Q&A

Back to Financial Results (FY3/2025)

WEB Presentation for 3Q FY 3/2025 held on February 5, 2025

Question and Answer

Regarding the breakdown of operating income by segment from 3Q to 4Q for the FY3/2025, you assumed that the PT segment and the AS segment would improve in QoQ. Could you explain the probability behind this?

Bearing of the PT segment includes our company's conventional bearing business and the businesses of various subsidiaries in Europe and the U.S. The reason why sales and operating income for the PT segment in 3Q were lower than that in 2Q is due to the performance of the aircraft bearing and medical equipment businesses of the U.S. and European group companies. However, because of the operating margins difference, the operating margin in 3Q improved slightly in QoQ. The decline in aircraft bearings is due to the Christmas holidays, which primarily affect production in the U.S. and Europe, as well as the strike issue at Boeing. In 4Q, the strike problem will be resolved and production will be resumed. In addition, inventory adjustment of parts for medical equipment has been completed and is expected to recover, so we expect an improvement compared to that in the third quarter.

For the AS segment, although the markets in Europe and North America remain uncertain, there are both positive and negative aspects in the current global market. Sales are expected to improve slightly, reaching 80.1 billion yen in 3Q and 81.3 billion yen in 4Q. Concerning the operating income, we will have a little special factor at the end of this period in March as usual in our Tier 1 business for automobile.

Additionally, of the 4 billion yen in one-time expenses reported in the presentation, 1 billion yen is allocated to the AS segment. To account for this one-time expenses of 1 billion yen, we have revised our operating income forecast for the AS segment downward, from 17 billion yen to 16 billion yen. This 1 billion yen will resulting from withdrawal from Russian business. When we finally withdrew from Russia, we incurred additional costs compared to our expectations due to various institutional changes. Without this one-time cost, we would have increased the operating income by 1 billion yen, and the forecast in the fourth quarter is slightly in the direction of improvement.

The 4 billion yen in one-time expenses includes 1 billion yen for the AS segment and 3 billion yen for the SE segment. Will these be recorded in 4Q?

Your understanding is right.

You mentioned that sub-core businesses for smartphones and games will be directly managed under 'the Chairman's Office ICU.' Could you provide more specific information about what level of profitability you are considering for taking action?

In a nutshell, I would say that everyone must perform basic operations properly. I think that if management becomes lax, basic operations in sales, purchasing, and the factory are not properly implemented. In this case, I believe it all comes down to executing the basic actions under my management to solve this problem. For example, in purchasing, we must focus on cost reduction, and in sales, we need to engage directly with customers for game and camera actuators, negotiating with them to streamline production. Although these business are not of great importance for the future, it would be better to consider it from the perspective that we will continue with it for the time being.

As for the definition of a sub-core business, I've mentioned that we will continue to pursue it aggressively if it remains profitable, even though it may disappear in the future. I believe we will need to make various decisions once we determine how much earnings will recover after improving all basic operations. Our basic operation involves gathering information and making decisions by ourselves, which I will handle on my own this time.

This time, there is no explanation regarding the operating income forecast for the next fiscal year. Is this due to the significant uncertainty about the future?

To be honest, I deeply regret that we have revised our forecast downward for two consecutive years. Therefore, rather than discussing it now, I believe it would be better for us to take the basic actions I mentioned earlier once again and present the figures with a higher degree of certainty in May.

Core businesses have been growing consistently, and I believe that the significant decline in sub-core businesses this fiscal year will, conversely, have a large impact on operating income in the next fiscal year. (For sub-core businesses), as we believe that it is meaningless unless we can achieve an operating margin of at least 7%, we will confirm whether the business can properly recover.

Please tell us about the 3Q results and the 4Q forecast for the FY3/2025 for ball bearing production and sales volume. In addition, please tell us about the update of the status of main applications of ball bearings. On page 18 of this presentation, it was mentioned that the data center business is currently showing signs of weakness. Could you provide an update on the trends for HDD-related motors and pivot bearings?

Volume are in million units, and the results for October to December and the forecast to January are as follows:
Production volume is 284, 302, 283, 287, 280, and 321. External sales volume is 243, 246, 239, 234, 221, and 246. Internal sales volume is 51, 50, 46, 45, 47, and 42. Total sales volume is 294, 296, 285, 279, 268, and 288.

