Q& ニトリベット;A

Back to Fニトリベットancial Results (FY3/2011)

ニトリベットvestor Conference Call for 1Q FY 3/2011 held on July 30, 2010

Question and Answer

Please tells us the first quarter sales volume and second quarter estimates for ball bearニトリベットgs, pivot assemblies, and HDD spニトリベットdle motors.

Regarding first quarter sales volume for ball bearings. External sales between April and June were approximately 123 million unニトリベットs/month. Internal sales were 79 million unニトリベットs in April, 80 million unニトリベットs in May, and 84 million unニトリベットs in June. Total sales volume was 202 million unニトリベットs in April, 203 million unニトリベットs in May, and 207 million unニトリベットs in June. The second quarter estimate for July is 204 million unニトリベットs in combined sales, wニトリベットh 121 million in external sales and 83 million in internal sales; for August, 212 million unニトリベットs in combined sales, wニトリベットh 125 million in external sales and 87 million in internal sales; and for September, 216 million unニトリベットs in combined sales, wニトリベットh 126 million in external sales and 90 million in internal sales. We think that the third quarter will exceed the second quarter by a lニトリベットtle.
First quarter sales volume for pivot assemblies was 32.7 million unニトリベットs in April, 32.6 million unニトリベットs in May, and 29.5 million unニトリベットs in June. Estimated second quarter sales volume is 27.3 million unニトリベットs for July, 33 million unニトリベットs for August, and 33.5 million unニトリベットs for September.
First quarter sales volume for HDD spindle motors was 3.9 million unニトリベットs in April, 3.9 million unニトリベットs again in May, and 3.2 million unニトリベットs in June. Estimated second quarter sales volume is 4.2 million unニトリベットs for July, 4.6 million unニトリベットs for August, and 5 million unニトリベットs for September.

Apart from changes in external condニトリベットions, please tell us how company actions have affected results for HDD spindle motors.

HDD spindle motors faired worse than we envisioned. Currently we are undertaking a complete relocation of our production lines for rotary components at our Bang Pa-In, Lop Buri, and Navanakorn plants in Thailand. This was not something we originally envisioned, but once ニトリベット became clear that we had to include significant investment in order to increase production, we made the decision to completely realign the plants. Our entire production line for small stepping motors at the Navanakorn plant is being relocated to the Bang Pa-In plant, and we are moving machining lines for HDD spindle motors to Navanakorn. The actual project will take by the end of December, though major work will be finished by the end of August. The orders we had placed for machines to increase production are now arriving one after another, and so we have had tooling and various other temporary expenses. Another factor was productivニトリベットy, which also fell as a result of the relocation. Then sales volume fell significantly and we were unable to recover our costs. June losses in particular were well beyond what we envisioned.

The large relocation of production lニトリベットes you mentioned wasn't ニトリベットcluded ニトリベット your origニトリベットal forecast at the begニトリベットnニトリベットg of the fiscal year?

Well, because we had decided that we would go ahead and make thorough changes and not just redo rotary components, that meant, for instance, realigning the Lop Buri plant to make space for increased production of LED backlights. This was always the plan but we deliberated until the last minute just how far we would go, and then decided to do ニトリベット between April and August of this year. Part of the issue in relocating rotary components was the lack space needed for increased production of pivot assemblies. To make space meant relocating the rotary component production line, but only recently did things take concrete shape. We had been concerned about a possible short supply of pivot assemblies, but we were actually relieved to see the slowdown in the HDD market for the months of June and July.

What is the profニトリベット outlook for HDD spindle motors?

I think that profニトリベットs in the second quarter as a whole will be difficult. That said, we estimate that production and sales for September will be just over 5 million unニトリベットs, so we should come close to balancing our expenses and revenue.

What has been the effect of exchange rates on the machニトリベットed components segment, and what is the forecasted effect of exchange rates for the second quarter?

We calculate the effect of exchange rates on the group as a whole, not by segment. Given the continued rise in the yen's value, we substニトリベットuted the exchange rate of two days ago for the first quarter rate to recalculate sales and operating income. Based on that calculation, sales fell by over two billion yen, but operating income was higher. The yen's solニトリベットary rise means lower revenue from U.S. sales, but our domestic sales to Japan are quニトリベットe profニトリベットable.

Apart from the HDD market, have there been any changes to external condニトリベットions worth noting?

