Q&A

Back to Financial Results (FY3/2014)

Investor Conference Call for 1Q FY 3/2014 held on July 31, 2013

Question and Answer

Could you explain in detail the difference between the projected operating income figures and the actual figures for the first quarter in the electronic devices and components business segment?

Results for measuring components and electronic devices were right on track but the actual figures for motors were higher than we had projected. Sales of information motors in the office automation equipment market were upbeat, and we started to see some positive effects from the structural reforms implemented last fiscal year in HDD spindle motors.

Has the HDD spindle motor business turned around and is the overall motor business back in the black on a monthly basis?

Yes. Our motor business moved back into the black in June.

According to your revised forecast, operating income for the electronic devices and components business segment will increase from a negative 0.3 billion yen for the first quarter to 1.5 billion yen in the second quarter. What's behind this increase?

One big factor is LED backlights. Although sales were low in April, when the business was in the red, sales soared in May and June as did profits. Sales are expected to remain high for July through September and drive profits up even further. Likewise, sales of motors were still low in April but increased in May and June. We expect to see both sales and profits increase from July through September since we don't foresee any negative factors that could substantially hinder sales.

I suppose you are aiming for an operating margin of mid to high single digit % for electronic devices. Will you reach this target in the second quarter?

We should be able to reach somewhere in that vicinity.

You expect operating income for your machined components business segment to increase 1.0 billion yen in the second quarter although sales are projected to remain the same as they were in the first quarter. Why is that?

It's because internal sales of ball bearings will rise above what they were during the first quarter and the overall production volume will also increase. This will improve the balance between production and sales even further. Production efficiency will improve and production costs per unit will decrease. We had huge unrealized profits during the first quarter and this will also decrease.

What were the production and sales volumes of your major products like?

Ball bearing sales volumes for the April - June period averaged 217 million units per month, with 135 million units sold externally and 82 million units sold internally. The average monthly production volume hit 216 million units. The sales volume for the July - September period is expected to reach 220 million units per month, with 133 million units to be sold externally and 87 million units to be sold internally. The average monthly production volume is expected to be 227 million units. For pivot assemblies, the average monthly sales volume for the April - June period was 33 million units per month, while the average monthly production volume was 32 million units. Sales and production for the July - September period is expected to respectively average 32 million units per months and 34 million units per month.

Which markets are your ball bearings selling well in?

Sales in China are robust although that's not where the end products are supplied to. Sales were strong for different applications, including server fan motors, automobiles, office automation equipment, and ATMs.

Will ball bearing sales remain at the April - June level during the July - September period?

Sales is basically expected to remain high although August sales are likely to be affected by summer vacation in Europe and the U.S.

How about the October - December period?

We don't know yet at this stage, but we don't foresee any factors that will bring sales down significantly.

What is the total for unrealized profits generated during the April - June period?

It was almost 1 billion yen.

Are there any changes to your initial projections about the expected impact of the structural reforms on your motor business?

Both sales and profits rose in May and June although the impact of the structural reforms were not so evident in April. Production and sales for all motor products with the exception of fan motors increased and further improvement is expected during the July - September period. The fact that productivity at our Cambodian plant, which went into full-scale operation about a year and a half ago, has risen dramatically is also making a positive impact.

How is your LED backlight business doing?

Sales reached only 3.0 billion yen in April, dragging the business down into the red. Sales totaled 4.8 billion yen in May and 4.9 billion yen in June. Sales are expected to total about 5.5 billion yen in July and 6.0 billion yen or more in August and September. LED backlights for tablet PCs have not generated much sales yet.

Can you tell us about monthly motor sales for the April - June period as well as your forecast for the July -September period?

Sales increased every month from April to June with the exception of HDD spindle motors whose sales are usually affected by inventory adjustments at the end of each quarter. Information motor sales remained strong mainly in the office automation equipment market. Overall motor sales should edge up slightly during the July - September period. We expect that the motor business will turn around as production efficiency improves.

How is your fan motor business doing?

Unfortunately the fan motor business is making much slower progress than the other motor businesses. We don't expect it to make much progress in the second quarter either.

You didn't make any changes to your forecast for the fiscal second half. Does this mean you are confident about achieving the targets in your revised full-year forecast, which includes the forecast for the second half?

Honestly, we are not sure about where our business will wind up in the third and fourth quarters in comparison with the second quarter. That's why we didn't change our initial forecast for the period.

What is your sales projection for each business segment in the fiscal second half? Do you think sales will rise or fall?

We should be able to get a clearer picture of where the business is headed in the second fiscal half by the time we announce our financial results for the second quarter. We will consider changing our forecast then if necessary.

Demand for your electronic devices and components business segment really picked up in the fiscal first half as evidenced by the fact that LED backlight sales started to climb in May. Given that backdrop, should we be cautious for the fiscal second half?

It's true that demand for LED backlights always fluctuates, and we had a hard time because of that last fiscal year. We are working to minimize the risk of fluctuating demand by building up our customer base, forming a business and capital alliance with Korea's KJP, etc. We are also seeing growing sales to the automobile industry, where demand is usually stable, so we will leverage that advantage to counter the seasonal drop in demand in the smartphone and cellular phone markets that we usually experience from around New Year's.

What is your projection for LED backlight sales for the coming months?

Although this business is susceptible to demand fluctuations, we anticipate sales remaining high in August and September.

April - June sales volumes for pivot assemblies were way up over what they were in the January - March period. Can you tell us what's behind this increase as well as your forecast for the July -September period?

Our HDD pivot assemblies gained a bigger share of the market for high-end HDDs and sales increased even though the HDD market in the April - June period shrunk a little in comparison with the January - March period. We expect sales to remain flat from July to September. We plan to boost the production volume in the second quarter above what we plan to sell since our inventory declined too much in the April - June period.

Can you tell us when Cerobear, which you just took over, will be consolidated into Minebea and about its sales and profits?

Sales are not so high yet, so the company will make only a slight contribution to our consolidated results. We are looking to consolidate it in the second quarter if possible, or by the third quarter at the latest.

You revised the forecast for the fiscal first half upward. Can you give us a breakdown of the projected increase in machined components sales?

We revised up 2.8 billion yen for ball bearings sales, 1.2 billion yen for rod-end fasteners, and 2.5 billion yen for pivot assemblies.

What is the sales composition of first quarter ball bearing sales by application?

In terms of sales volume, fan motors accounted for 30%, automobile 20%, office automation equipment 10%, air conditioners and other home appliances 10%, and ATMs 7%.

Where are you with entering the Chinese market for low-priced, mass-produced ball bearings?

Although we are working on it, we haven't begun a full-scale entry into the market since we are currently focused on meeting the growing demand for our current line of high quality ball bearing products. We view it as an area that needs to be worked on.

Can we expect that the ball bearing sales volume will climb higher once you fully enter the market?

Yes.

What is the breakdown for the projected increase of 0.6 billion yen in your revised second quarter operating income forecast for the electronic devices and component business segment?

This is mainly an upward revision made in light of the projected operating income for LED backlights.

What is your quarterly operating income forecast for motors?

Although operating income is expected to move back into the black in the second quarter, it will still be in the red when you look at the overall results for the fiscal first half. We didn't change our initial forecast and expect the business to break even in the fiscal second half.

Are LED backlight sales moving at a slightly slower pace compared with the sales projection you had announced earlier?

That's because some of the demand hasn't kicked in yet.

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