Q&A

Back to Financial Results (FY3/2014)

Investor Meeting Presentation for 2Q FY 3/2014 held on November 1, 2013

Question and Answer

You said that you will boost production capacity for LED backlights. How much do you plan to invest?

We are going to make an urgent investment roughly totaling 4 billion yen to meet increasing orders for next year. Since construction will be completed between the end of this fiscal year and early next fiscal year, this amount will be posted as a capital expenditure for next fiscal year. Boosting production capacity will enable us to respond to 100 billion yen in sales starting next year.

Are you going to aggressively market your LED backlights for tablet PCs as well as smartphones?

Like smartphones, high-end tablet PC models are getting thinner and thinner. That gives us an advantage that we will actively leverage in order to drive sales up.

What are the current shipment volumes for ball bearings and pivot assemblies as well as projected shipment volumes for the fiscal second half?

Shipment volumes are projected to drop off slightly from what they were in the fiscal first half due to the Christmas holidays in Europe and the U.S. as well as Chinese New Year. Our external shipment volume hit a record high of 143 million units in September and then reached 136 million units in October despite a full week of holidays in celebration of China's National Day. If sales continue at this pace, they will likely exceed our projections. We expect the external shipment volume to reach 137 million units in November and 125 million units in December.

You acquired some small special bearing manufacturers boasting excellent technological capabilities, including CEROBEAR, and I applaud your strategy. Are you going to spend some time focusing on creating synergy with these new acquisitions or do you plan to forge ahead with this takeover strategy?

We will do both. There are still more companies that possess excellent technology for producing special bearings especially in Europe, so we will look for good opportunities. We will also work to leverage the technologies of the companies we took over to create some synergy. Take CEROBEAR for example, we can offer something to the aircraft industry with its ceramic bearings since the industry is surely looking to make aircraft lighter in a bid to enhance fuel efficiency. Some engine manufacturers have shown a lot of interest in them already. At the same time we will step up efforts to optimally combine our resources, including technologies, sales networks, and the manufacturing capabilities we have at the various locations we operate, to maximize synergy.

You said that LED backlight sales will increase by 20 billion yen next year. Which one of these factors will have the biggest impact, (1) the growing LED backlight market, (2) Minebea products' increasing market share, or (3) an increasing share of new markets like tablet PCs?

All three of these factors will affect our top line and bring sales up by 20 billion yen next year.

I understand that the operating margin target for LED backlights ranges between 5 and 10%. What will it be when sales climb that high? Also, are you going to work on special measures, like in-house production, etc., to beef up your operating margin? If so, what are they?

While we project sales will rise 20 billion yen to total 80 billion yen next year, our in-house target is 100 billion yen. If sales increase that much, the capacity utilization will naturally increase and so will the operating margin. What matters most is our technological edge, which we should be able to maintain for the next two years or so.

You've announced your operating income forecast for the second fiscal half. What is the forecast for the third and fourth quarters? How has the impact of currency fluctuations been accounted for?

We expect operating income for the third quarter to total 8.0 billion yen, which includes 8.0 billion yen for the machined components business segment and 2.7 billion yen for the electronic devices and components business segment. Operating income for fourth quarter will amount to 6.0 billion yen, which includes 7.4 billion yen for the machined components business segment and 1.3 billion yen for the electronic devices and components business segment. Differences include adjustments and other business segment. Since current foreign exchange rates are about what they were for the second quarter, the impact of currency fluctuations were not incorporated in the operating income forecast on a quarterly basis.

Please give us more details of your third quarter income forecast for the machined components business segment and the electronic devices and components business segment compared with the second quarter?

The machined components business segment will see third quarter profits dip slightly for both ball bearings and rod-ends. The electronic devices and components business segment will see LED backlight sales decline in the fourth quarter as we expect seasonality with LED backlights, but the decrease may not be so great given recent market trends.

You claimed the major reason for rising sales of both ball bearings and motors was a healthy global economy. Are there any factors besides that?

I can't think of any other special factors. Looking at demand for ball bearings, we see that shipment volumes are up for many different applications and customers. The automobile, copier, and ATM markets are also bigger than they were last year.

