Q&A

Back to Financial Results (FY3/2019)

Investor Meeting Presentation for FY 3/2019 held on May 8, 2019

Question and Answer

Which segment includes the pension expenses of approx. 3 billion yen in Thailand for this fiscal year?

This is included in head office adjustment amount.

About the three-year plan for the Mitsumi business, please give us details of the drastic growth of sales and profits between FY3/2020 and FY3/2022?

As Chinese smartphone manufacturers have mounted extremely high -added value functionalities in camera actuators, growth is subject to continuity of a certain scale of business. For a large range of growth in FY3/2022, we are assuming a contribution of growth in sales of new products to profit.
Not limited to the three- year plan, what we consider one of the most promising businesses among Mitsumi businesses to be analog semiconductors, and we have extremely advanced technology. We will make our strategy clear and focus on what we must. Additionally, we also have expectations for IGBT and analog digital converters (ADC). ADC is going to make all sensing devices that started out as analog into digital. For example, 5G makes extremely high-speed communications possible, but the first sensing devices are analog, so if the speed of conversion into digital from that point is slow, it will be useless, no matter how fast the speed afterwards may be.
Also, we would like to refrain from explaining in detail, but the point is that going forward Mitsumi will grow, including the "Stealth Project," which we explained as Product 21.

In the three-year plan for the Mitsumi business, operating income is projected to double, up to 29 billion yen, and sales as well are projected to increase by almost 100 billion yen. Is it correct for us to understand that most of this is accounted for by core business, such as analog semiconductors, rather than sub-core business, such as games or camera actuators?

We would like to not disclose a detailed breakdown, but we assume both the core business and sub-core business in the Mitsumi business will have major growth. We think that the growth of camera actuators will continue in the future as well, supported by promotion of high-added value and increased volume. In addition, we are planning to promote dramatic growth of our Eight Spear products, such as semiconductors, through synergies with machined components, electronic devices, and U-Shin. In particular, through synergies with U-Shin, we also expect growth of devices for Ienaka (inside the home), and INTEGRATION with access products.

You mentioned that the industry would recover from this summer. Will you tell us about any definite reasons for this, if there are any?

As we explained before, we believe a variety of factors arose at the same time in the fourth quarter of FY3/2019. In addition, as general seasonality, the fourth quarter is the low season for both smartphones and games. I think the natural trend is that both will start increasing from around summer.
Meanwhile, in the present slowdown due to the trade war between the United States and China, we consider the portions for which there is excessive inventory will be steadily resolved.
In addition, I hear that in general for hard disks lead-time is five to six months, so there is a possibility that inventory for the supply chain overall has been stagnant. We meant that, taking into account the gradual resolution of such things, we can assume a recovery in late summer.
Concerning sudden events such as the increase of customs duties that appeared in the news a few days ago, we consider there will be an adverse impact on the economy overall if this continues, but at this point we are not counting such things in our forecast.

About the timing of recovery, is there any difference in uses, or in products? Or do you assume everything will recover from around this summer uniformly?

Although this is just an experimental rule, I think in many cases bearings start slowing down the last, and start to recover earliest. I think such a trend will be seen again this time.

About operating income for this fiscal year, 77 billion yen, income is expected to increase significantly in the second half, with 27 billion yen in income in the first half and 50 billion yen in the second half. On the background of such increase in the second half, can you give us a breakdown by segment?

Concerning smartphones and games, as general seasonality the first quarter precedes the period of demand, we suppose there will be a quiet start. In and after the second quarter, including the launch of new models, production for the full-scale demand period will start.
Other than that, we consider inventory of the supply chain overall will be standardized gradually in hard disks, as explained before.
Concerning ball bearings, although for automotive the number is expected to be solid, supported by electrification, etc., we assume a relatively low number overall for the 1st half. In the 2nd half and thereafter, we assume shipments will increase for various devices, including data centers.

What are your assumptions for the fourth quarter of FY3/2020?

Basically, based on forecasts from customers we conducted a comprehensive consideration with reference to general economic and industry trend analysis.

About ball bearings, in the plan, sales in FY3/2020 will increase up to 125 billion yen, from 121.2 billion yen for FY3/2019, so can you explain this separately for miniature ball bearings, C&A and NHBB, etc.?

We assume that for our mainstream miniature/small-diameter ball bearings, the number will grow in the second half, but looking at a yearly basis, we assume a small range of increase in a year-on-year comparison. Meanwhile, it's assumed that bearings for aircraft centering on C&A or NHBB will grow significantly, as we have been saying.

How much are you assuming for the medium-term growth rate for ball bearings?

We assume a positive 8% for the average growth rate for the next ten years, on an external shipment volume base. As shown in the slide, based on current automotive, data center, luxury home electronics, manpower saving or unmanned operation, there is no change in the concept of growth continuing in the future as well, as the "rice of industry."

You said there will be an increase of 8% yearly in volume, so how much growth are you assuming as a monetary amount base?

We would like to refrain from explaining with specific numbers, but in general the average unit price for automotive is high, and our market share is higher in the products in which high precision bearings are used, such as luxury home electronics, and besides this is a growth field, so we consider the overall average unit price will also increase.

About the Mitsumi business, can you give us the background of the decrease in income year-on-year for FY3/2019, except for specific factors, and also the background of your forecast of continuing decreases in income for FY3/2020?

