Q&A

Back to Financial Results (FY3/2007)

Investor Conference Call for 1Q FY 3/2007 held on August 1, 2006

Question and Answer

The electronic devices segment recovered by 100 million yen, from a 500 million yen loss in the fourth quarter of last fiscal year to a 400 million yen loss in this quarter. The electronic segment is divided into the three non-profitable businesses and the others. Please provide a breakdown on profits of the four areas within the electronic device segment. Also, what are your predictions for earnings in the second quarter?

HDD spindle motors and information motors broke even. Keyboards are still posting losses. In other areas we are generating profits. Initially, we said that the three non-profitable businesses would log a combined loss, but HDD spindle motors and information motors broke even. We have recorded a loss in our keyboard operations, so we will refrain from commenting about the total loss at the three non-profitable businesses.

In information motor business, compared with last year's fourth quarter, did earnings improve excluding royalties?

Earnings of our main businesses by themselves are improving. Last fiscal year we made overhauls, including consolidations and closures of our factories in this business in the last quarter, and now we are seeing the results.

If you consider that because backlight-related sales are increasing compared with the fourth quarter and therefore profits are rising, is it right to assume that earnings of keyboard operations have worsened?

Although compared with the fourth quarter of fiscal 2005, sales of lighting devices have increased and profits are recovering, other businesses saw a drop in profits and, therefore, across the board they are offsetting each other. The loss recorded by keyboards became smaller slightly.

How do you see the electronic device segment moving in the second quarter? Do you think overall the electronic device segment will move into the black in the second quarter?

Because the number of HDD spindle motors produced and sold both increased in July, we believe that this business will improve in the second quarter. For information motors, starting with fan motors, we expect a considerable increase in products and sales amounts as well as a recovery in earnings. We see keyboards staying flat, but there will be a definite upward trend in production and sales quantities for lighting devices toward the end of the fiscal year. We are making efforts to achieve a profit in the electronic device segment in the second quarter.

Earnings forecasts have not be changed for this fiscal year, but aren't there any risks?

Sales figures for July were strong. Even though there are some risk factors, such as how far sales will fall due to the effect of summer vacations in August and how the overall economy will move, for the time-being we predict that the sales in the second quarter will remain strong.

What is the trend for the sales volume of HDD spindle motors from the first quarter through the second quarter? Also, the sales volume of products for 2.5-inch HDDs seems to be rising. How do you see the proportion of sales of such items changing from the first quarter to the second quarter? Previously, you mentioned that in the second half you were aiming to increase monthly average sales volume to around 6 million units. Have you changed this outlook?

The average monthly sales volume of HDD spindle motors in the first quarter was around 4.5 million units. In the second quarter we think that we will sell around 5.2 to 5.3 million units. We anticipate that sales of spindle motors for 2.5-inch HDDs was about 10% of sales in the first quarter and will account for around 15% in the second quarter. In the second half, we expect average monthly sales volume of HDD spindle motors to be around 5.5 to 6 million units.

You mentioned that you expect that sales volume of pivot assemblies will increase from the second quarter. With average monthly sales in the first quarter topping 19 million units, how far do you see sales volume rising?

We are not sure what kind of impact summer vacations will have, but we think that sales will be around 22 to 25 million units, which is an average of around 23 million units.

In the first quarter you sold an average of 172 million ball bearings a month. What are your expectations for the second quarter onward?

Because the sales volume of pivot assemblies, which use ball bearings, in the first quarter, was low, sales within the company did not grow. However, from the first quarter to the second quarter, we think both the amount of ball bearings produced and sold will increase to about 185 million units.

You are continuing to shrink inventory assets and cut borrowings, but do you think it is best to continue at the same pace from the second quarter?

Inventory reductions have yet to reach the targets, so we plan to make further cuts. Even though capital expenditure in the first quarter was around 700 to 800 million yen below plans, from the second quarter we believe that we can clearly generate a profit. Therefore, in terms of cash flow we believe that we will maintain the present pace.

Is it correct to assume that you will continue to trim borrowings by increments of around a few billion yen?

One of our biggest goals is to cut interest-bearing debts and, therefore, we would like to continue in the same manner.

To some extent I think you had forecast a turnaround in the effective tax rate. How do you view the rate of below 40% in the first quarter?

There were a number of overlapping factors, but the biggest reason was that across the board we generated profits, and the number of money-losing subsidiaries declined. From the second quarter onward, if we generate profits as planned, then the effective tax rate will improve.

