Q&A

Back to Financial Results (FY3/2010)

Investor Conference Call for 1Q FY 3/2010 held on August 7, 2009

Question and Answer

How much of impact did the higher manufacturing cost have on the machined components business segment's operating income in the first quarter?

Ball bearings took the full brunt of the higher manufacturing cost. While we used to produce 200 million units of ball bearings a month at the height of production, the manufacturing cost shot up because the monthly production volume had fallen to 70 million units during the previous fourth quarter. Even though the manufacturing cost dropped drastically in the first quarter thanks to the increased production volume, it had no immediate impact on profit because unrealized profit has been on the rise. I think the operating income took a hit to the tune of over 500 million yen in the first quarter.

What is your current projection compared to the upper end and lower end of the second quarter forecast range?

Rod end bearings are coming in below the plan in the machined components business segment due partly to the downturn in the aircraft market. The sales volume of ball bearings is steadily rising and July is seeing good results as well. The number will go down slightly in August because Europe and the United States usually take summer break. But since sales go back up in September, I think it's just a matter of how much we can cover then. I am not concerned about the machine components business segment in the second quarter. Since the current sales volume of ball bearings totals about 150 million units per month between internal and external shipments, I think we're in pretty good shape if 10 to 20 million units per month are added on top of this. While ball bearings for pivot assemblies for HDD rose quite a bit during the first quarter, I think they will have a decent impact because the number will go up even higher in the second quarter. I am not sure yet after October. I think we are about the middle of the second quarter forecast range of the machined components business segment. Even though the electronic devices and components business segment remained deeply in the red during the first quarter, HDD spindle motors, information motors and keyboards, which had large losses during the earlier quarter, are steadily improving. I think HDD spindle motors in particular will see even more improvement because the sales volume will increase from July. While the production volume and sales volume of keyboards deviated because we made adjustment to inventory internally during the earlier quarter, the production cost is going down as we have increased the production volume since then. I believe they will keep improving. Information motors are a problem. Even though fan motors are currently stagnating, I believe they will greatly contribute to profit if we can improve them. Although the electronic devices and components business segment did better than planned in the first quarter, the machined components business segment fared quite worse than planned due to the delay in ball bearings recovery.

Would you tell us the first quarter sales volume of each principle product and the sales volume projection in the second quarter?

In the first quarter the external shipment of ball bearings was 77 million units per month and the internal shipment was 61 million units per month, with a combined total of 138 million units a month. We had manufactured 127 million ball bearings per month and the production had not caught on. While some of the second quarter projection is not yet clear, we expect the internal shipment to be 65 to 70 million units per month and the external shipment to be 85 to 90 million units per month. The combined total is expected to be anywhere between 155 to 160 million units per month. We expect the production volume to be 150 to 160 million units per month. The sales volume of pivot assemblies was 24 million per month in the first quarter and is expected to be about 28 million units per month in the second quarter. The first quarter sales volume of HDD spindle motors is still low with 2.6 million units per month, and I think it will be about 3.8 million units per month in the second quarter.

If you separate the first quarter red ink of the electronic devices and components business segment, how would HDD spindle motors, information motors, keyboards and others break down?

Information motors saw the biggest red ink, followed by HDD spindle motors and keyboards. Speakers are just about breaking even and no other products are in the red.

You mentioned that according to the original forecast, there would be 0.8 billion yen in positive impact on operating income for the current full year due to changes in material prices. Has anything changed with this projection?

While some of the positive changes are offset by remaining internal inventories, I believe we will get ever so closer to the projection.

The sales volume of pivot assemblies would go from 24 million units per month in the first quarter to 28 million units per month in the second quarter. It suggests that alone would boost the internal sales of ball bearings by 8 million units per month. Does that mean the internal sales of ball bearings in the second quarter will be nearly 70 million units per month?

I think the internal sales of ball bearings in the second quarter will be close to 70 million units per month.

You mentioned at the beginning of the quarter that you would save 2.0 billion yen in the U.K. and 2.0 billion yen in Thailand in fixed costs for the full year. Has anything changed with this projection?

Although the Skegness ball bearing manufacturing plant in the U.K. has already been closed and we reduced fixed costs, some internal inventory of finished ball bearings with high manufacturing cost remain in Europe. It has not helped us because it will take us until September to go through them. Fixed cost reduction through staff cutbacks is going right on track in Thailand. Some business units are now drastically increasing production and that's causing overtime cost, but I think that's almost as planned.

I believe HDD spindle motors were deepest in the hole during the previous quarter. You mentioned that information motors saw the deepest red in the first quarter. Does this mean HDD spindle motors have trimmed loss thanks to the staff cuts?

While we did cut labor costs, we trimmed loss thanks to improvements in yield, including quality improvement in addition to that. Moreover, we had the benefit of decreased manufacturing cost through increased production as both the production and sales volumes were 2.6 million units per month in the first quarter while the sales volume was 2.6 million units per month and the production volume was 1.7 million units per month during the previous quarter. I believe we will be even closer to break-even since the second quarter will see even more increases in production and sales volumes.

