Latest Update : Aug.9, 2007
Investor Conference Call for 1Q FY 3/2008 held on July 31, 2007
* Some parts have been added and modified for a clearer understanding.
- I understand that the first quarter operating income for the electronic devices and components business segment was 0.5 billion yen. Please explain the changes that took place to bring it up from 0.2 billion yen in the fourth quarter of the last fiscal year and describe your predictions for the second quarter by product.
- How much room is there for improvement in the electronic devices and components business segment as you head into the second half?
- What are your predictions for the machined components business segment going into the second quarter?
- I imagine the 6.6 billion yen in operating income in the machined components business segment for the first quarter means a less than favorable business environment, but was it as you planned?
- What is the shipments plan for HDD spindle motors in the second quarter? Also, what were the shipments of 2.5 inch motors in the first quarter and what is the shipments plan for the second quarter?
- What were the shipments for fan motors in the first quarter, and what is the plan for the second quarter?
- Which products do you expect to perform well in the second half?
- What impact will improvements in productivity resulting from realignment of the fan motors production line at the plant in Shanghai and other such activities have on earnings in the second half?
- What is the effective tax rate for the second quarter and beyond?
- What efforts are you undertaking to address the current situation with DC brush motors and vibration motors profits, and what are your plans for the second half?
- Looking at the electronic devices and components business segment by region, is it safe to say that reorganizations are going better with products produced in China than with those produced in Thailand?
- I understand that the monthly shipments for ball bearings were 186 million units per month during the first quarter. What were the shipments for the fourth quarter of the last fiscal year, and can you give me a breakdown of the shipments figures into internal and external shipments?
- The timing of the return to profitability seems different from what I heard at the keyboards plant in Shanghai. Can you describe how it came about?
- Which improvement in the keyboards business is going to have the greatest effect in the second quarter and beyond?
- Do you think the forecast of 1.9 billion in operating income for the electronic devices and components business segment in the second half is reasonable?
Question and Answer
- There has been a 0.3 billion yen improvement in operating income, with keyboards showing the greatest improvement. As of the fourth quarter of the last fiscal year, the keyboards business was still in the red. However, it turned profitable on a monthly basis in March, and the totals for the first quarter were also in the black. The next largest improvement was made by the information motors business in which steady improvements were seen in DC brush motors, vibration motors and stepping motors. Unfortunately, the HDD spindle motors business fell into the red at the same time. Nevertheless, there was a strong performance by lighting devices and measuring components, and overall income rose by 0.3 billion yen.
As for the second quarter, we expect the keyboards business to continue going strong and remain in the black. We also believe that there will be further improvements in the information motors business. During the first quarter, the HDD spindle motors business struggled with inventory adjustments that took place at HDD manufacturers, but there will be more than 5 million units per month shipped starting in the second quarter, and we expect an increase in demand for 2.5 inch motors so that they will account for around 20% of the total. Although the Thai Baht remains strong, we expect further improvements to help us break even. Price competition in the lighting device business is fierce, but the shipments are increasing favorably, and we expect steady increases in profit thanks to the cost reduction effect. Speakers sales for household electronics have fallen significantly and remain in the red at about the same level as the fourth quarter of the last fiscal year, so we will be implementing various measures for improvements.
- Favorable improvements have been made in the information motors business, so if the Chinese Renminbi and Thai Baht stabilize we should also see a steady increase in profit. The profit structure for keyboards has been greatly improved with cost reductions and terminations of unprofitable models. We expect these efforts to contribute heavily to increased profits. The first quarter was a difficult one for HDD spindle motors; the monthly average number of units shipped in the fourth quarter of the last fiscal year was around 5 million, but that had fallen to 4.4 million in the first quarter of this fiscal year. We plan to increase shipments to more than 5 million units per month in the second quarter and beyond. If everything pans out and 2.5 inch motors increase to 20% of the overall shipments, the product mix will be improved significantly, resulting in better results.
- External shipments of ball bearings in the first quarter were at 120 million units per month. The second quarter will be affected by things like the summer vacation lull, so we expect shipments in the US and Europe to fall slightly, with external shipments falling to around 116 million units per month. On the other hand, looking at internal use of the products, the number shipped for pivot assemblies during the first quarter dropped. However, we expect it to bounce back in the second quarter, so the number shipped internally will increase, with the result being that there will be no significant change in the overall number shipped. We expect rod-end bearing shipments to remain about the same, but the main customers are in the US and Europe, so there will probably be a slight impact from the aforementioned summer vacation lull.
