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Q&A

Latest Update : Feb.6, 2009

Back to Financial Results (FY3/2009)

Investor Conference Call for 3Q FY 3/2009 held on January 30, 2009

* Some parts have been added and modified for a clearer understanding.

Question

Question and Answer

There were some businesses whose operating income deteriorated in the third quarter compared to the second quarter. Sales for information motors had a large decline, posting a loss. Sales for keyboards also diminished, resulting in a loss after a profitable second quarter. Lighting devices also showed losses owing to decreased sales. However, HDD spindle motors improved, slightly reducing its loss. Operating income in measuring components increased. For the fourth quarter, it is forecast that losses will increase in information motors and keyboards due to a decline in sales. As for HDD spindle motors, we estimate that despite a decrease in sales volume, losses will remain unchanged owing to progress in improvements. Lighting devices are anticipated to turn profitable in the fourth quarter because of higher sales, as it has more new products. Operating income in measuring components is likely to decrease. As such, it is forecast that operating income in the Electronic Devices and Components business segment in the fourth quarter will deteriorate by 0.5 billion yen compared to the third quarter. One example of the reasons for the relatively small drop in operating income compared to that of sales is that the fan motor plant in Shanghai has transformed over the past year to become an almost completely different plant, improving productivity significantly. Although output is currently down, we consider that its results will be excellent when it recovers.
Looking at the gross profit in the third quarter, profit margin has improved to a near-record level. Therefore, we would like to assure you that there is excellent progress in the level of improvement.
The Thai baht was weak against the US dollar, but strong against the Euro, offsetting a little. As such, positive currency impact in the third quarter was only about 0.3 billion yen compared to the second quarter, and about 0.2 billion yen compared to the same quarter the previous year.
Improvements are progressing in various areas, so it is difficult to explain briefly, but we believe that operating loss level is becoming stable. Sales volume was 3.2 million units per month in the third quarter, of which about 55% was for 2.5 inch HDD. We expect between 2.7 and 2.8 million units per month in the fourth quarter, of which about 55% will be for 2.5 inch HDD. Although we are making efforts in reducing fixed costs including making cuts in the workforce, we are currently unable to catch up as sales volume is declining rapidly. In the future, however, we believe that we will be able to catch up month by month.
There is no such sign. We have made our plan for the fourth quarter with a severe outlook.
We consider that the situations in December and January were abnormal. However, we believe that there will be some relief in the slowdown from the second half of February to March after the Chinese New Year. But there is no such sign at the moment, so we have planned the fourth quarter on the basis that the very bad situation will remain unchanged. We judge that if the situation turns a little brighter, we will have brighter figures.
Ball bearings, our main products, had external sales of 90 million units per month and internal sales of 60 million units per month, amounting to 150 million units per month in total in the third quarter. Our forecast for the fourth quarter is 70 million units per month for external sales and 40 million units per month for internal sales, for a total 110 million units per month.
There are differences by product, but in general we believe that January is worse than December due largely to the Chinese New Year.
It was 23 million units per month in the third quarter. We expect 16 million units per month for the fourth quarter.
We cannot tell how much effect the price rises had, since sales volume has significantly declined recently and there are many factors. However, we have not reduced prices since then, so we judge that there is some effect in that sense. In addition, costs for steel products are rising, so it is estimated that gain and loss is offset.
Profitability deteriorated significantly in December, but we have secured both operating income and net income accordingly. We estimate that if results in January are as poor as or a little worse than December, profit can be generated. However, we are considering closing down the ball bearing plant in the UK, and loss from the closure is projected as a large extraordinary loss. We basically believe that the positive effects of our large structural reforms can be expected in the next fiscal year.
In this fiscal year, we expect an extraordinary loss of about 2 billion yen. In the next fiscal year, we expect improvement in operating income to be more than one billion of yen.
If one considers fixed costs to include personnel costs, we are assuming that we will not reduce our permanent staff, therefore this will be handled by natural attrition of staff and adjustment of working days. I think this will not have large impacts, but we are proceeding with efforts including reduction of inventories and disposal of unnecessary assets, which should have large effects.
We assume that the impact of lower unit sales will have a larger impact on operating income from the third quarter to the fourth quarter.
The largest decrease was in logistics costs. Minebea aims to be a Technological Competency, and we are not reducing R&D costs, thus fixed costs remain high. There was a large decrease in variable costs along with the decrease in sales.
Compared to the second quarter, prices of stainless steel and other materials have decreased a little. Bearing steel prices in July rose retroactively back to April, but negotiations to raise ball bearings prices started in July, and will steadily produce results from October.
There are no cancellations from users, but there was a two month strike at Boeing, so Boeing's aircraft production decreased, and sales were slightly below expectations. Overseas export sales from the Karuizawa plant decreased due to the higher Japanese yen, which is a difficult situation.
As we announced now, it comprises a small portion of our overall unit sales, but we plan to proceed with closure of our Skegness ball bearings plant in the UK. Those sales in Europe will be covered by ball bearings produced in Thailand and Singapore. We expect these cost benefits to appear in the next fiscal year. Also, the plant dedicated to front processing of ball bearings in Bang Pa-In, Thailand is already operating, and is efficiently manufacturing excellent products. Products made there are also being shipped as rings to other countries.
13.4% were for automobiles, 31.4% for aerospace, 4.4% for home electronics, 8.8% for office equipment, 6.7% for computers and peripheral devices, 15.1% for motors, and 20.2% for other. In the fourth quarter, we expect that unit sales will fall in automotive and all other markets except for aerospace. Also, we expect that aerospace unit sales will not decrease, but its revenues will decrease due to the higher Japanese yen.
We think there will not be much increase in units due to rebound in aircraft. In contrast, airline companies are now struggling, and it is thought that some of them will request delivery delays from Boeing and Airbus.
In this poor environment, it is very difficult to grow sales. Now, moving towards the future, it is important to execute thorough review and improvement of products, improve production equipment, and develop new products. We are making a variety of efforts in the Machined Components segment. We have improved pivot assemblies to the point where they will produce earnings even if sales decline by half. We think that if there are strong unit sales in the Machined Components segment, its performance will dramatically improve. The Electronic Devices and Components segment is still producing losses, but President Yamagishi has stated that our goal is 5% operating margin. We are making various efforts to achieve this: reviewing materials, working on machining methods, etc. Sales may be difficult in the next fiscal year, but returning the Electronic Devices and Components segment to profitability is an important issue, and we are making all efforts to achieve this goal. Only HDD spindle motors are producing losses and considered to still be in a difficult situation. We do not expect the panic situation in December and January will continue for a year. Therefore if HDD spindle motors can produce proper operating income, we can secure operating income even in very bad sales conditions. We are already reviewing our businesses from various angles. We are considering various possibilities such as joint projects with other companies, and are trying to produce reliable operating income. We are pushing hard to speed up a broad range of product development. We want these efforts to produce results next fiscal year.
Orders decreased dramatically each month towards December, but despite this, we have not had large losses. The reasons have not been verified, but we think that various cost reductions are producing results. There have been great improvements, including in material cost ratios.
We have a wide variety of products, and figures from analysis of each product are not on hand right now, but we think that a big reason for this is that HDD spindle motors held losses to a minimum despite such a large sales decline. Another important reason was that even though electronic devices also produced losses, these losses were very small. Two reasons for this are that sales increased for automobile clusters, and mid-sized product sales for car navigation displays increased. Therefore, high margin products are steadily increasing, and production efficiency is also improving.

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