Latest Update : May 23, 2008
Investor Meeting Presentation for FY 3/2008 held on May 8, 2008
* Some parts have been added and modified for a clearer understanding.
- I would like to know the quantitative changes in operating income in the Electronic Devices and Components segments from the third quarter to the fourth quarter in accordance with each of the six main products.
- I would like to know about the background regarding the ability to maintain a high operating income margin despite the difficult circumstances in the fourth quarter for the Machined Components segment.
- What was the sales volume for ball bearings in the fourth quarter?
- I believe that there has been inventory adjustments in the HDD market, so why has this not had any impact on the sales of pivot assemblies?
- I would like to know about the circumstances behind the failure to achieve an improvement in profits for HDD spindle motors in the fourth quarter and the measures you will be taking in regards to this matter in the current fiscal year.
- I would like to know the extent to which the fiscal year ended March 2008 was impacted by the foreign exchange fluctuations, escalation in the cost of steel material, and the escalation in the price of oil such as cutting oil, and to what extent these factors will impact performance for the fiscal year ending March 2009.
- Despite the increase in minority interests in earnings from the third quarter to the fourth quarter, have profits for information motors deteriorated?
- In comparing the 40 billion yen in operating income for the Electronic Devices and Components segment in the fiscal year ending March 2009, with the 30 billion yen in operating income from the previous term, what type of fluctuations are expected to occur for the six main products?
- For measuring components, shouldn't the increase in the manufacturing of Wii Fit lead to a larger improvement in performance.
- In the past, Mr. Yamagishi, you made the comment that the second year of the Mid-term Business Plan would be the most difficult and now that a year has passed, please tell us about your current frame of mind.
- What are the conditions to achieve breakeven for HDD spindle motors?
- I would like to know the assumption of the extraordinary profit and loss and tax rate for the fiscal year ending March 2009.
Question and Answer
- Operating income declined considerably for information motors, in particular for fan motors, and for keyboards. Factors that impacted keyboards were: the decline in sales following the Christmas sales season in December; the drop in manufacturing efficiency in February due to the Chinese New Year holidays in China where keyboards are manufactured; and the weaker US dollars against Japanese yen, Thai Baht and Chinese Yuan. Because fan motors are also manufactured in China, it was also affected by the Chinese New Year holidays, and after the Christmas sales season, a downward turn in sales centered on game consoles normally occurs on a yearly basis. Therefore, in some regards, we do not believe that there were any special factors involved in causing the deterioration. For other businesses, sales of speakers, measuring components, and HDD spindle motors were stable. For electronic devices, although the situation deteriorated due to seasonal factors with a sharp drop in sales of LED backlights as happens yearly from January through February, when combined with the extremely strong sales of invertors for liquid crystal televisions, performance remained stable. A situation that was beyond expectations was the delay in expected improvement in profits for HDD spindle motors which caused the scenario of utilizing the profit improvement to cover the seasonal downturn for fan motors and keyboards, to fail.
- Sales of miniature ball bearings were strong and reached a record high in March, and external sales exceeded 130 million units per month. Sales of rod-ends were also strong due to robust demand for aircrafts. Because pivot accessories have not yet been affected by a significant adjustment in HDD production, the sales volume for the fourth quarter was 27.4 million units per month.
- External sales totaled 123 million units per month, internal usage totaled 72 million units per month, and the total sales volume was 196 million units per month. Normally, a decline in sales activity is experienced in the fourth quarter due to seasonal factors, but this year the sales volume rose from the 192 million units per month achieved in the third quarter. The situation remains strong into the first quarter of the fiscal year ending March 2009. For April, although sales were affected by the holidays that took place in Thailand, sales volume reached 192 million units.
- Inventory adjustments had an impact on sales in April, but HDD manufacturers have informed us that demand will not decline in May and June. Although it is not the same for all manufacturers, there are some manufacturers who are currently carrying out inventory adjustments.
- There are three reasons behind the delay in achieving the expected improvement in profits. The first reason is that, although we were performing on target in terms of the quality level of the parts, in order to exert maximal measures to ensure that quality-related problems do not arise after delivery to the customers, the point where products leave the plant has been designated as the ultimate point of safeguard. Therefore, because products are tracked somewhat stringently and a great amount of time is taken in the area of improving the level of quality of the parts in an effort to boost the quality of finished products, we are experiencing a problem in regards to yield rate once the product reaches the assembly process. The second reason is that the escalation in the price of nickel has caused the price of stainless steel material to escalate from around December, which has led to the rise in the cost of material. The third reason is that although we have been carrying out efforts to increase the ratio for 2.5 inch HDD spindle motors, we have not been able to achieve an increase in ratio as initially envisaged, and we were also faced with the rather significant price declines for 3.5 inch HDD spindle motors. We are currently devising and implementing measures to overcome this situation.
