Q&A

Latest Update : Feb.15, 2016

Back to Financial Results (FY3/2016)

Investor Conference Call for 3Q FY 3/2016 held on February 3, 2016

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

Question

Can you give us the monthly LED backlight sales from October to December along with projected monthly sales from January to March and, if possible, can you tell us when you expect sales to recover?
You had previously projected sales to recover in the March quarter. But, in looking at the revised forecast, that no longer seems to be the case. Are there any indications that sales will drop further or start to climb back up?
Given the fact that lower depreciation and amortization costs for LED backlights will likely give you even more of a cost advantage next fiscal year, will your LED backlight strategy still include boosting your market share and prices in light of growing demand for thin smartphone models despite slowing market growth? Looking ahead to next fiscal year, will we see any changes in market share, price strategies, or the current roster of customers, particularly the big hitters?
Does that mean you'll be able to boost both earnings and profits while maintaining your market share?
The Machined Components business saw sales fall but profits increase in the third quarter. Were there any special factors behind this increase, such as negative gains related to your high capacity utilization rate that got translated into profits?
You said that profits for rod-end fasteners and pivot assemblies were up despite a decline in sales. Were these profit increases real gains or were they unrealized gains as well?
If I'm interpreting your LED backlight sales projections correctly, it seems like you're expecting fourth quarter motor performance to deteriorate. Since the HDD market is such a tough business environment, I was wondering if you've made conservative estimates anywhere besides LED backlights?
Looking at your conservative operating income projection for the fourth quarter, if LED backlight sales weren't to drop too much, then profits wouldn't fall so drastically either unless the performance of other businesses began to deteriorate.
Do you expect LED backlights to fall into the red in the fourth quarter?
How much do you expect depreciation and amortization costs for LED backlights to decrease next fiscal year?
You've been enjoying healthy ball bearing sales despite the tough macroeconomic environment. What are your projections for the fourth quarter?
So there are no indications that sales will decline?
Can you tell us the reasons why you lowered the full-year sales forecast figure for LED backlights by about 37.0 billion yen, taking it from 288.0 billion yen to 251.2 billion yen, in light of declining sales volumes as well as the impact of the prices of special parts you are buying from external suppliers for new models? Likewise, can you tell us the factors behind the downward revision to the fourth quarter forecast in terms of sales volumes and parts prices?
Last fiscal year, backlight sales totaled 145.0 billion yen. This fiscal year, even if you take LED module out of the mix, we are seeing a year-on-year decline in both revenue and profit. Is that right?
If that's the case, are the parts purchases from external suppliers more than 100 billion yen a year?
If sales continue to decline as depreciation and amortization costs increase, won't there be a danger of falling into the red in the fourth quarter?
Can you provide us with the ball bearing sales figures and production volumes for the third quarter along with the estimated sales volumes for January and onward?
Can you give us a rundown of third quarter ball bearing sales by application as well as year-on-year growth rates?
Can you give us the pivot assembly sales figures for the third quarter as well as the estimated sales volumes for January and onward?
It seems that LED backlight inventory will decline about 20.0 billion yen in the fourth quarter. Is that right? Are you going to reduce inventory to the lowest possible level by the end of March to make it healthy?
What is the breakdown of third quarter operating income for the electronic devices and components segment by business?
We are concerned that LED backlights account for such a large part of the electronic devices and components segment's operating income. Can you give us your thoughts on that?
Third quarter operating income for the electronic devices and components segment was up almost 0.9 billion yen from the previous quarter. Can you give us the breakdown for that increase?
I understand that LED backlight sales increased sharply in the third quarter but that the bulk of this increase came from the parts purchased from external suppliers and didn't lead to higher profitability. Were there any other factors that put a damper on profits?
If you want to reduce inventory by more than 20.0 billion yen by the end of March, you'll have to substantially cut back production, but you still don't anticipate going into the red. Is that because you've cut costs so much already?

Question and Answer

Can you give us the monthly LED backlight sales from October to December along with projected monthly sales from January to March and, if possible, can you tell us when you expect sales to recover?: Sales amounted to 36.5 billion yen in October, 24.0 billion yen in November, and 22.8 billion yen in December, for a December quarter total of 83.3 billion yen. We expect sales to reach 68.7 billion yen in the March quarter. I'm afraid that I cannot give you any more monthly sales figures since disclosing that information could inconvenience our major customers. So I can only give you the projected sales figures on a quarterly basis.

You had previously projected sales to recover in the March quarter. But, in looking at the revised forecast, that no longer seems to be the case. Are there any indications that sales will drop further or start to climb back up?: March quarter sales are projected to total 68.7 billion yen, and January sales were slightly higher than December sales.

Given the fact that lower depreciation and amortization costs for LED backlights will likely give you even more of a cost advantage next fiscal year, will your LED backlight strategy still include boosting your market share and prices in light of growing demand for thin smartphone models despite slowing market growth? Looking ahead to next fiscal year, will we see any changes in market share, price strategies, or the current roster of customers, particularly the big hitters?: Since our business plan is still in the works at this time, I can't give you any specific forecast figures for next fiscal year. But beginning this April or later we will launch LED backlights for our big customers' new smartphone models, so there are no changes there.

Does that mean you'll be able to boost both earnings and profits while maintaining your market share?: Yes.

The Machined Components business saw sales fall but profits increase in the third quarter. Were there any special factors behind this increase, such as negative gains related to your high capacity utilization rate that got translated into profits?: I believe you are referring to unrealized gains. In fact it was the temporary lag in production at our North American subsidiary during the second quarter that kept sales from reaching our projection. The tide still hasn't turned for the mass production of miniature ball bearings which are our anchor products. Working against this backdrop, we saw profits rise and the profit margin expand.

