Q&A

Back to Financial Results (FY3/2009)

Investor Meeting Presentation for FY 3/2009 held on May 8, 2009

Question and Answer

The graph on slide No. 29 shows the projected sales increase for hybrid components. What specific types of products does this refer to?

The graph is merely our forecast, but we do have some interesting products in the works. Although we cannot provide specific details at this point, we expect to see good sales once they catch on. We'll probably be able to give you more details at the next investor meeting. We anticipate huge customer demand for assembly and warranty of hybrid components rather than just motors. We have incorporated sales of hybrid components into our forecast for this fiscal year. We also have developed hybrid components for rod end bearings but cannot yet give you specific information at this point.

Hybrid components probably won't generate as much of a profit as initially expected due to the high cost associated with designing and manufacturing a wide variety of products in small quantities. What is your expectation for return on investment?

We do not plan on small-lot production for hybrid components. We will focus only on commercially viable mass production products that meet customer needs, such as motors with gears.

I understand that you hold onto certain business lines when you still see potential for them, but what are the criteria for deciding on when to pull the plug on a sinking business operation?

We believe that businesses like HDD spindle motors, keyboards and speakers will bounce back. We have discussed the problems of these businesses internally, and I myself have recognized some things we've done or haven't done that have contributed to their declining performance. Once we've implemented corrective measures and have seen their impact, we will be in a better position to determine if there is any resulting synergy and whether or not it's time to pull out.

What are some of the internal problems you currently face with the HDD spindle motor business? Are you catching up with technological advancements such as the slimmer 2.5-inch HDDs?

We face many challenges in the HDD spindle motor business. Among those I can share with you right now is the fact that our operations are scattered throughout the world. There is a huge time difference between Germany, where the development work takes place, Thailand, where our production work is carried out, and Karuizawa, Japan. I've come up with some solutions but I cannot give you any specifics yet. If you look at myonic, a German company we took over during the last fiscal year, and German auto makers, you can see the superior technological capability, professional attitude, and ways of thinking that make these German companies global industry leaders supplying high value-added products. The key to our success will be our ability to make our Japanese operational bases and German subsidiaries work together as one. As stated in our recently announced structural reorganization, our German operations have been placed under their respective business headquarters so we can leverage German technologies most effectively.

Will the new hybrid component business require an additional capital investment, e.g. building new factories?

We are eyeing various types of hybrid components, from those that combine machined components to electro mechanical solutions (EMS). Whether or not a capital investment is required depends on the type of products as well as projected sales volume and period. We will be able to make the most of them with our existing facilities, but some components may require an additional capital investment.

Can you tell us the criteria for M&As?

We are committed to increasing our per-share value for shareholders. Whether an M&A will have a positive effect on sales and profit is the most important factor behind any decision. We will consider M&A options in the areas we specialize in.

What is the projected cost reduction for the fiscal year ending March 2010?

We will save approximately 2 billon yen from the closure of the Skegness Plant in the UK, another 2 billion yen from cutting labor costs in Thailand, and approximately 0.8 billion yen from lower material costs. The reduction in labor costs in Thailand is not fully reflected in the forecast, which was prepared in late March. The final figures for the voluntary early retirement program were not in until after it had been fully implemented at the end of March.

In reference to slide No. 24, would you give me some specific examples describing in more detail how you are going to enhance price competitiveness by boosting vertical integrated strength?

Look at slide No. 23, outlining the Minebea Group's former business model. Let's say for example that these independent business units and headquarters respectively make a one-yen profit, that's a five yen profit altogether. There is no problem when each department is making a profit and determines salary bonuses accordingly. However, if we got an order that would generate a loss for one of those departments, it might result in a decision to reject that order. Now look at our new business model on slide No. 24. Using the same one-yen example as before, this business model enables us to take any order as long as we make a three-yen profit. This enables us to lower the price by two yen. Employee bonuses are based on the overall performance of the business unit, which is more equitable. Under this business model, the head of the business unit makes the decision on whether or not to accept an order. All necessary information is channeled to the head of the business unit so that he/she can calculate the figures and make the right decision.

