Q&A

Back to Financial Results (FY3/2021)

Investor Meeting Presentation for the FY 3/2021 held on May 7, 2021

Question and Answer

In regard to ball bearing production capacity, I think it's getting close to time to consider a new plant as the next step beyond monthly production of 345 million units. Is the multi-purpose plant related to that? Or are you considering a different new plant?

At this stage, the multi-purpose plant in Thailand is one of the candidates. When it comes to a new ball bearing plant, we have also considered Myanmar, India, Bangladesh, and other places, but it's still early, and to be candid, it's good that we did not set up operations before now. We have opted for a multi-purpose plant in a geographically advantageous location from the standpoint of risk management so that even if there is a drop in necessity, we can address that quickly. We also want to set up operations in countries other than Thailand, but right now, if our customers have the need, we will have to address it with a multi-purpose plant. However, we can currently handle monthly production of 3.45 million units with our existing plants.

Could you explain the increase in sales this year in the Mitsumi business, touching particularly on camera actuators, analog semiconductors, and game related business?

This year's camera actuator sales are expected to come in significantly higher at nearly double those of the previous year. We expect analog semiconductors to grow by about 10%. Based on our earnings guidance, we're going with a conservative assumption for game-related volume. However, customer intent is our top priority, so at this time, I believe our estimates are very conservative.

You've been saying that operating income of 100 billion yen is a checkpoint, but is there an order as to which business will drive the next stage of growth, including the four existing drivers and the other Eight Spears?

We believe the equation for our growth is to focus on M&A. We plan to go after sensors, connectors/switches, power supplies, and wireless/communication/software aggressively if we find a good proposal. However, there are partners on the other side of negotiations, so I can't say which order they will come in. If there are opportunities for M&As to expand our analog semiconductor, access product, and motor businesses, we will pursue them. We want to grow up getting it on a first-come basis, always with natural stance.
We also plan to go beyond the Eight Spears and increase that number to nine or ten.

As I understand it, the Medium-Term Plan excludes M&A from the assumptions. Is there a chance you might execute M&As at an earlier time to ensure operating income of 100 billion yen?

We will be considering M&As whether or not we exceed 100 billion yen. However, M&A activities have slowed due to COVID-19, and some companies have ultimately decided to pursue growth on their own during negotiations. Some years there may be three companies that we can acquire, and others there may only be one. I think it's fate.

Can you explain the factors behind the increase in motor sales this year by HDD, automobiles, and other?

I can't comment on individual motors, but there isn't a particular motor that is driving overall sales. We are seizing automobile-related opportunities when they arise.

Fourth quarter motor sales exceeded 60 billion yen, so full-year sales of 240 billion yen seems conservative. Are there any temporary factors affecting the fourth quarter?

No. This year's plan is conservative. We're aiming higher internally, but we added stress factors on the forecast.

What is the policy for integration of analog semiconductors between Mitsumi and ABLIC? Also, what is the plan for fabrication?

Basically, the policy for the time being is to create synergy independently for the time being. The purpose is not to integrate but to grow the analog semiconductor business, so the strategy is not focused on integration at all costs. However, the companies are engaged in joint activities to create new products. We are investing management resources, including my own time, into building a foundation for growth while making sure to acquire the necessary human and physical resources.

Mitsumi and ABLIC both have high shares in the battery and power supply markets. What field(s) are you targeting for growth?

We're concentrating management resources in the eight domains shown on slide 34.

I think the production lines are mostly 6-inch for analog semiconductors, but it seems to me that the only way to increase these sales is M&A. The industry is going through restructuring, so if you don't pursue M&A aggressively, I think the opportunities will pass you by. Are you just going to wait for opportunities to come to you? Or are you going to take the initiative?

Thank you for that valuable advice. I'm very sorry, but I can't comment any further than I already have.

You mentioned that you see signs of a recovery in the aircraft market. Will you return to the approach that was laid out several years ago for expanding the business?