As for HDD-related sales, the figures are linked to internal sales volume of the pivot. Since motors demand are strong, the internal sales average for 3Q is 49 and the average for 4Q is 45. We expect some adjustment in 4Q regarding HDD production.
However, from a long-term perspective, we see a growth trend, especially for helium, starting from the next fiscal year.
In the bearing segment, if we include for data centers, we expect the market for so-called cooling fans in external sales to decline temporarily in QoQ, but to recover again in the next fiscal year and beyond. As for cars, there are various views on production volume, but we expect a steady trend with continued content growth.

Regarding the SE segment, even though Minebea Power Semiconductor Devices (MPSD) has been consolidated from this fiscal year, sales in 3Q decreased in YoY. Could this be attributed to the decrease in optical devices and mechanical components, or is there a change in semiconductors, including MPSD?

Sales of power devices have remained steady. There have been changes such as the momentum of IGBT, since the time of considering the management integration of power devices. However, taking these changes into account, we believe that the actual results we are currently presenting and the guidance for this fiscal year are on track. In the semiconductor business, the IGBT business in China has been somewhat challenging, but there are other businesses that are offsetting this decline overall.

As you pointed out, the businesses that decreased YoY are optical devices and mechanical components. However, as mechanical components were not at a very high level in the previous period, the main reason for the decrease in 3Q is optical devices.

At the beginning of the Chairman's explanation, you mentioned that 'there was a decline from December.' Could you explain what changes have occurred in the product area? Additionally, could you share the background behind this and your perspective on the market environment?

The figures for October and November were almost in line with our guidance, but the December figures were slightly lower overall. The guidance was 29 billion yen, but the actual result was 26.4 billion yen. These difference was due to optical devices. If the businesses other than optical devices had performed at the October and November levels, the decline in optical devices could have been offset. However, these businesses also performed lower than forecasted.

In the business portfolio, although there are issues with capacity utilization and the Christmas holidays in Europe and the U.S., we expect some recovery starting in January. However, it is uncertain whether the factors behind the decline in December will persist. Although the sales guidance has been revised downward to 1.5 trillion yen, the total figures for 3Q and 4Q — 369.6 billion yen for 3Q and 352.1 billion yen for 4Q — do not suggest that overall sales will fall significantly. Rather, sales of various seasonal products are expected to be slightly lower in 4Q.

With regard to humanoid robots, your company offers not only bearings but also several items in the sensor/actuator area for robots, such as sensors using strain gauges and various motors. What are the current business opportunities in each field, and how much potential is there for 'INTEGRATION'?

As for bearings, Mr. Kainuma mentioned them on page 19 of this presentation. We believe there are various business opportunities other than that. Humanoid robots themselves are not limited to humanoid/walking types, and their applications are expanding to a wider range of devices. We are currently discussing products to be delivered to customers. We are considering to explain the details of the business opportunities in the 4Q announcement in May.

You mentioned that you are going back to basic operations to deal with business issues in mechanical components and actuators for cameras. Could you be more specific and tell us about the current situation?

To be honest, we believe that actuators have lost the competition, and the reason for this is the lack of fundamental manufacturing operations, such as increasing yield, improving productivity, and reducing yield. As we engaged in managing spindle motors in the past, this solution applies to all of our businesses. We believe it is necessary to reiterate and properly implement basic actions in sales, manufacturing, purchasing, and even in negotiating pricing. If we still cannot succeed after taking these steps, we think will have no choice. In the case of actuators, mass production and precise assembly are required, while in mechanical components, there are various customer orders and demands, such as ensuring there are no color uneven. As a manufacturing company, we must properly respond to these, but from my perspective, the basic operations are still lacking. This involves various issues, including aligning with customers, and our goal is to determine how much profitability can be improved by addressing these. We envision a timeline of about six months.

You have revised the SE segment forecast downward by 12 billion yen. Could you explain the details behind this adjustment? Is the 3 billion yen from MPSD's PPA, and the rest mostly related to optical devices?

Your understanding is right. We are telling you on that the PPA is currently being worked on and has not accurately finalized yet. Therefore it might go up or down depending on the results. Other than that, the numbers are mostly optical devices.

I understand that the chairman is directly involved with the issues related to the mechanical components. However, you mentioned that the new models will begin contributing from January through the latter half of March. Once they are up and running, do you expect to maintain your current market share, or are you concerned that the ongoing issues may lead to a decline in your market share?

Basically, we will continue to be allocated as a third vendor in terms of volume in the next fiscal year. In that position, we will do what we can to increase our competitiveness.

It ends about main text.

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