Is it possible that this fiscal year, the effective tax rate will drop below 40%?

We cannot make any promises, but we think it will be between 40 and 45%.

I understand that you are currently undertaking steps to improve the three non-profitable businesses. In terms of these businesses, have you changed your initial outlook for the second half?

We have not altered our goal for achieving profits on a monthly basis in the fourth quarter for keyboards. We believe that HDD spindle motors and information motors will definitely improve in the second and third quarters. Even though we think it may be necessary to write-down some unnecessary assets, there should not be any large changes to our strategies.
Up until now, we have used the term "non-profitable businesses," but because HDD spindle motors and information motors are almost breaking even, we will shift our focus to carrying out structural reforms in our keyboard operations and to achieving a profit. Because there is very strong demand for ball bearings and lighting devices, we will boost production capacity to meet the demand and cut costs to further increase profits.

Previously when asked about the improvement in profits from the fourth quarter to this year's first quarter, you mentioned that within the electronic device segment, excluding the three non-profitable businesses, there was a drop in profits in the fourth quarter. What segment was this?

Speaker sales and others were slightly disappointing.

It is forecast that major customers for HDD spindle motors will shift to sintered metal products. Do you see any risks for achieving earnings forecasts for the fiscal year because Minebea does not have any sintered metal products? Also, do you have any plan to expand existing FDB models?

We do not foresee any sudden shift to sintered metal products; therefore, we do not think that there will be a large discrepancy for either the first or second halves with respect to forecasts for this fiscal year.

We estimate that there is a customer that has drastically increased their purchases of spindle motors for 2.5-inch HDDs from Minebea.

We cannot discuss the specific purchases of our customer, but the sales volume of products for 2.5-inch HDD has been climbing each month.

I think that expectations for the sales volume of pivot assemblies for the second quarter are slightly higher than average industry growth over July and September.

For the first quarter, we saw sales volume fall significantly below industry levels, so we believe that customers were adjusting inventories. Sales in July were very strong.

During the second quarter, is there any risk that profits will worsen across the board for the machined components segment?

Compared with the fourth quarter, first quarter profits with ball bearings fell slightly. In the second-half of last year, we carried out production adjustments to radically cut finished goods inventories. As a result, unit production costs rose. However, from March there has been a rapid rebound in production amounts, and during this process unit production costs started to fall. In the second quarter we will boost output further than in the first quarter, and this should lead to a definite increase in profits.

Are you worried about the impact of a high Thai baht?

The strengthening of the Thai baht is a negative. Even in the first quarter there was some impact.

What is the situation with the yield and profitability with spindle motors for 2.5-inch HDDs? I understand that from the second quarter you intend to boost output volume, but in the second half what are your plans for product mix?

We cannot comment on the yield of products for 2.5-inch HDDs. However, products for 2.5-inch HDDs have better profit margins than products for 3.5-inch HDDs because they have higher prices and use fewer materials. We will boost output so that second quarter production will be greater than first quarter production; and third quarter production will be greater than that of the second quarter.

Do you have plans to launch new models of HDD spindle motors in the second half and increase your market share?

Because our market share of products for 2.5-inch HDDs is still small, we think it is possible to increase the sales volume at a pace in line with market growth even though we keep our current product lineup.

In the first quarter, what type of action did you take for keyboards? Please explain in more detail about what type of plans you have for the second quarter.

In the first quarter we had discussed with customers issues including changing the suppliers of some products. We will stop producing unprofitable models from October to December this year. Because at that time we will dramatically cut production amounts, we plan to handle this by utilizing 3.5 billion yen business restructuring costs reserve set aside in the last fiscal year. Currently we are definitely in the process of continuing to make preparations for these movements.

What are your current plans for producing keyboards? Will you cut volume and produce them internally, or will you rely on external suppliers?

We have generally had high proportions of in-house production. In this business, we may further increase the amount of keyboards made in-house in the future.

There was a press release at the start of June about management changes at Minebea-Matsushita Motor Corporation. What are your views about the new management structure at Minebea-Matsushita Motor Corporation?

It has been two years since the start of the joint-venture company of Minebea-Matsushita Motor Corporation, and the company is progressing to a new stage of operations. Therefore we need the new management team.

Do you think that there will be any changes in management policy with the changes in management?

Basic policies will remain the same, so I don't believe there will be any significant changes in that regard.

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