Latest Update : Nov.15, 2006

Back to Financial Results (FY3/2007)

Investor Meeting Presentation for 2Q FY 3/2007 held on October 31, 2006

* Some parts have been added and modified for a clearer understanding.


Question and Answer

Keyboards are still in the red but through improved income in HDD spindle motors and information motors the total for the three businesses improved to a level where they are close to a break even. Income on lighting devices increased with sales and there was also an improvement in the speaker business.
The income and losses will probably be the same as for the second quarter. At the time of making this prediction, we do not anticipate great improvements in the keyboard business. Lighting devices are making smooth progress so there will be a stable transition.
Due to circumstances regarding our customers, the structural reform of the keyboard business is a little behind the schedule we first envisaged. At the moment we are advancing talks with customers' alternative vendors. Originally we planned to finish production of unprofitable models by October but as there have been demands from customers for us to build up their stock before ending production we will gradually phase out production a couple of months behind schedule in November or December. Initiatives for structural reform will begin in January with aims to increase profitability over the next term.
In the second quarter we are close to a break even but in the first quarter we were still in the red.
Lighting devices saw a great increase in margin over the first half of the last fiscal year so this fiscal year this area alone saw a decrease. Apart from that, business in HDD spindle motors and information motors greatly improved and, centered on the transfer of production from Thailand to China, we completed the keyboard's first structural reform to greatly decrease losses.
I think it is difficult to explain this by only referring to the calculation of marginal profit. There has been a jump in the price of raw materials along with factors such as a rise in the Thai Baht so various factors have to be taken into consideration in the presentation of predicted performance.
The devaluation of the yen has caused a swing. The average unit price of ball bearings has remained the same but in other fields there has been a change in product composition so it can't be said that the influence of average unit price has had a direct influence on income and losses. As for HDD spindle motors, it was not a case of stopping the order of an unprofitable item, rather it was a case of reducing costs to improve the overall balance. There have been changes in average unit prices due to changes in the composition of products over the first two quarters but it is not the case that sale prices have been reduced to receive orders. Currently, even though there was a jump in the price of raw materials over the first two quarters, there has not been significant change in the average unit prices.
For predicted performance of rod-end bearings for the second half, production of the A380 will be delayed.
We expect no big change in the plans for scheduled production for Boeing. Also, apart from the A380, we expect the same for Airbus.
Sales in the third quarter will remain around the same as in the second quarter at an average of 4.9 million units per month and monthly average sales of 5.1 million units per month are predicted for the fourth quarter.
Of course there will be capital investment for producing 200 million bearings a month but this doesn't necessarily mean an increase in costs. Along with the increase in depreciation expenses there would be an increase in the volume of production which absorbs it so there would be no influence. Further, the main point is whether we are able to reduce defective products which greatly reduced overall costs. Although the yield was not 100%, efforts are being made to get closer to it. Capital investment for next term is expected to reach from 20 billion to 25 billion yen.
A major factor for the increase in profitability of keyboards is the question of to what extent wireless keyboards grow. We have made predictions for notebook PC, based on speaking to large customers. Wireless keyboards are not only OEM products, but are also used as retail products by companies such as Logitech and Microsoft. We will be able to make a profit when we receive an expected level of orders. At the same time, it is depends on our potential for developing new wireless keyboards. Initiatives have been developed for new key switches and low noise keyboards.
Anyway, we have set the target of making a monthly profit toward the end of this term but it is undeniable that the conditions are harsh. We can only work upon the assumption that market conditions to the middle of next term will be close to what we assume they will be.
As seen on page 8 of the presentation, sales of electronic devices in the electronic devices and components business for the first half came to 15.9 billion yen and the prediction for the next half is 15.8 billion yen so the prediction is that sales will remain at the same level. The LED back lights are part of the electronic devices and sales increased considerably during the first two quarters. Due to seasonal factors, sales will drop during December and January so sales in the third and fourth quarters are expected to be at around the same level as during the first half. Profitability is also expected to remain at around the same level.
In some areas SG&A expenses have risen and in some areas they have fallen. Since I was appointed president we have concentrated our efforts on research and development so expenses have risen but compared to two years ago sales expenses have fallen.
We hope to sell a monthly average of 23 million units of pivot assemblies in the third and fourth quarters. In fact, taking into consideration actual sales for October, it could be guessed that a monthly average of over 24 million units will be sold in the third quarter. As for fan motors, a monthly average of about 8 million units were sold in the second quarter and it is expected that around the same amount will be sold in the third and fourth quarters.
When making performance predictions at the start of this fiscal year, it was assumed that there would be a great deal of amortization of deferred tax assets during the year but looking at things at the end of the first half, effective tax rates have greatly improved. There are two reasons for this improvement in effective tax rates: one being that as Minebea's income have been smooth there has been a reduction in the need for dividends from subsidiaries so the risk of double taxation has been reduced; the second being that as overall income have improved, less companies are in the red and the losses of companies in the red have been reduced so it can be thought that the overall effective tax rate has been reduced. That predictions for tax rates in the second half are not so positive is due to the fact that there are deferred tax assets which have to be amortized. But it should be almost completed during this fiscal year. Further, next fiscal year's effective tax rate is expected to be around 35%.
At the time I was appointed president I wanted to recruit around 150 experienced engineers so from that time we have aggressively recruited experienced engineers. By now we have recruited around 70 experienced engineers. Further, this year we recruited 40 new graduates and next spring plan to recruit 77 new graduates so, taking this into account, we have strengthened the company to the extent of 150 engineers. The assignment of the engineers has no relation to sales or the size of income of each business. The decision to appoint them was made in consideration of technically weak areas or areas which we plan to strengthen. Previously I explained that from now we are concentrating on developing the basic technology of motors and ball bearings but we have already begun to concentrate on initiatives in these areas. We already had engineering strength in the field of electronic devices so now we have supplemented our need for engineers in the field of motors, and engineers with the skills to develop the basic technology of raw materials and lubricants for ball bearings are being appointed.

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