Q&A

Back to Financial Results (FY3/2018)

Investor Conference Call for 3Q FY 3/2018 held on February 7, 2018

Question and Answer

Would you give us your projection for fourth quarter electronic device sales? Also, over the last several months, we've been hearing that more smartphones than previously expected will be equipped with LCDs rather than OLEDs. Would you tell us if there has been any change to your outlook for LED backlights for the next fiscal year?

We expect electronic device sales for the fourth quarter to decline, due to seasonal adjustments, totaling out at 43.7 billion yen. Although I cannot give you that many details about next fiscal year due to customer confidentiality agreements, we expect demand to remain healthy as you can see from slide 18. On the question of LCDs vs. OLEDs, I really can't say anything about it.

You project that the electronic devices and components segment will see a slight quarter-on-quarter profit increase in the fourth quarter. I'd like to know the reason for the uptick.

The motor business will remain steady. Sensing devices are underperforming somewhat, but they will soon generate a profit as productivity improves. We also factored in some cost adjustments related to arrangement with customers.

The electronic devices and components segment usually sees profits dip in the fourth quarter. If electronic device sales drop 10 billion yen or more, I don't believe motors and sensing devices alone will be able to offset the profit loss. Can I assume that there will be some LED backlight-related developments that will temporarily shore up profits?

Yes.

Are those developments certain?

Yes, we believe so.

You said that we would start to see some non consecutive improvements in ball bearing profitability next fiscal year. Could you tell us exactly how much it will improve in quantitative terms, such as operating margin, costs, product mix, prices, etc.? It could be for either the machined components segment or ball bearings.

I promise to give you the details at the investor meeting to be held in May. Overall we expect to remain on a growth path as we explained in the second quarter investor meeting held last November. Basically our outlook hasn't changed and we are moving steadily forward. As I explained earlier, external sales were excellent in January, and our production capacity is shaping up. We are also getting things ready so we can start operating the additional manufacturing equipment we acquired with our 8-billion-yen investment.

In the third quarter the Mitsumi business saw net sales grow by 5.9 billion yen and operating income rise 3.2 billion yen quarter on quarter. This increase in operating income seems relatively large compared with the increase in net sales. How far off from your projections were the actual results for each product? Also what was the main factor behind the better profitability? Is it game or smartphone related products, or perhaps other products such as connectors that gave it a boost?

Basically productivity improved for all products across the board, which really gave their profitability a shot in the arm. Among all the products though, mechanical parts, including game console, drove third quarter profits up the most on a quarter-on-quarter basis. We also saw substantial profit increases for other products as well.

Are camera actuators also driving profit growth as you projected?

Third quarter results for optical devices fell slightly short of our projections since some of the sales will not be realized until the fourth quarter. However, optical devices yielded higher profits than the previous quarter, bringing Mitsumi business profits up on the whole.

You made significant upward revisions to your full-year targets, but you project that both sales and profits for the Mitsumi business will sharply drop in the fourth quarter. Is that because you simply added sales and profit increases for this third quarter without making any changes to the fourth quarter projections? Or did you factor the Chinese smartphone and game-related markets into your fourth quarter forecast?

It's the latter. We made our projections mainly in light of the latest results and seasonal factors such as the Chinese New Year holiday. In regard to smartphones related products, we also gave some consideration to changes in production.

Do you expect your game-related business to remain strong?

We plan to boost production for the game-related business with the start of the next fiscal year. However, we will have fewer operating days in the fourth quarter due to the Chinese New Year holiday and other seasonal factors.

Could you tell us what the monthly internal and external sales volumes as well as the production volumes for ball bearings were for the third quarter along with pivot assembly sales and production volumes?

The external sales volumes for ball bearings were 188 million units in October, 198 million units in November, and 193 million units in December. The internal sales volumes for these months were 82 million units, 75 million units, and 73 million units respectively. The production volumes were 270 million units, 273 million units, and 276 million units. The pivot assembly sales volumes were 28 million units, 29 million units, and 25 million units while the monthly production volume remained at 25 million units from October to December.