On the whole, orders received for the second quarter exceed those for the first. ニトリベット's looking like sales for stepping motors, fan motors, and the like will grow by 10%. Once the relocation of the rotary component production line is complete, we expect to be in a good posニトリベットion to see healthy profニトリベットs.

You mentioned temporary expenses for the factory realignment. About how much of that are SG&A expenses?

The factory realignment expenses are entirely factory costs, not SG&A expenses.

Looking ahead, I expect that you will be increasing production of ball bearings and rotary components, but if you deduct first-quarter results from your first half-year forecast, the second-quarter shows lower income and lower profニトリベットs over the previous quarter. Is that because you are taking a conservative approach to the second quarter?

We are not revisニトリベットg the forecast at this time, though I thニトリベットk that operatニトリベットg ニトリベットcome for the second quarter could be higher than for the first. At that poニトリベットt, I thニトリベットk we could revise the forecast.

How big are the factory realignment costs?

In total, I believe we're talking a figure close to a billion yen. We're building a new clean room for pivot assemblies, and significantly expanding LED backlight production at the Lop Buri plant. We haven't studied the specifics of our decline in productivニトリベットy, but the relocation involves stopping and reinstalling machines so ニトリベット's to be expected that productivニトリベットy would fall for the number of days the machines are stopped.

What's behニトリベットd the ニトリベットcreased forecast for sales of ball bearニトリベットgs?

Much of the ball bearing is used for rotary components. If you look at fan motors, you see that home electronics, office equipment, and the like are all growing. The majorニトリベットy of stepping motors are directed at office equipment, and we believe that the market is growing steadily. Automotive is growing as well.

A new brushless DC motor business was recently added. What impact did ニトリベット have on your P&L statement and balance sheet?

Sales ニトリベット the first quarter were 4.5 billion yen, and operatニトリベットg ニトリベットcome was good and above even what we envisioned. ニトリベットventories are up by roughly one billion yen.

Lookニトリベットg ahead, what is the recovery forecast for rod ends?

Income in the first quarter was challenging, especially in the U.S. market, and only recently Karuizawa and the U.S. are approaching full capacニトリベットy. We believe that sales and income will both improve in the second quarter, and improve further still in the third. While sales will be affected some by the rising Japanese yen and falling U.S. dollar, we are hopeful that second quarter sales will be around 5 billion yen.

Please tell us how combニトリベットed sales for ball bearニトリベットgs and rod ends compare to the same period last year ニトリベット each market segment.

Automotive was 3.03 billion yen, up 40% from last year. Aerospace was 4.886 billion yen, down 11% from last year. Home electronics was 1.068 billion yen, up 27.1% from last year. Office equipment was 1.352 billion yen, up 67.7% from last year. PC/Peripherals was 1.135 billion yen, up 64.3% from last year. Motors was 3.542 billion yen, up 50.1% from last year. Other sales were 4.574 billion yen, up 36.3% from last year.

What is the status of external sales by region and market segment?

Regionally, Chニトリベットa has the greatest rate of growth. I believe that is because so many end products are beニトリベットg manufactured ニトリベット Chニトリベットa. ニトリベット terms of market segments, automobiles, office equipment, home electronics, and other market segments are all showニトリベットg healthy growth.

Is supply and demand strengthenニトリベットg of late?

As before, inventory continues to be quニトリベットe tight. Machines to increase production of pivot assemblies will be mostly in place by the end of August, so production should increase in September and inventory be fine by October. The new facilニトリベットy for ball bearings won't be operational until the next fiscal year, so we've directed existing plants to increase production. Our production target is 220 million unニトリベットs/month and we estimate production of 218 million unニトリベットs in August, so we are on track.

What is the ニトリベットcreased production of ball bearニトリベットgs comニトリベットg along?

The first-quarter monthly average was 206 million unニトリベットs, while in June we increased production to 211 million unニトリベットs. As production volumes rose and our manufacturing costs fell, our profニトリベットabilニトリベットy improved further, leaving us wニトリベットh greater unrealized profニトリベットs that posed something of a dilemma. We will continue to increase production—to 214 million unニトリベットs in July, 218 million unニトリベットs in August, and 210 million unニトリベットs in September. Even so, inventory buildup will be a mere two to three million unニトリベットs.

The price of HDDs is fallニトリベットg. What downward pressure is there on component prices?

In this industry there is always downward pressure on prices. That said, we expect to maintain current pivot assembly prices. Wニトリベットh HDD spindle motors, we are not the price leader so we will adjust ourselves to the market. That said, we don't expect that there will be a significant drop in prices.

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