At this point in time, it's difficult to provide a precise explanation, but the number of passengers in the United States is steadily on the rise. The effectiveness of the vaccine against the virus has been confirmed, so I think the recovery in regions other than the United States is only a matter of time. In that case, demand is likely to bounce back all at once among those who are currently suppressing the desire to take trips overseas and such. At the same time, Japanese airlines are disposing of aircraft with older, less efficient engines, and we predict that the increase in production in response to the shift from double aisles to single aisles will accelerate in explosive fashion. Looking at the explosive increase in automobile production, it has become somewhat clear what things will look like when countries around the world begin taking in travelers again. When that happens, new aircraft will start being made on a curve that matches the previous plan.

Your explanation of how high-quality ball bearings will help reduce CO2 is very convincing, but how will customers evaluate your products? For example, will it be reflected in the unit price or share or have more customers taken the stance that they will not purchase anything other than high-quality products like with green procurement?

At this point in time, we have not had a lot of demand from customers for “green" products. Rather than taking a wait-and-see approach, we are looking ahead to what the trends will be in the future and working on the premise that victory goes to the one who makes the first move. When it comes to whether a plant can be operated solely with power from solar panels and wind turbines to work toward carbon neutrality, that's something that will be very difficult in practical terms. For that reason, we will have to reduce CO2 via our products. This applies not only to parts manufacturers but also to set manufacturers, and the need will arise to procure eco-friendly parts. When that happens, our strategy of integration will shine, and the activities we have worked on up to now, including improving the precision of ball bearings, will become a strong foundation for contributing to the reduction of CO2. How much their products can contribute to CO2 reduction rather than superficial things like purchasing CO2 emission allowances will become a big issue for set manufacturers, so we are taking action now to be ready to address that in the future.

So even though the number of companies signing onto RE100 is increasing, there is not a lot of demand for eco-friendly products right now?

Not yet, but if we are able to produce data and convince companies to use such products, I think that will change.

Will that include efforts like educating set manufacturers?

Yes. I don't think there's any sense in aimlessly awaiting requests from our customers. We've always competed on quality. The source of our competitiveness when it comes to ball bearings is our supply capacity and quality and, of course, the price. Going forward, I feel that we are entering a time in which the element of “green" will be included in what it means to be a quality product.

What are your thoughts on increasing capacity for analog semiconductors, including the use of external resources?

As with bearings and motors, you can't drastically increase production capacity of analog semiconductors without human and physical resources. I explained that we are building a multi-purpose plant in Thailand to prepare for future demand, and we are taking various steps for analog semiconductors as well.

So is it correct to say you have everything in place to handle the production increase planned for this year?

Yes, that's right.

What is the status of customer inventory in the aircraft business, and when do you think demand will recover?

I've received internal reports that inventory adjustments will run their course in the second half of next year and demand will increase. I expect that a recovery is unlikely this year. As such, demand begins to recover October to December in next fiscal year, and it may be the year after that that demand bounces back completely. It's difficult to accurately predict right now, so there is a possibility that it may happen before then.

Can you tell us about consolidation of camera actuator locations, market share, and strategic rebuilding for Chinese customers.

I'll hold off on explaining the market share, but overall, we expect camera actuator sales to double this year. Among our major customers, there is also the new OIS, so both unit prices and absolute numbers are increasing. We are also working on providing actuators with a new structure to various customers other than our major ones, and we believe that the results will begin coming in in the fourth quarter. There is no change to our policy of providing high-performance products for high-end models.

What are your thoughts on net sales and operating income for machined components from fourth quarter results to this year's earnings guidance?

Our earnings guidance for the first quarter reflects the continued robust demand from the fourth quarter to now. Compared to that, the assumptions for the second quarter and beyond are conservative. I think it depends on what you think about swing factors such as the semiconductor shortage. Still, as I explained earlier, I think that the outlook for this year is conservative in terms of both sales and income.

Substantial growth is anticipated for optical device sales in the medium term, but what is the breakdown of contribution by major and non-major customers?

Sales to our major customers will increase significantly this year, increasing the percentage, so I think it will be about nine to one. Next year and thereafter, our product road map will also come into play, so it's hard to say, but we are not assuming significant growth like that of last year and this year.
On the other hand, we have various programs going on right now for non-major customers, so we assume that we will be able to secure a certain degree of business next year and beyond, and as a result, the percentages will change.

It ends about main text.

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