You said that profits for rod-end fasteners and pivot assemblies were up despite a decline in sales. Were these profit increases real gains or were they unrealized gains as well?: These were modest increases due neither to reduced inventories nor unrealized gains. As for pivot assemblies, costs have been steadily declining.

If I'm interpreting your LED backlight sales projections correctly, it seems like you're expecting fourth quarter motor performance to deteriorate. Since the HDD market is such a tough business environment, I was wondering if you've made conservative estimates anywhere besides LED backlights?: Our projections for motors are conservative. While performance for all businesses should be about the same, DC brushless motor sales are expected to fall off slightly. Measuring components sales are also likely to dip due to the launch of new models.

Looking at your conservative operating income projection for the fourth quarter, if LED backlight sales weren't to drop too much, then profits wouldn't fall so drastically either unless the performance of other businesses began to deteriorate.: We made a conservative estimate for fourth quarter operating income. Since we will continue to use the accelerated depreciation method for LED backlights, in particular, we will be bearing high depreciation and amortization costs, which will keep profits low.

Do you expect LED backlights to fall into the red in the fourth quarter?: Not at all.

How much do you expect depreciation and amortization costs for LED backlights to decrease next fiscal year?: We are currently developing a business plan for the next fiscal year. But for now, we expect to see a decrease of about 5.0 billion yen.

You've been enjoying healthy ball bearing sales despite the tough macroeconomic environment. What are your projections for the fourth quarter?: Sales have remained strong for fan motor and automobile applications. The external sales volume once again topped 160 million units in January. Sales will decline in February due to the Chinese New Year holiday, but should climb back in March to hit a new record high.

So there are no indications that sales will decline?: We are sure that our projections are on target.

Can you tell us the reasons why you lowered the full-year sales forecast figure for LED backlights by about 37.0 billion yen, taking it from 288.0 billion yen to 251.2 billion yen, in light of declining sales volumes as well as the impact of the prices of special parts you are buying from external suppliers for new models? Likewise, can you tell us the factors behind the downward revision to the fourth quarter forecast in terms of sales volumes and parts prices?: Since monthly sales for the March quarter are not that different from figures for November and December, the bulk of the difference between third quarter sales and the fourth quarter forecast is from our October sales. The sales volume for the December quarter was down about 30% year on year.

Last fiscal year, backlight sales totaled 145.0 billion yen. This fiscal year, even if you take LED module out of the mix, we are seeing a year-on-year decline in both revenue and profit. Is that right?: Yes.

If that's the case, are the parts purchases from external suppliers more than 100 billion yen a year?: Yes.

If sales continue to decline as depreciation and amortization costs increase, won't there be a danger of falling into the red in the fourth quarter?: I don't think so.

Can you provide us with the ball bearing sales figures and production volumes for the third quarter along with the estimated sales volumes for January and onward?: The figures for October were 159 million units in external sales and 73 million units in internal sales. The production volume for October totaled 231 million units. The figures for November included 157 million units in external sales and 78 million units in internal sales. The production volume for November totaled 241 million units. The figures for December were 151 million units in external sales and 77 million units in internal sales. The production volume for December totaled 232 million units. Monthly external sales and internal sales for the fourth quarter should respectively reach 155 million units and 73 million units on average.

Can you give us a rundown of third quarter ball bearing sales by application as well as year-on-year growth rates?: Automobile bearings accounted for 19%, bearings for aerospace applications 33%, home appliances 3%, office automation equipment 6%, personal computers and peripherals 4%, motor bearings 17%, and other bearings 18%. Sales grew year on year by 14% for automobile applications, 8% for aerospace applications, 3% for home appliance applications, 3% for office automation equipment applications, 30% for personal computer and peripheral applications, 14% for motor applications, and 0% for other applications.

Can you give us the pivot assembly sales figures for the third quarter as well as the estimated sales volumes for January and onward?: Third quarter monthly sales totaled 27 million units on average and the monthly average sales volume is expected to reach 26 million units in the fourth quarter.

It seems that LED backlight inventory will decline about 20.0 billion yen in the fourth quarter. Is that right? Are you going to reduce inventory to the lowest possible level by the end of March to make it healthy?: Yes. We expect a reduction of over 20.0 billion yen in inventory in the fourth quarter although we may carry some of it over. This reduction should get our inventory to a normal level.

What is the breakdown of third quarter operating income for the electronic devices and components segment by business?: The electronics devices business has the highest operating income total, followed by motors and measuring components.

We are concerned that LED backlights account for such a large part of the electronic devices and components segment's operating income. Can you give us your thoughts on that?: Motors and measuring components account for a large portion as well and the profitability of motors was up in the third quarter.

Third quarter operating income for the electronic devices and components segment was up almost 0.9 billion yen from the previous quarter. Can you give us the breakdown for that increase?: Operating income for motors and LED backlights grew at almost the same rate while operating income for measuring components dipped slightly.

I understand that LED backlight sales increased sharply in the third quarter but that the bulk of this increase came from the parts purchased from external suppliers and didn't lead to higher profitability. Were there any other factors that put a damper on profits?: Depreciation and amortization costs peaked in October and November. On top of that the operating rate dropped in December due to production cutbacks.

If you want to reduce inventory by more than 20.0 billion yen by the end of March, you'll have to substantially cut back production, but you still don't anticipate going into the red. Is that because you've cut costs so much already?: Since production bottomed out in December and the operating rate will be higher in the fourth quarter, we should be able to keep costs down.

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