- The operating income was slightly lower than planned. The pivot assemblies shipments dropped substantially more than we initially expected, so we were not able to achieve the profits we had forecast. There was also the appreciation of the Thai Baht, but we were able to make up for it with our cost cutting measures. We do expect to achieve the forecast operating income of 13.8 billion in the first half for the machined components business segment.
- As of right now, we are forecasting shipments of 5 million units of HDD spindle motors in July, 5.5 million in August and 5.2 million in September, of which we expect 2.5 inch motors to account for about 20%. In the first quarter the actual shipments were about half of that.
- The shipments were about 7.7 million units per month in the first quarter, and we expect that number to remain about the same in the second quarter.
- There is a long holiday season in China surrounding National Day in October, so we will accelerate the schedule a little for products manufactured in China in order to make up for it. The shipments level for pivot assemblies and HDD spindle motors are quite different between the first quarter and July, so those shipments will rise.
- I can't answer with specific figures, but reasonable improvements were made during the first quarter. Further progress will be made on completing the plant layout in the second quarter, which we believe will result in further improvement. We are forecasting the production of more than 8 million units per month in the third quarter, so we will see positive effects in the form of increased production.
- The effective tax rate should be between 35 and 40%. It was 38% for the first quarter, and that is around the same level as the business plan forecast.
- During the past fiscal year we have been implementing reorganizations in the DC brush motors and vibration motors businesses. We are continuing to reduce outsourced productions and consolidate production bases. We feel that the results of these efforts have begun to show starting from the fourth quarter of the last fiscal year and going into the first quarter of this fiscal year. In the case of vibration motors, our policy has been to maintain the sales price, and thanks to the stabilization of production, we are seeing steady improvements in profit. The shipments are also increasing favorably, and productivity has improved considerably. We have achieved substantial improvements going from posting losses to just about breaking even, and we plan to implement additional reorganizations from the end of the first half into the second half. If those reorganizations are achieved, we believe we can make an even bigger earnings recovery. From the fourth quarter of the last fiscal year to the first quarter of this fiscal year, the biggest improvements have been made with DC brush motors; some months are in the red and others in the black, but overall we broke just about even for the first quarter.
- That is not necessarily the case. Measuring components, electronic devices and other products are made in Thailand, and those profits have improved as well. Drastic reorganizations were completed during the last fiscal year in the keyboards business, and those results are gradually materializing. At the same time, we have been implementing many different measures in the information motors business, including the elimination and consolidation of production bases, and the results are showing across the board in China, Singapore, Malaysia and Thailand. The impact of the high Thai Baht is significant, but cost cutting activities are proceeding smoothly.
- The external shipments in the fourth quarter of the last fiscal year were 117 million units per month, and the internal shipments were 64 million units per month, for a total of 181 million units. The figures for the first quarter were 120 million and 66 million units per month, respectively, for a total of 186 million units. Shipments of ball bearings for air conditioners this year maintained a favorable level for an extended period of time. On the other hand, shipments of ball bearings for computer-related products were poor in the first quarter.
- In the first quarter adequate profit was retained in the profit and loss accounts for both the plant and the business unit as a whole.
- We will continue to strive for further cost reductions, particularly when it comes to materials. The cost of materials is quite high in proportion to overall sales in the keyboards business, so if that can be reduced, profits will increase. Moving the production from Thailand to Shanghai was a difficult process, but the overall management efforts are beginning to get back on track following the reorganizations and terminations of unprofitable models that took place in the previous fiscal year. I think there is still room for improvement in the cost of materials and production yields. Tasks like in-house manufacturing, external purchasing and outsourcing have come under control, so I think it will help us cut costs.
- If the Thai Baht stabilizes, the forecast is, in fact, quite reasonable. If you compare the level of improvement between the fourth quarter of the last fiscal year and the first quarter of this fiscal year, the keyboards business is first, followed by the information motors business, but when we compare the first and second half, I think it will be information motors followed by HDD spindle motors. For HDD spindle motors, it remains to be seen whether or not we will achieve the figures in the shipments plan for 2.5 inch motors in the second half, but we hope to increase the proportion of their shipments compared to the whole. In the speakers business, where we continue to see losses, we are doing production and sales in Thailand and outsourcing in China, but we hope to gradually increase the ratio of outsourcing in China as the costs are lower there.