- As shown by the exchange rates which are included on the last page of the supplementary information released with the brief report, the strong yen/weak dollar trend progressed rapidly from the third quarter through to the fourth quarter. The exchange rates for other currencies basically remained stable. The exchange rate fluctuations negatively impacted operating income for the fourth quarter by 600 million yen compared to the third quarter. Net sales were impacted only slightly in the amount of 81 million yen. For the fiscal year ending March 2009, when comparing the forecasted rate with the results for the previous term, we expect net sales to be negatively impacted by 19.7 billion yen. In regards to operating income, from an overall perspective of US dollar-based earnings or procurement (cost-based), we expect performance to be negatively impacted by about 5.2 billion yen. The escalation in the price of raw materials and crude oil affected performance in the fiscal year ended March 2008 by 500 million yen compared to the previous term and we believe that this is pushing up costs. For the fiscal year ending March 2009, although various factors are involved including steel material, we expect there to be a negative impact of 2.5 billion yen. We believe that the effect of the exchange rate fluctuations and escalation in the cost of raw materials etc., is considerable. In regards to miniature ball bearings, although the impact of the escalation in the cost of steel materials was minimal due to the small portion that steel materials accounts for in the cost, some products have been affected by the escalating cost of raw materials while others have not been significantly impacted. For stainless steel materials, which were impacted the most by the escalating costs, costs rose about 70% within the course of the previous year. This rise significantly impacted pivot assemblies and HDD spindle motors. Furthermore, the cost of steel plate-related products escalated due to a rise in the cost of coal in Australia, leading us to believe that these products will be most highly impacted in the fiscal year ending March 2009, which will have an effect on motors, etc. The cost of cutting oil is also rising, but in an effort to reduce the usage amount, we are carrying out such efforts as making improvements in concentrated coolant and centralized filtration equipment, and recovering cutting powder attached to the cutting oil, and as such, although the escalation of cutting oil prices impacts performance, the amount is only by a small percentage point and is insignificant.
- The minority interests in earnings is the minority shareholders' equity of the current net earnings for Minebea Motor, but due to the complete closure of Minebea Motor's Singapore base, reserves were appropriated in February, and profits increased due to deferred tax accounting. Therefore, the results differed from that for operating income.
- Information motors basically are expected to remain stable and HDD spindle motors are expected to improve to breakeven. Keyboards are expected to operate at a profit, but we believe that profits will drop significantly due to the influence of the exchange rate fluctuations and high cost of raw materials. In regards to the profit and loss total for HDD spindle motors, keyboards and information motors, performance will improve slightly in relation to the amount of profit improvement for HDD spindle motors. In regards to the other businesses, we believe that speakers, which were causing a drag in performance, will no longer generate a loss. Measuring components are expected mainly to remain stable and a slight improvement is expected for electronic devices, and overall, performance is expected to improve by approximately 1 billion yen bringing our calculated total to 4 billion yen.
- This is the most difficult point for us to predict, but we believe that if we are too optimistic in our projections, the consequences we would have to face when and if we do not perform up to expectations would be great. Although net sales grew rapidly since the fiscal year ended March 2008 which marked the start-up period, we expect performance to slightly level out in the fiscal year ending March 2009. Due to recent circumstances, we are unable to speculate on the future.
- Although circumstances have slightly changed now compared to a year ago, my belief that the second year will be difficult has not changed. When we drew up our Mid-term Business Plan, we designated the second year to be one in which we made a jump upwards, but the performance of ball bearings, rod-ends and measuring components was higher in the first fiscal year than what had been projected. In the second year, I believe that these products will reach the position of difficulty that I had mentioned. However, since entering the second year, the weak performance of the US economy stemming from the subprime loan problem is starting to have an effect mainly in the area of PCs. Such factors as the escalation in the price of crude oil and raw materials that we had not originally expected are coming into play. The second year is the most difficult and a key point in the Mid-term Business Plan, and although I still believe that we will be able to accomplish our goal if we overcome this situation, this is one of the major reasons that we had no choice but to set the operating income forecast at 32 billion yen instead of 34 billion yen for the second year of the Mid-term Plan due to the slight deterioration in circumstances.
- I think that it all boils down to the point of the volume that we can obtain for the 2.5-inch HDD spindle motors. Presently, we perceive that the risk of being unable to accomplish it due to the deterioration of industry conditions is small. Because our market shares for HDD spindle motors is still small, if we manufacture quality products and deliver what is demanded by the market, we believe that this will enable us to gain an increase in market shares. However, because we are not sure which way the HDD market will swing in relation with flash memory, the situation may change if drastic changes take place in this area.
- We project an extraordinary profit and loss of about 1 billion yen: 500 million yen for loss on disposal of machinery, 350 million yen for revisions to the retirement pension expenses, and 200 million yen for others. The tax rate has been calculated at around 37%. There are no particular factors indicating the tax rate will rise from the previous term.