Q&A

Back to Financial Results (FY3/2009)

Investor Meeting Presentation for 2Q FY 3/2009 held on October 31, 2008

Question and Answer

The second half operating income of the Electronic Devices and Components business segment is expected to increase from the first half. Could you explain these increases?

From the 1st to 2nd quarter, HDD spindle motors, information motors, and keyboards all improved by similar amount, and measuring components also improved. Conversely, the operating income of speakers declined a little. From the first half to the second half, HDD spindle motors are expected to have the most improvement, while information motors are expected to have the second largest improvement. In-house manufacturing of speakers ended in the first half, and in the second half this will be 100% outsourced to an external manufacturer to improve profitability. Conversely, measuring components are expected to show a decline of operating income due to decreased sales for game consoles and automobiles. In the second half, operating income will increase in the following order: HDD spindle motors, information motors, and then speakers. Operating income is expected to decrease for measuring components, with inverters also weak; lighting devices are expected to worsen slightly due to seasonal demand shift, and expected declining economic trends. Keyboards did very poorly in the 1st quarter, however this has improved in the 2nd quarter, and we expect the second half results will be similar to the first half.

Looking at the sales plan of the second half, it can be seen that compared to the first half, increased revenues are planned for aircraft parts and ball bearings. When the business environment is taken into consideration, are there risks regarding sales?

Sales volumes of ball bearings mass produced in Thailand, China, and Singapore are expected to fall slightly in the second half. The assumed exchange rate for the second half is 105 yen/US$, almost identical to the first half. An increase is expected for large sized bearings, including roller bearings produced in New Hampshire.

What kind of results can be obtained in the second half from price increases? Also, raw materials markets are falling, so were there any positive effects from lower materials prices which were not included in the original forecast?

I had told everyone that as the 1st quarter ended, the higher prices for materials such as steel would have an approximately 3 billion yen negative effect compared to the previous period. But a decrease in prices of copper etc. was seen, which caused a 500 million yen improvement, for an expected total 2.5 billion yen negative effect. However, bearing steel has not decreased in price. Regarding higher sales prices of ball bearings, in the 2nd quarter materials rose but not much sales price increase effect was seen. Sales price increase effects are expected from the 3rd quarter onwards. Due to customer relations, I cannot reveal the details of these price increases.

Keyboards and speakers have finally stopped having negative impacts on the overall business, but has your way of thinking regarding the business portfolio changed?

Keyboards and speakers have finally stopped having negative impacts on the overall business, but we are not considering investing new assets in these businesses in order to expand. A certain level of sales are required in order to cover total fixed costs, so if around 5-10 billion yen of sales can be ensured, I would like to maintain this area. However, I believe that we must continue discussions to assess whether they can continue in this form in the future. When I first became president, I believed that making all business units profitable and creating a basis to produce total profit needed to come first, and so we expended great effort in all areas. From here on, I think it would be ok even if decisions need to be made on what business to keep or dispose over a long period of time. At present there is no concrete plan as such, however in the future I wish to continue to observe business conditions with this decision making in mind.

What are the concrete measures to reduce losses for HDD spindle motors?

There are some areas I cannot touch upon. But I can state that we are working on slimming down the business thoroughly. We are thoroughly reducing employees and the depreciation expenses. Material cost ratio of 2.5 inch HDD spindle motors are relatively low, and so we would like to increase volumes. They are now nearly 50% of total sales volume, and we would like to raise this ratio further. These 2 points will be focused on, and also product manufacturing costs shall be revised completely, for higher material efficiency.

Approximately what sales volume for 2.5 inch HDD spindle motors is expected for the second half?

Minebea market share has declined and the situation is very harsh, but in October we expect to sell approximately 3.7 million units, with about 1.8 million of these being 2.5 inch HDD spindle motors. November and December are expected to have total sales volumes of 4 to 4.2 million units per month, with 2.5 inch HDD spindle motors comprising 2 to 2.3 million units per month. This is a result of the combination of increasing sales volume to current clients, and to new clients.

Information motors are planned to have an increase in sales for the second half, but aren't there risks here when sales of other electronic components makers are slowing down?

The biggest seller is fan motors, but as this is a PC component it is expected to rise and fall, however there was not a great volume originally, so sales will be maintained by expansion of the market via other uses such as server targeted products. Vibration motors have large fluctuations, and sales tend to drop around December/January in most years, however in the current term no news of a decline has been heard yet, and thus sales are expected to be flat. Stepping motors rise and fall somewhat but are expected to go well until about December. Clear orders have not been received for the following 4th quarter, but a seasonal decline is seen most years, so we expect for it to follow the same trend.

Considering the next term for ball bearings and rod-ends, what kind of influences can be expected from economic trends?

The largest worry regarding impact on ball bearings is for products aimed at automobiles. Usage of ball bearings per automobile has risen, but production has been reduced in America, Germany, and Japan, so a large impact is expected in the next term. Currently, about 15% of bearings sales are for automobiles. Miniature ball bearings are not used in highly fluctuating market products like game consoles, mobile phones, and digital cameras, so it will depend on how the PC market moves. PC production is stable, so there are no large concerns in this area. Large sized ball bearings and rod-ends are made for aircraft, and the Boeing strike ended, and Boeing is sure to delivery 787s next year. Airbus has also been successful with its Airbus 320 and other mid-sized aircraft, so aircraft components are expected to continue growth into next year.