In comparison with the third quarter of the fiscal year ended March 2009, the fourth quarter results show a greater decline in income despite the positive effect of foreign exchange fluctuations that offset decreased sales. What is the primary reason for that?

Since we had experienced a sharp drop in sales in late November which continued to affect the sales volume in the fourth quarter, we drastically cut back production. Let's say if we sold 100 units, we would have limited the volume of production to between 60 and 70. In terms of ball bearing sales, the monthly production volume for the third quarter was 160 million units for the monthly sales volume of 150 million units. In the fourth quarter we lowered the monthly production volume to 80 million units for the monthly sales volume of 100 million units. While we have a production capacity of 200 million to 220 million units per month, we used only a third of our capacity to produce 70 million units in March. This significantly increased per-unit manufacturing cost. The same thing happened in the production of HDD spindle motors. While the monthly sales volume for the fourth quarter was 2.6 million to 2.7 million units, we limited the monthly production volume to between 1.7 million and 1.8 million units. After drastically reducing the production volume of our core products, we were unable to offset the fixed costs, which resulted in an increase in losses. However, we successfully reduced inventories to a large extent and have been seeing increases in sales over the fourth quarter level since April. We do not know whether this recovery comes as a result of our customers' inventory adjustments or a sign of a real recovery in demand. This is why we forecast figures for this fiscal year in the range of minimum and maximum levels. However, we are no longer setting the production volume at levels so far below the sales volume starting this April. Production has recovered to a level comparable to sales. We saw ball bearing sales recover in April, increasing to 130 million units. We are gradually increasing the production volume from 70 million units in March to 110 million units in April and 130 million units in May. Since we have been seeing notable decreases in per-unit manufacturing cost, we believe our income will improve every month although it will probably take about three months until full recovery. Production of HDD spindle motors has also recovered to the same level as the sales volume. Sales of pivot assemblies, which once dropped to 15 million units per month, has also recovered to between 24 million and 25 million units per month and so has the production volume. Drastic decreases in per-unit manufacturing cost combined with reduced personnel costs in Thailand are expected to create a synergetic effect, resulting in significant improvement in first quarter income over the previous quarter.

What were the sales volumes of your primary products for the fiscal year ended March 2009 and what are the projected sales volumes for this fiscal year?

We expect to see significant improvement in production and sales during the second half of this fiscal year. The production and sales volume of ball bearings is likely to exceed the forecast level by the end of the first fiscal half. It is expected to further increase in the second fiscal half to approximately 150 million to 160 million units per month. The production volume for other products are also expected to increase as sales increase. I was hoping to see how much our performance would recover by the end of this quarter, or at least by the end of April, but unfortunately I do not have the data for our Japanese operations yet since we just came back from the holiday. Performance has picked up significantly in both Thailand and China. The monthly sales volume of ball bearings was about 158 million units for the fiscal year ended March 2009 and is expected to be about 140 million units for the fiscal year ending March 2010. The monthly sales volume of pivot assemblies was about 23 million units for the fiscal year ended March 2009 and is expected to be about 22 million units for the fiscal year ending March 2010. In the first quarter of this fiscal year we expect to see a positive effect from increased sales and production as we rebound from the huge drop in sales and the drastic production cutback during the fourth quarter of the previous fiscal year.

The electronic devices and components business segment is expected to see a decline in sales on top of an operating loss of 4.1 billion yen generated in the fiscal year ended March 2009. Why do you think its profitability will be restored despite this fact?

The electronic devices and components business segment saw sharp increases in operating loss during the last fiscal year, with an operating loss of 298 million yen for the third quarter and 3,546 million yen for the fourth quarter. This is largely due to the drastic production cutback of HDD spindle motors as a result of a decline in the sales volume as well as decreased production of information motors. On top of the decline for these two product categories, sales and production volume of keyboards also fell sharply. The decline in these three product categories is primarily behind the dramatic drop in performance for this business segment. We expect to see major improvement in these three areas during this fiscal year. Although profitability for the fourth quarter of the fiscal year ended March 2009 worsened more than we had expected, we expect to see improvement this fiscal year as a result of various cost reduction measures and recovering sales.

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