Sales of Mitsumi's camera actuators for the third quarter fell below your November projection. Was the drop due to customer-related reasons or because you failed to get as much wallet share as you had projected? Could you also tell us about OIS productivity?

Productivity for the optical device business including OISs has substantially improved since the business integration as I have always said it would. When it comes to customers' wallet share, we have no information about that. The shipment volume was low in the third quarter because production launch timing in the supply chain was off, as was inventory, and we missed the opportunity to capture demand. However production and shipments remained steady, as they were in the second quarter, and profits were up from the second quarter.

Can I assume that you shipped a certain amount of OISs to customers, including primary customers, than you usually do?

That's about the size of it for the third and fourth quarters.

What was performance like for the third quarter alone?

As I explained earlier, we didn't ship as much as we had expected since halfway through the third quarter there were problems with production launch timing, inventory, and conditions in the supply chain.

During the November investor meeting, you said that you should be able to increase operating income by 9 billion yen next fiscal year even if this fiscal year's operating income exceeds the November projection. I would like to know if that outlook is still the same.

Yes, it hasn't changed at all. There has been no change in our projections or the factors that are expected to have negative effects on our performance next fiscal year. We currently have the capacity to generate further profits above the 9-billion-yen target and will take a closer look at how things will go next fiscal year.

Can I say that your outlook for LED backlights in a nutshell is that LED backlight sales won't drop that much since you expect that LED backlight sales, including sales to primary customers, won't go below your current projection and that the customer base will grow in China and elsewhere on top of expectations that there will be more applications?

I cannot give you information about specific customers, but we expect that the overall LED backlight business will remain on a solid footing next fiscal year.

The third quarter sales mix by application shows that sales related to office automation and telecommunication applications, including smartphones, dropped about 20 billion yen quarter on quarter. This amount is about the same as the decline in LED backlight sales. Based on this data I assume that camera actuator sales didn't rise very much. You said during the November investor meeting that production was humming along just fine, but I'm skeptical. Would you tell us whether camera actuator sales have increased significantly or not? If you've started producing large quantities, doesn't that mean that your inventory would have risen sharply?

Sales increased quarter on quarter. I don't know what the inventory situation is like in the overall supply chain, but our inventory hasn't grown to the point where we won't be able to sell it all by the end of the fiscal year or that it will have a negative impact on us next year.

At any rate, your inventory has increased, right?

As I noted earlier, our overall inventory has declined from the end of last quarter. Optical devices don't make up that much of our inventory.

You expect that the Mitsumi business will suffer a substantial decline in profits, totaling about 6 billion yen, in the fourth quarter. I understand this is a conservative estimate, but why did you have to make the projection so low? Can you tell us the thinking behind this projection?

First of all we have to make our estimates conservative because of the characteristics of the markets where we operate. We took a comprehensive look at various aspects, such as the reduced operating days due to the Chinese New Year holiday as well as revised exchange rate projections, and factored them all in.

Will camera actuator sales plummet in the fourth quarter or will the sales that weren't realized in the third quarter be materialized in the fourth quarter and keep the drop-off to a minimum?

We expect fourth quarter sales to decline, but the drop will not be that big since part of our third quarter sales will be accounted for in the fourth quarter.

You said that you will see a one-time LED backlight-related profit gain in the fourth quarter. Since it will be offset by the decline in the third quarter and the increase in the fourth quarter, will it simply have a zero-sum impact or will there be extra income coming from somewhere in the fourth quarter that will have a positive effect? I would appreciate as much information as possible.

I'm afraid I can't give you any specific details due to customer confidentiality agreements. In running this business, we face a host of obstacles, such as finalizing specifications. It's only after we smooth out all the wrinkles that we can finally recognize them as either profits or losses each quarter.

The third quarter profit figure for the electronic components and devices segment seems too low. Did something specific occur in the third quarter to make that happen, and will its impact be softened by performance in the fourth quarter?

Costs incurred in the third quarter and throughout the year will be adjusted in the fourth quarter.

You mentioned in the past that you could have generated more profit. Will you be able to solve that via negotiations in the fourth quarter?

I'm sorry but I'm just not at liberty to answer that question.

It ends about main text.

Tweet