What kind of synergy is expected by acquiring FDK's stepping motor business? Also, will this cause conflict with Nidec?

A focus of business on small sized Minebea stepping motors is being considered. An expansion to use in automobile and medical equipment markets is being considered. Many of FDK's stepping motors are 6mm diameter and smaller, and excel as digital camera auto-focus parts. Minebea has finished development of 3mm diameter stepping motors, but FDK is better at making small-sized ones, so by employing FDK's stepping motors it is thought that synergistic results can be produced. Minebea does not have a large share of sales for automobile air conditioning, but FDK has a very large share, so Minebea can gain these two benefits by obtaining FDK stepping motors. Also, it is possible for Minebea to complement FDK in mid-sized stepping motors for use in office and OA equipment, etc. As we have not tended to overlap much with FDK's area of expertise, it will be possible for us to forge a complementary relationship with them. I cannot say whether or not we will compete against Nidec.

What can 3mm stepping motors be used for?

As we have a non disclosure agreement with our client I cannot tell you this, however I believe I can tell you what they will be used for sometime around the beginning of next year.

An increase in the volume of HDD spindle motors has been sought due to their return to profitability and improvement of efficiency. Will this strategy change after the sales target volume has been decreased?

The sales amount will not necessarily stop at 4 million per month. Judging from past experience, if the sales volume is not stabilized for around a year of enterprise, the fundamental cost structure will not be established. For those which aimed at 5 million units per month, this time a return to profitability at 4 million units per month is aimed for, then next at 5 million per month, then 6 million per month in stages is our goal. However, discussions of when HDDs will reach their volume peak have started to become common, and the issue remains as to how Minebea should control sales volume when this peak is reached. However, with the recent economic recession, it is thought that the life span of the HDD market will actually lengthen. We are fundamentally a bearings producer, and fluid dynamic bearings of HDD spindle motors are also a kind of bearing. We have always had great interest in what kinds of technologies will be released and in what way bearings will change. Ball bearings are technologically advanced, and I do not believe that they will easily change quickly, but fluid dynamic bearings may become the next big product for the next generation. Thus we absolutely want to keep our bearing technologies. Minebea have continued to develop motors for all of this time. HDD spindle motors are a specialized technology, and require advanced high technology such as magnets and winding. We wish to continue employing this technology as long as we continue to make motors.

What are the expected sales per application for ball bearings in the second half?

The total sales volume is used as a base for expectations in the second half, so there is no data regarding application specific proceeds. In the first half results, the sales ratios of ball bearings including rod-ends etc. were as follows: Automobiles 15%, Aerospace 28.4%, Home Electronics 5.9%, OA 6.8%, PC and related products 7.8%, Motors 17.3%, Other 18.6%.

What is the expected capital expenditure for the next term?

Compared to the current forecast for this fiscal year, it is expected to be flat or slightly fall in the next fiscal year. At present, measures for increasing the utilization efficiency of machinery are being developed, and a higher production per unit of time and per unit of floor space is being attempted. If this steadily succeeds, the amount of planned equipment for ball bearing production can be reduced. Factory construction can also be reduced somewhat from this, and we expect this will reduce capital expenditure. However, what I just stated does not take into account any economic trends. No expectations can be made at the present regarding the economic trend of the next term.

A share buy-back was announced, however with the future reduction of debts, will there be a movement towards returning a certain amount of free cash flow to the stockholders?

Fundamentally, our strategy has not changed very much from the past. Our interest-bearing debts were rather large, so we had been focusing on reducing these interest-bearing debts by increasing the cash flow. We set our net interest-bearing debt target at 100 billion yen, and when this is reached, we can proceed to the next stage where investment including M&A is increased, and shareholder return can be performed. Regarding shareholder return, we are also considering share buy-back, and we will not change our fundamental approach. If we reach our target of 100 billion yen net interest-bearing debts, rather than further reducing interest-bearing debts, it is thought that investment of capital including M&A would be more beneficial for the company's growth.

Is the progress of new products slower than first thought, or is it going according to plan? What kind of sales are expected from new products in the next term?

Regarding development, the commercialization of technology is proceeding somewhat slower than I intended. Commercialization of HMSM and automobile LED backlights has been planned from around a year ago. However, the fundamental technologies needed for commercialization is proceeding according to plan. For example the development of new magnets for motors and optics for automobile LED backlights, and thermal controls used in HMSM etc. are proceeding on time. Commercialized technology has deviated from the market's needs somewhat, and thus the commercialization process has suffered slight delays. I cannot make any statements regarding sales expectations from new products in the next term, however all products that I have now introduced will contribute to our sales starting from this period.

What kind of deficits has HDD spindle motors suffered?

This has not been announced.

When will there be a return to profitability for HDD spindle motors?

A return to monthly profitability at the end of this term is expected.

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