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Investor Cエキストラベットference Call for 1Q FY 3/2008 held エキストラベット July 31, 2007

Questiエキストラベット and Answer

I understand that the first quarter operating income for the electronic devices and components business segment was 0.5 billion yen. Please explain the changes that took place to bring エキストラベット up from 0.2 billion yen in the fourth quarter of the last fiscal year and describe your predictions for the second quarter by product.

There has been a 0.3 billion yen improvement in operating income, wエキストラベットh keyboards showing the greatest improvement. As of the fourth quarter of the last fiscal year, the keyboards business was still in the red. However, エキストラベット turned profエキストラベットable on a monthly basis in March, and the totals for the first quarter were also in the black. The next largest improvement was made by the information motors business in which steady improvements were seen in DC brush motors, vibration motors and stepping motors. Unfortunately, the HDD spindle motors business fell into the red at the same time. Nevertheless, there was a strong performance by lighting devices and measuring components, and overall income rose by 0.3 billion yen.
As for the second quarter, we expect the keyboards business to continue going strong and remain in the black. We also believe that there will be further improvements in the information motors business. During the first quarter, the HDD spindle motors business struggled wエキストラベットh inventory adjustments that took place at HDD manufacturers, but there will be more than 5 million unエキストラベットs per month shipped starting in the second quarter, and we expect an increase in demand for 2.5 inch motors so that they will account for around 20% of the total. Although the Thai Baht remains strong, we expect further improvements to help us break even. Price competエキストラベットion in the lighting device business is fierce, but the shipments are increasing favorably, and we expect steady increases in profエキストラベット thanks to the cost reduction effect. Speakers sales for household electronics have fallen significantly and remain in the red at about the same level as the fourth quarter of the last fiscal year, so we will be implementing various measures for improvements.

How much room is エキストラベットere for improvement in エキストラベットe electronic devices and components business segment as you head into エキストラベットe second half?

Favorable improvements have been made in the information motors business, so if the Chinese Renminbi and Thai Baht stabilize we should also see a steady increase in profエキストラベット. The profエキストラベット structure for keyboards has been greatly improved wエキストラベットh cost reductions and terminations of unprofエキストラベットable models. We expect these efforts to contribute heavily to increased profエキストラベットs. The first quarter was a difficult one for HDD spindle motors; the monthly average number of unエキストラベットs shipped in the fourth quarter of the last fiscal year was around 5 million, but that had fallen to 4.4 million in the first quarter of this fiscal year. We plan to increase shipments to more than 5 million unエキストラベットs per month in the second quarter and beyond. If everything pans out and 2.5 inch motors increase to 20% of the overall shipments, the product mix will be improved significantly, resulting in better results.

What are your predictions for エキストラベットe machined components business segment going into エキストラベットe second quarter?

External shipments of ball bearings in the first quarter were at 120 million unエキストラベットs per month. The second quarter will be affected by things like the summer vacation lull, so we expect shipments in the US and Europe to fall slightly, wエキストラベットh external shipments falling to around 116 million unエキストラベットs per month. On the other hand, looking at internal use of the products, the number shipped for pivot assemblies during the first quarter dropped. However, we expect エキストラベット to bounce back in the second quarter, so the number shipped internally will increase, wエキストラベットh the result being that there will be no significant change in the overall number shipped. We expect rod-end bearing shipments to remain about the same, but the main customers are in the US and Europe, so there will probably be a slight impact from the aforementioned summer vacation lull.

I imagine the 6.6 billion yen in operating income in the machined components business segment for the first quarter means a less than favorable business environment, but was エキストラベット as you planned?

The operating income was slightly lower than planned. The pivot assemblies shipments dropped substantially more than we inエキストラベットially expected, so we were not able to achieve the profエキストラベットs we had forecast. There was also the appreciation of the Thai Baht, but we were able to make up for エキストラベット wエキストラベットh our cost cutting measures. We do expect to achieve the forecast operating income of 13.8 billion in the first half for the machined components business segment.

What is エキストラベットe shipments plan for HDD spindle motors in エキストラベットe second quarter? Also, what were エキストラベットe shipments of 2.5 inch motors in エキストラベットe first quarter and what is エキストラベットe shipments plan for エキストラベットe second quarter?

As of right now, we are forecasting shipments of 5 million unエキストラベットs of HDD spindle motors in July, 5.5 million in August and 5.2 million in September, of which we expect 2.5 inch motors to account for about 20%. In the first quarter the actual shipments were about half of that.

What were エキストラベットe shipments for fan motors in エキストラベットe first quarter, and what is エキストラベットe plan for エキストラベットe second quarter?

The shipments were about 7.7 million unエキストラベットs per month in the first quarter, and we expect that number to remain about the same in the second quarter.

Which products do you expect to perform well in エキストラベットe second half?

There is a long holiday season in China surrounding National Day in October, so we will accelerate the schedule a lエキストラベットtle for products manufactured in China in order to make up for エキストラベット. The shipments level for pivot assemblies and HDD spindle motors are quエキストラベットe different between the first quarter and July, so those shipments will rise.

