM and GE in five to ten years and emerge as an integrated American-based factory automation company invincible in both robots and controls. Says Wisnosky: ''Dr. Inaba will at that time have done what GM was trying to do in robots and what GE was trying to do in controls and neither could do by itself. They needed him. If GM decides it doesn't want to be in robotics and sells that business to the GE Fanuc venture, then the plausible next event might be for GE to say, 'This is too much trouble,' and he ends up with it all.'' Both GM and GE officials insist they are in the ventures to stay. Fanuc has reasons of its own to stay married for a long time. From GM, Inaba gets access to more advanced robot control technology than he has at Fanuc. He can also move up a rung in the robot hierarchy, toward greater integration of robots into more advanced automation systems that will be used in tomorrow's factories. From GE, Inaba gets even more: participation in a potentially huge new market with products and technologies Fanuc didn't have, including not only programmable controllers but also factory floor computers. GE gets them from IBM and Digital Equipment and modifies them to run automated production systems. The Japanese still can't match American expertise in factory automation software. So when GMFanuc's American engineers developed an advanced programming language that controls the motions of robots, Fanuc got a high- tech windfall. The programming language, named Karel in honor of Karel Capek, the Czech playwright who early in the century introduced the word ''robot,'' is gaining wide acceptance in the industry. Now that the ''little giant,'' as Dr. Inaba is fond of calling himself, has successfully eliminated both GE and GM as competitors, his only intractable enemy is his advancing age. But he appears to be in perfect health. Barring an accident, he still has plenty of time to paint the rest of the world that distinctive Fanuc yellow.