Q&A

Back to Financial Results (FY3/2016)

Investor Meeting Presentation for FY 3/2016 held on May 10, 2016

Question and Answer

You expect LED backlight sales to be sluggish during the months of April to June. Can you tell us what they will be like in the June quarter and onward? Percentage figures comparing them with sales for the January to March period would be fine.

Sales for all electronic devices for the fourth quarter of the fiscal year that ended in March 2016 were about half of what they were in the third quarter, at approximately 46.6 billion yen. This fiscal year's first and second quarter sales figures are expected to total 32.9 billion yen and 56.7 billion yen respectively.

How much of your North American customer's wallet share spent on LED backlights for new smartphone models do you expect to earn in comparison to last fiscal year?

Given the way things stand now, we expect it to remain the same as it was last fiscal year.

I believe that over the next few years high-end smartphone displays will naturally shift to OLED displays which don't require LED backlights. Even if you boost sales of LED backlights for automobile applications, I don't see how you can generate enough revenue to make up for the loss. As depreciation and amortization costs diminish, are you going to focus on sales volume if you decide, for instance, to tap into more of Chinese smartphone manufacturers' demand? Or will you just disregard sales volume and declining sales since you will save on depreciation and amortization costs? What will your LED backlight strategy look like?

We still see a shift to OLED as a future possibility and since I have been president we have been working on developing hybrid component products with an eye to that possibility becoming a reality. I can't say now whether simply going after low-priced smartphone demand would be good for us once the profitability of LED backlights starts to fall. We could make a really bold move as we did with our decision to withdraw from speakers, keyboards and vibration motors, shift personnel and take the next step forward. I also think it's important to allocate enough personnel and resources to manufacture the new products we are developing now once they are ready.

What do you plan to do during the second half of this fiscal year as you prepare for the business integration with Mitsumi Electric? What kind of head start will you get before March 2017?

There's a lot to do before the business integration takes place, like making necessary arrangements for systems and employees. The most important thing of all is improving Mitsumi's profitability. The top priority management strategy is to have our key manufacturing personnel train local employees at all levels and sow the seeds of "Minebeaism" throughout Mitsumi once we get the green light from the anti-trust regulators in key countries. How quickly we can do that will be the key to success. The second crucial element is teamwork. We're short of R&D people and need Mitsumi's help to get the various new products we currently have in the works off the drawing board and into the market as quickly as possible. We'll make sure that everybody pulls together.

By "sowing the seeds of Minebeaism" do you mean looking at Mitsumi's factories and replacing their machines and equipment, or is that a reference to your philosophy of manufacturing?

While we do need to change some of their machines, it's more about Mitsumi's manufacturing philosophy and strategy being so different from ours. We will have to review everything from procurement to logistics, but the real focus will be on a commitment to manufacturing. We should be able to go into the nuts and bolts of it all once things are settled at Mitsumi's extraordinary meeting of shareholders, which is scheduled for December.

Once again I'd like to ask if you are contemplating a cut in personnel.

Not at the moment.

Looking at Mitsumi's balance sheets, its tangible fixed assets have significantly decreased over the last several years and it doesn't seem to be manufacturing any parts in-house at all. This gives me the impression that you're just going to continue making products with parts bought from external suppliers without adding value to them even if Minebea's manufacturing technologies are transferred. Wouldn't it be more effective if Minebea just produced parts for Mitsumi?

Although I can't go into any details right now, I believe transferring our manufacturing strategy to Mitsumi is the best way to help the company improve.

Looking at the current macro environment, it would seem that demand for ball bearings could decline at any time, but you seem to be still enjoying healthy sales growth. What's your view on current market conditions? Where do you see the ball bearing market headed?

The ball bearing business is very strong. Our operations in Singapore were up and running every day during the Chinese New Year holidays this past February. External sales hit a record high in March, totaling 165 million units, and remained up in April, at 159 million units. Sales should reach 170 million units sometime this year. People often ask me why our ball bearing business is so strong and all I can tell them is that our ball bearings really sell well. We've already gotten preliminary orders from our customers and the business shows no sign of losing any steam.

Is it that your market share is increasing or just that more ball bearings are being used in different units across a wide range of product categories?

I think part of it is that our market share is growing. Chinese bearing manufacturers are quiet right now and many Chinese customers are shifting to high-end products. Since we have an edge when it comes to supplying high-quality ball bearings, our market share is increasing. As I've said before, I believe that Minebea will grow in pace with the increasing sales of high-end products and you can see it happening with the ball bearing business.