You said that LED backlights are being made increasingly thinner and more lightweight. If you want to reduce the thickness and weight of displays, organic LED displays seem to offer a greater advantage than liquid crystal displays (LCDs) that use LEDs. What do you think of the risk of LCDs being replaced by organic LED displays someday?

We take the risk seriously and are studying the situation. At the moment, we view the risk of that scenario coming to fruition over the next few years to be very minimal. A number of problems have been pointed out with organic LED, including low production yield, high production cost, large power consumption, low visibility under sunlight, etc. That's why we don't think organic LED will replace LCDs overnight. We're not basing our assumption on promises from our customers. We have a large share of the market for high quality products. That gives us a chance to work with customers on developing new products, so we can see firsthand where the trends for upcoming products and models are going. So far we haven't seen anything to be concerned about.

What were the monthly shipment volumes for ball bearings and pivot assemblies?

Ball bearing shipment volume for July totaled 227 million units, including 138 million units in external shipment and 89 million units in internal shipment. Shipment volume for August came to 224 million units in total, with 134 million units sold externally and 89 million units sold internally. Shipment for September totaled 228 million units, with 143 million units in external shipment and 85 million units in internal shipment. While we had initially expected the external shipment volume for October to total 134 million units, it actually came to 136 million units. Combined with the 82 million units sold internally, shipment totaled 219 million units. Shipment for November is projected to reach 219 million units, with 137 million units to be sold externally and 82 million units to be sold internally. Shipment for December will total 205 million units, with 125 million units to be sold externally and 80 million units to be sold internally.
The pivot assembly shipment volumes were 34 million units for July, 34 million units for August, and 32 million units for September. Shipment for October was initially projected to total 33 million units, but actually came to 35 million units. Shipment is projected to be 31 million units both for November and December. We are getting a lot of customer inquiries about our pivot assemblies since the quality is up and the prices are competitive.

Was there any change to the second quarter application-by-application sales volume ratio for ball bearings?

I don't have the material at hand right now, but the monthly external shipment volumes exceeded 130 million units after April and demand is growing across the board, so it would probably be safe to say that there was no major change.

You mentioned earlier that, in light of the latest information, demand for LED backlights would not fall as much as you had expected although you had made your performance forecast for the January - March period on the assumption that demand would drop. Would you elaborate on that?

While we had expected that demand would drop due to seasonal factors, it doesn't look like it's going to fall when we look at it in light of the unofficial orders we've gotten from our customers. That's one reason. Another is the expanding customer base and increasing number of models we supply which will offset fluctuations in demand. Given that, we don't believe the shipment volume will fall as much as we originally expected.

You expect that LED backlight sales will soar next fiscal year. How will the sales composition by major customer and product change?

I can't tell you anything until we've had a chance to look at the details of next fiscal year's sales forecast with our business units.

You set the external shipment target for ball bearings at 150 million units per month on average in your Five Arrows strategy. How will that affect your production capacity and optimal inventory levels?

Our current monthly production capacity of 250 million units will do if the internal shipment volume remains the same. It would be great if the capacity utilization rate of our new ball bearing plant in Bang Pa-in were to increase once production goes into full swing. Since depreciation and amortization expenses for our ball bearing plant in Shanghai will decrease next year, it will make a bigger impact on our bottom line. We will decide on optimal inventory levels after carefully analyzing the market since they will change depending on what demand is like at given time.

I'm very interested in the LED lighting and measuring components that are included in your Five Arrows strategy. Can you tell us how they stack up against the competition in the global market and what the future holds for them?

When it comes to measuring components, we don't have any competitors in the global arena. Our foundation is built on gauges. While there are some manufacturers of strain gauges in Europe and China, nobody has the extensive technological capability or global reach that we have. That puts us squarely ahead of the pack. The LED lighting market on the other hand is quite competitive. It's a big market with lots of manufacturers. Each country has its own market. We are looking to supply lighting device manufacturers with packaged solutions combining various technologies like our light guide plates, circuits, motors, etc. The strategy is already at work in the Chinese market where we have made inroads with products that have earned high marks from local governments as well as lighting manufacturers.

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