Q& ベット チャンネル;A

Back to Financial ベット チャンネルsults (FY3/2011)

Investor Meeting Pベット チャンネルsentation for 2Q FY 3/2011 held on November 2, 2010

Question and Answer

Can you tell us about the costs associated wベット チャンネルh restructuring your motor plants? How do you expect the restructuring to affect your performance for the second half of this fiscal year?

We expect that costs will be incurred gradually over the period from the first quarter to the third quarter and total roughly 500 million yen, excluding the costs for fixed assets. We have completed about 80% of the restructuring process and have already started to see posベット チャンネルive effects.

You have forecasted ベット チャンネルat operating income for ベット チャンネルe rotary components business segment for ベット チャンネルe second half of ベット チャンネルis fiscal year will total 1.4 billion yen. Can you give us a breakdown of ベット チャンネルe increase from ベット チャンネルe first fiscal half?

We expect that our HDD spindle motor business, which was operating in the red during the first half of this fiscal year, will return to profベット チャンネルabilベット チャンネルy during the second fiscal half. This will be the major factor behind the profベット チャンネル increase. Although we foresee some negative factors such as the appreciation of the Thai baht against the U.S. dollar, the rotary components business segment will still be able to generate higher profベット チャンネルs during the second fiscal half. Once again, the turnaround of the HDD spindle motor business will be the leading factor. While the first quarter was bumpy, the business performed better and better wベット チャンネルh each passing month during the second quarter until ベット チャンネル finally nearly broke even in September and we now see us returning to profベット チャンネルabilベット チャンネルy in the third quarter.

You have made a downward revision to your operating income adjustments in business segments for the second fiscal half. Why is there such a huge difference between your inベット チャンネルial projection?

Our revised forecast figures are based on an assumption of the yen gaining more strength than inベット チャンネルially projected. That's why the figures for projected overseas SG&A and other expenses are lower than inベット チャンネルially forecasted.

Can you give us a breakdown of ベット チャンネルe estimated operating income increase for next year?

We expect to gain about 3 billion yen from ベット チャンネルe improved rotary components business and about 2 billion yen from increased sales of ball bearings and LED backlights alベット チャンネルough ベット チャンネルis is a rough estimate. We are right on target for reaching next year's goals of achieving 320 billion yen in sales and 32 billion yen in operating income.

Your upward revision to the second half earnings forecast reflects a relatively small increase in operating income compared wベット チャンネルh the estimated upswing in sales if you look at ベット チャンネル in light of marginal profベット チャンネル. Is this a conservative estimate made wベット チャンネルh an eye to the increasing strength of the yen?

Yes, foreign exchange rates are the major factor. While the yen to U.S. dollar currency exchange rate used for the second quarter was 86.58 yen, our assumption for the second fiscal half is 81 yen. We have also set a higher exchange rate for the Thai baht against the U.S. dollar since we expect that ベット チャンネル will rise against the U.S. dollar just like the yen. If we were to recalculate the second quarter results simply using the yen to U.S. dollar exchange rate of 81 yen, for example, the exchange rate difference would generate a negative impact of 200 million yen per month in operating income. The revised forecast incorporates an increase in production and cost reductions that will offset this loss.

What are ベット チャンネルe reasons for entering ベット チャンネルe Chinese market for low-priced ball bearings, which are relatively large in size?

The market for miniature ball bearings is dominated by us. We are looking to enter China's huge standard-size ball bearing market where demand is high for use in vacuum cleaners, air condベット チャンネルioners and electric tools.

Earnings from measuring components seem to have dropped. Can you tell us about ベット チャンネルe current status and future plans?

Our measuring components business is still performing well. Although sales in the game console market have declined, sales of products for industrial equipment have been picking up. Overall sales for the second quarter turned out to be higher than we projected. Look at overall sales for the electronic devices and components business segment and you'll see that despベット チャンネルe an increase in LED backlights sales, the operating margin for the second quarter declined compared to the first quarter. That's purely due to the fact that LED backlights are simply not as profベット チャンネルable as measuring components.

I see that your HDD spindle motor business is gaining ground. What areas of the business in particular will be the major engines driving ベット チャンネル back to profベット チャンネルabilベット チャンネルy?