Specific factors in the Mitsumi business throughout FY3/2019 is net approx. 4 billion yen. The breakdown of this is, in the second quarter, approx. 1 billion yen negative due to earthquake-related factors, and in the third quarter there were the HR system reform-related positive factors and earthquake-related negative factors, etc., and the net balance was approx. 5 billion yen plus. Therefore, income of the Mitsumi business for FY3/2019 excluding specific factors was, deducting 4 billion yen from approx. 22 billion yen, 18 billion yen.
Based on the number, we assume 15 billion yen in income for FY3/2020, however, in that number there is a portion in which business opportunities have increased due to promotion of high added value in relation to smartphones, and meanwhile there is a portion for which the Company made a conservative estimate.

Is the reason for the decrease in income in the fiscal year ended March 2019 a decrease of both game-related business and camera actuators?

I cannot tell specific numbers but in smartphone-related products, not limited to camera actuators, but in general, there was a drop toward the end of the fiscal year.

Could you tell us image of growth of the portions excluding game-related business and camera actuator?

Out of our new Eight Spears, products that belong to the Mitsumi business, especially semiconductors, etc. will greatly contribute to profits, and in addition, the products of the new business, which we call "stealth products," will contribute in the second and third years, we assume.

About synergies with U-Shin, if it is possible to self-manufacture, significant cost synergies can be expected, however, it seems you are not counting this in medium-term plan so much. Should we think it is after all difficult to gain the approval of customers in three years?

For automotive customers, it is true that up to 2023 or so vendors have already been selected. Because of that, it is difficult to switch all motors, for example, to self-manufacturing immediately. Therefore, we think in new cars that will be released in 2023 or thereafter we will propose to customers "congruent" products.
However, synergies are not limited to automotive. For example, for housing, we have been working toward various things to date in rapid speed so that we can have synergies in the second half of this fiscal year.

About the timing of the next increase in production of ball bearings, if external sales grow by 8% per year, even if internal sales centering on pivot assemblies shrink a little, I suppose you must start selecting the next plant at a relatively early time in the next medium-term plan period. Am I incorrect?

Considering the recent situation, we are not thinking of building a plant immediately. As we have explained, arrangement of machine facilities has been completed up to the next increase in production, so we believe we have sufficient capacity for the time being. The only issue is how to go back, and we have to make a judgment by checking the market status carefully at all times.

About smartphone parts, including camera actuators or pop-up camera motors, the smartphone market has come to be mature as a market. In such a situation, what kind of strategy do you have to maintain profits? I consider there will be increase in price pressure as well.

There are various trends, and we think our strength is we can embrace all of these. For example, actuators for pop up cameras, which we have been introducing, have now become a trend which most smartphone manufacturers in China have adopted. There are difficult aspects from the viewpoint of stability of results in the smartphone business but such new technologies have appeared.
In addition, various things have been developed in 5G-related businesses. We are focusing on what kind of market will appear at what kind of speed, as a result of such development. We consider there to be a possibility that we can supply a variety of products, and in such a situation our extremely close relationship with smartphone manufacturers will be useful.
Therefore, we do not assume at all that sub-core businesses will disappear all of a sudden.

In the plan for the electronic device business, sales of electronic devices increased from 158.5 billion yen for FY3/2019 to 161 billion yen for FY3/2020, so please tell us how the LED backlight portion changed, excluding the parts transferred from the Mitsumi business. I suppose adoption of alternative technologies will also increase after FY3/2021, so on what kind of assumptions did you make the plan for LED backlights?

I would like to refrain from making comment on specific models for specific customers, however, in general we assume we can achieve extremely high share with high-end models in this fiscal year as well.
For the next fiscal year and thereafter, the assumption that LED backlights will not disappear has not been changed. For volume, this is based on the market trend, but we are not assuming a large number.
As sales for electronic devices overalls, there are some parts where electric cell module products, which are transferred from the Mitsumi business from this fiscal year (at present sales are approx. 10 billion yen) will be improved, and parts where sales of new products such as SALIOT, about which we have been explaining, will increase toward FY3/2022.

Please tell us about the impact of inventory adjustments on the customer side in ball bearings by market, as well as about when a sense of recovery may start to appear.

External sales in the fourth quarter overall decreased, including the impact of the Lunar New Year in February, however for automotive the results were solid, with no significant change. What decreased significantly was the fan motor market, centering on data centers, which we assume will start to recover from the second half of this fiscal year.

About improvement of the Europe base for U-Shin, please give us updated information on the challenges that have come to light as of this point and future responses.

There are various challenges. First of all, we have to increase yield, and we also have to improve quality as well. Moreover, we have to participate in negotiations from the stage of design and acquire orders so that we can deliver new products in a timely fashion. These are the three biggest tasks.
When we inspected the U-Shin Europe business most recently, what we were extremely happy about was that our company's German team got involved in all of the improvement activities and united the channel, and made various arrangements among the local people. What is more, the team has been successful in extending backup without fail, such as by sending workers from the U-Shin Hiroshima Plant or Minebea Mitsumi to the local site, coping with various quality improvements or yield improvements. Consequently, the team has become extremely cosmopolitan, and we feel the response has been solid from the fact that the facial expressions of all of the members are very animated, and they have responded extremely well to comments or instructions from us.

It ends about main text.

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