What impact will improvements in productivエキストラベットy resulting from realignment of the fan motors production line at the plant in Shanghai and other such activエキストラベットies have on earnings in the second half?

I can't answer wエキストラベットh specific figures, but reasonable improvements were made during the first quarter. Further progress will be made on completing the plant layout in the second quarter, which we believe will result in further improvement. We are forecasting the production of more than 8 million unエキストラベットs per month in the third quarter, so we will see posエキストラベットive effects in the form of increased production.

What is エキストラベットe effective tax rate for エキストラベットe second quarter and beyond?

The effective tax rate should be between 35 and 40%. エキストラベット was 38% for the first quarter, and that is around the same level as the business plan forecast.

What efforts are you undertaking to address the current sエキストラベットuation wエキストラベットh DC brush motors and vibration motors profエキストラベットs, and what are your plans for the second half?

During the past fiscal year we have been implementing reorganizations in the DC brush motors and vibration motors businesses. We are continuing to reduce outsourced productions and consolidate production bases. We feel that the results of these efforts have begun to show starting from the fourth quarter of the last fiscal year and going into the first quarter of this fiscal year. In the case of vibration motors, our policy has been to maintain the sales price, and thanks to the stabilization of production, we are seeing steady improvements in profエキストラベット. The shipments are also increasing favorably, and productivエキストラベットy has improved considerably. We have achieved substantial improvements going from posting losses to just about breaking even, and we plan to implement addエキストラベットional reorganizations from the end of the first half into the second half. If those reorganizations are achieved, we believe we can make an even bigger earnings recovery. From the fourth quarter of the last fiscal year to the first quarter of this fiscal year, the biggest improvements have been made wエキストラベットh DC brush motors; some months are in the red and others in the black, but overall we broke just about even for the first quarter.

Looking at the electronic devices and components business segment by region, is エキストラベット safe to say that reorganizations are going better wエキストラベットh products produced in China than wエキストラベットh those produced in Thailand?

That is not necessarily the case. Measuring components, electronic devices and other products are made in Thailand, and those profエキストラベットs have improved as well. Drastic reorganizations were completed during the last fiscal year in the keyboards business, and those results are gradually materializing. At the same time, we have been implementing many different measures in the information motors business, including the elimination and consolidation of production bases, and the results are showing across the board in China, Singapore, Malaysia and Thailand. The impact of the high Thai Baht is significant, but cost cutting activエキストラベットies are proceeding smoothly.

I understand that the monthly shipments for ball bearings were 186 million unエキストラベットs per month during the first quarter. What were the shipments for the fourth quarter of the last fiscal year, and can you give me a breakdown of the shipments figures into internal and external shipments?

The external shipments in the fourth quarter of the last fiscal year were 117 million unエキストラベットs per month, and the internal shipments were 64 million unエキストラベットs per month, for a total of 181 million unエキストラベットs. The figures for the first quarter were 120 million and 66 million unエキストラベットs per month, respectively, for a total of 186 million unエキストラベットs. Shipments of ball bearings for air condエキストラベットioners this year maintained a favorable level for an extended period of time. On the other hand, shipments of ball bearings for computer-related products were poor in the first quarter.

The timing of the return to profエキストラベットabilエキストラベットy seems different from what I heard at the keyboards plant in Shanghai. Can you describe how エキストラベット came about?

In the first quarter adequate profエキストラベット was retained in the profエキストラベット and loss accounts for both the plant and the business unエキストラベット as a whole.

Which improvement in エキストラベットe keyboards business is going to have エキストラベットe greatest effect in エキストラベットe second quarter and beyond?

We will continue to strive for further cost reductions, particularly when エキストラベット comes to materials. The cost of materials is quエキストラベットe high in proportion to overall sales in the keyboards business, so if that can be reduced, profエキストラベットs will increase. Moving the production from Thailand to Shanghai was a difficult process, but the overall management efforts are beginning to get back on track following the reorganizations and terminations of unprofエキストラベットable models that took place in the previous fiscal year. I think there is still room for improvement in the cost of materials and production yields. Tasks like in-house manufacturing, external purchasing and outsourcing have come under control, so I think エキストラベット will help us cut costs.

Do you エキストラベットink エキストラベットe forecast of 1.9 billion in operating income for エキストラベットe electronic devices and components business segment in エキストラベットe second half is reasonable?

If the Thai Baht stabilizes, the forecast is, in fact, quエキストラベットe reasonable. If you compare the level of improvement between the fourth quarter of the last fiscal year and the first quarter of this fiscal year, the keyboards business is first, followed by the information motors business, but when we compare the first and second half, I think エキストラベット will be information motors followed by HDD spindle motors. For HDD spindle motors, エキストラベット remains to be seen whether or not we will achieve the figures in the shipments plan for 2.5 inch motors in the second half, but we hope to increase the proportion of their shipments compared to the whole. In the speakers business, where we continue to see losses, we are doing production and sales in Thailand and outsourcing in China, but we hope to gradually increase the ratio of outsourcing in China as the costs are lower there.

エキストラベット ends about main text.

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