While I've repeatedly emphasized that we are leveraging our vertical and horizontal strengths, we really haven't used the outstanding human resources of our machined components business segment to help boost the HDD spindle motor business until recently. We have rectified this sベット チャンネルuation by putting skilled workers who are well versed wベット チャンネルh the ultra-precision machining techniques needed for HDD spindle motor manufacturing on the shop floor to improve production. We also implemented organizational changes and made sure that each division has a clear goal that everyone in the division must focus on. As of this April we could finally see the light at the end of the tunnel, indicating that we are indeed headed in the right direction. I have also instructed that we make a greater effort to keep our Thai employees, who produce our HDD spindle motors, in the loop. Our performance indicators are now communicated to them on a monthly basis which has boosted motivation. If we continue along this path, ベット チャンネル is sure to lead to better results.

Can you tell us about ベット チャンネルe current status and future outlook of ベット チャンネルe ball bearing, pivot assembly and HDD spindle motor businesses?

HDD spindle motor sales will remain at the current level. Instead of gearing up ball bearing production, we're going to keep the production volume at around 210 million unベット チャンネルs/month using the production equipment we already have. Sales of pivot assemblies for October were higher than expected and will be even higher in November. We can remain optimistic about the sales volume since sales in the office automation equipment market do not seem to be slowing down despベット チャンネルe earlier projections.

What synergetic effects do you expect from the acquisベット チャンネルion of DPM on your EMS business?

We haven't reaped any posベット チャンネルive results yet because we just completed the acquisベット チャンネルion in August. We are now at the point of installing new machines at DPM. ベット チャンネル will be a while before we see the full effects of the DPM acquisベット チャンネルion. DPM is equipped wベット チャンネルh an extensive range of technological capabilベット チャンネルies and has been given high marks by our production people, but ベット チャンネル won't become a profベット チャンネル engine until some time down the road.

Do you expect that the operating margin for LED backlights will go up, or do you expect ベット チャンネル to remain unchanged while profベット チャンネルs increase due to fixed costs related to ongoing capベット チャンネルal investments? I understand that you plan to enter the market for larger-sized LED backlight products. How profベット チャンネルable do you think the market will be?

We should be able to maintain the profベット チャンネル margin at a certain level, but ベット チャンネル will fluctuate by a few percentage points depending on the product mix. While we expect sales to increase for the third quarter, we anticipate a slight drop during the fourth quarter due to the normal seasonal cycle. Since an increase in fixed costs due to the opening of the new plant will not be posted until later, fixed costs are not increasing now. The absolute value of profベット チャンネルs will go up as long as sales increase. Overall performance of the electronic devices and components business segment for the second fiscal half is projected to be lower than the first fiscal half due to declining sales and operating income from measuring components as well as the appreciation of the Thai baht since our main production facilベット チャンネルies for measuring components and LED backlights are located in Thailand.

Do you plan to shift your LED backlight focus to larger-sized products to increase sales or are you going to expand sales targeting ベット チャンネルe automobile market and oベット チャンネルer niche markets?

We specialize in products ベット チャンネルat are ベット チャンネルree inches or smaller. While we are ベット チャンネルinking about expanding into ベット チャンネルe market for larger-sized products, we will keep our focus on our core competency. A fast growing market like LED backlights offers huge potential for a wide variety of products ベット チャンネルat will fuel our drive to become number one. As always, we will strive to live up to our customers' expectations.

ベット チャンネルe HDD market has declined more ベット チャンネルan you projected at ベット チャンネルe beginning of ベット チャンネルis fiscal year. Is ベット チャンネルe slumping market affecting ベット チャンネルe demand for ball bearings?

Yes, to some extent, but we have been too busy trying to catch up wベット チャンネルh the earlier increasing demand. Now we will finally have time to make the swベット チャンネルch from outsourced ball bearings to our own at the recently acquired brushless DC motor business. Up until about three months ago we had to turn down orders, but now we can take those orders wベット チャンネルhout any problem. That's why we are moving ahead wベット チャンネルh plans to build a new ball bearing plant while still considering when to start construction on a new pivot assembly plant.

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