You've said that you would refrain from making any further investments in your LED backlight business, but at an investors meeting last year you told everyone that you would make LED backlights a new core business. Just a year later, it sounds like you've given up on this core business. Why the change of mind? Since component manufacturers operate in an industry subject to ups and downs in customer demand, it's the job of management to come up with ways to disperse that risk. If you lost one of your core businesses just because one of your customers changed its mind, then I must question whether you made the right management decision.

It's difficult to answer the question based on some hypothetical threat of OLED immediately replacing LED backlights. I just don't see OLED taking over the market so easily because the LED backlight unit we've developed jointly with other companies in the supply chain is looking really great. I don't know if low-priced smartphone manufacturers will still be using LCDs when and if OLEDs replace the LED backlights used in high-end smartphones, but we should of course come up with countermeasures in the event there really is such a technology shift. Now that we've developed a good product that's in the supply chain, the only thing I can say is that we are still committed to keeping LED backlights as one of our core businesses.

Mitsumi Electric's financial results that were announced today were quite unfavorable. To be honest, I don't think they can achieve their targets for the fiscal year ending March 2017. When you announced the business integration with Mitsumi back in December, you said it would be a 50/50 business integration, but today you said you will "sow the seeds of Minebeaism" at Mitsumi. It sounds like you're worried and have changed your story. Can you tell us again what specifically you are going to do as an equal partner with Mitsumi?

I think you may have misheard me. I never said "50:50." I said it was in "the spirit of equal partnership." That's why we are changing the company name. Mitsumi has many excellent engineers and they will share their abilities with us to help us create something new. I want to keep that spirit of innovation alive. That's what we mean by "a spirit of equal partnership."
Mitsumi Electric knows why they can't stay ahead of the competition in the manufacturing arena. Their people came and observed what we do during the due diligence process. We have both agreed that by adopting Minebea's manufacturing practices Mitsumi can transform itself into a totally different company. I'm sorry if I sounded condescending when I used the suffix "-ism," but that's basically all I was saying. Right now we don't have any plan to adopt Mitsumi's manufacturing practices. We've been thinking about what Mitsumi will be able to do by implementing our ultra-precision machining technology and how it can quickly ramp up a large-scale, production system like the one we use for our LED backlights. All we are going to do is to transfer our know-how to Mitsumi.

You said your motor business is doing well, especially in the automobile market. Can you give us some more details about your plans for the fiscal year ending March 2017?

The motor business will see sales remain flat this fiscal year since this fiscal year the exchange rate is projected to drop from last fiscal year's rate of approximately 120 yen to the dollar to hit 105 yen to the dollar. We expect, however, profits to increase despite of the yen's appreciation although we haven't announced any specific figures.

In what areas specifically are you going to see growth?

The motor business has been up across the board, especially stepping motors and DC brushless motors. We've also seen healthy developments in our European automotive motor business, which we refer to internally as EMT.

You mentioned the high cost incurred for the business integration with Mitsumi Electric. Is that the reason for the large adjustment figure for the fourth quarter? Can you tell us how much you expect to spend on the business integration this fiscal year as well as whether it will be more or less next year?

Besides the business integration, we are also working to implement ERP, which will bring head office expenses up 2 billion yen this fiscal year.

I understand that you expect this fiscal year's operating income to drop 10 billion yen due to the impact of foreign currency fluctuations. Since the estimated exchange rates for the dollar and baht, which affect your operating income the most, are almost the same as last fiscal year's rates, will this decrease be due mostly to foreign currency to yen translations?

The figure is also partly due to some other factors besides the translation impacts.

What are projected LED backlight sales for this fiscal year?

This fiscal year's estimated sales of electronic devices totaling 211.1 billion yen will mostly come from LED backlights. Although we had a lot of assembly work besides LED backlights, we don't expect it to generate much revenue this fiscal year.

While you are now constructing the Cambodian plant's third factory building, are you going to utilize it after the business integration with Mitsumi Electric?

Although we cannot consider concrete measures until we get approval from anti-trust regulators in key countries, production in Cambodia is sure to be a big option. If we have to transfer manufacturing operations or keep production costs down, it would make sense to use the Cambodian plant. That's all I can tell you about it at the moment.

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