The production volume of ball bearings gradually increased from April to June. Tell me the profitability picture month by month.

Ball bearings have improved because the unit manufacturing cost has come down every month from April to June. July continues to see improvement.

Did the operating income of the machined components business segment in June already climbed to the level you had projected for the second quarter?

It had not improved to that extent in June but July is coming in even better than June.

Even though orders received by aircraft manufacturers have fallen recently, production has not dropped that much. Do you expect it will be even tougher for rod ends in the second quarter or can you maintain the first quarter level because the production has been stable?

The number of aircraft manufactured have not fallen that greatly, but it seems inventories of subassembly manufacturers have piled up quite a bit. That's why our shipment of parts has dropped a little.

How about the sales volume of spindle motors for 2.5 inch HDDs in the first quarter and the projection for the second quarter?

Approximately half of the sales volume in the first quarter was for 2.5 inch HDDs. While the sales volume is expected to rise by approximately 1 million per month overall in the second quarter from the first quarter, please consider the increase as for 2.5 inch HDDs.

The consolidated profit and loss statement says the minority shareholders' portion returned to the black in the first quarter. I thought the minority shareholders were linked to the profit of information motors yet you said information motors were in the red. Where does this deviation come from?

Besides Minebea Motor Manufacturing Corporation, which is a joint venture with Panasonic, among the profit/loss of information motors includes Minebea parts units, sales units and development cost. We are in the red if you include these. Minebea Motor Manufacturing Corporation by itself was in the black.

Please tell me the ratio of sales by user industry for rod ends and ball bearings combined during the first quarter.

It was 13.8% for automobiles, 34.9% for aerospace, 5.3% for home electronics, 5.1% for office automation equipment, 4.4% for PC and related products, 15% for motors and 21.4% for others. On a year-over-year basis, it was -39% for automobiles, -15.4% for aerospace, -43.2% for home electronics, -43.7% for office automation equipment, -59.1% for PC and related products, -39.3% for motors, -20.3% for others and -30.9% for total. Compared to the previous fourth quarter, it was +33.2% for automobiles, -3.2% for aerospace, +26.9% for home electronics, -21.7% for office automation equipment, +25% for PC and related products, +23.4% for motors, 23.6% for others and +10.9% for total. Uses for automobiles are recovering bit by bit, and I think uses for home electronics and PCs will increase. By region, sales for China are rising.

The sales volume of ball bearings in the second quarter is projected to return to about 80% of the peak, but how do you think the recovery will play out beyond that? Do you have a market that you're focusing on in order to go beyond 80%?

I don't know about after October yet. We are keeping a close eye on products for home electronics and office automation equipment to see when they will recover but we don't know yet.

What is the production volume of HDD spindle motors in July?

The July production volume is about 3.6 million units and about 70% of that is for 2.5 inch HDDs.

I believe Minebea's HDD spindle motor recovery was sluggish compared to the recovery of the HDD market itself in the first quarter. What causes the sales volume to increase in July? Did you experience delays in development in the first quarter?

I think it took us longer to feel the impact of the market recovery since Minebea is No. 2 or No. 3 company in this industry. Development of spindle motors for 2.5 inch HDDs are right on track and we had no major impact due to development delays.

Inventories shrunk in the first quarter compared to the previous quarter. Please tell me inventory increases and decreases by product.

Inventories are shrinking overall. Inventories are particularly decreasing in the machined component business segment. While ball bearings and pivot assemblies are shrinking, rod ends remain flat. Even though we are increasing inventories of HDD spindle motors just a little, other products are not increasing.

Do you think the inventory of rod ends has reached a level where you have to cut back on production in the second quarter?

Since we cut back on inventories in each unit as much as we could back in the previous fourth quarter, I don't think there are any inventories that we must cut back in addition and that includes rod ends. Since the inventory of ball bearings and pivot assemblies are currently decreasing, I believe we must step up production and exceed sales volume to build up inventories.

You said inventories among aircraft subassembly manufacturers are piling up. When do you think they will go through them?

Because airlines are mired in the red and I don't know if they can take the delivery of finished aircraft as scheduled, subassembly manufacturers are voluntarily adjusting inventories. We are not sure yet when that will be resolved. I believe when the Boeing 787 will make its maiden flight and when they are delivered will provide a spark for them. I don't think we will have a rise in the true sense unless we have something like that. And because airplanes are flying shorter time through flight reductions and such, airlines are ordering fewer parts for repairs as well. Therefore, I think we will have to bite the bullet for a year or so. But since businesses that are strong in times like these will only get stronger, our biggest challenge will be expanding market share and how to acquire new items.

How much cost reduction did you have in the first quarter?

I think it's hard for us to figure out how much cost reduction we specifically had since we determine that by profit/loss and how much cost went up or down. As we increased our production volume every month during the first quarter, we have not grasped the exact correlation between this and the cost reduction or the difference between the manufacturing cost reduction and the cutbacks on expenses. As a result, I am unable to give you an exact figure.

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