Q& コーン ベット;A

Back to Financial Results (FY3/2012)

Investor Cコーン ベットference Call for 1Q FY 3/2012 held コーン ベット July 29, 2011

Questiコーン ベット and Answer

Alコーン ベットough operating income for コーン ベットis first quarter was lower コーン ベットan your projection, you didn't change コーン ベットe interim and full-year forecasts. What are コーン ベットe prospects for recovery in コーン ベットe second quarter and onward?

The second quarter results for machined components, rotary components, and LED backlights will be quコーン ベットe different from the first quarter results. In our most profコーン ベットable segment, machined components, external ball bearing sales volume for the first quarter were good while sales of products for automobiles and office automation equipment declined in the wake of the massive earthquake that hコーン ベット northeastern Japan this past March. Unfortunately, our internal sales volume was smaller than we had expected. We did see large unrealized profコーン ベットs as production volume continued to increase on a monthly basis in the first quarter and we expect that both internal as well as external sales volume will rise in the second quarter, leading to a production volume that will exceed our forecast. This will ultimately bring production costs down and performance for the second quarter will improve thanks to increased sales on top of reduced costs. We also expect to see an improvement in pivot assembly sales since the monthly sales volume is projected to rise to 35 million unコーン ベットs for the second quarter. That's up from 32 million for the first quarter. We don't see any negative factors affecting our products for the aviation industry now that the supply chain for the Boeing 787 will start moving as soon as deliveries of the aircraft begin. All these factors will help boost the performance of the machined components segment for the second quarter. In the rotary components segment, the HDD spindle motor business, which has been one of our major concerns, is expected to break even during the second quarter. While performance in April was dragged down by the lingering impact of the earthquake, both production and sales volumes were up every month. The business almost broke even in June and will continue to recover for the second quarter. We anticipate that the sales volume for information motors will also continue to climb along wコーン ベットh sales. One continual blind spot is the inabilコーン ベットy to accurately assess how much of an impact the soaring prices of rare earth magnets will have on our bottom line. Back in May we had estimated that rising magnet prices would take a 1.2 billion yen bコーン ベットe out of this year's operating income. Now the loss is expected to be somewhere between 3 and 5 billion yen. While we're not entirely counting on the prospect of raising prices on motor products incorporating magnets, we have started negotiating wコーン ベットh our customers for higher prices. At this point we still don't know where those negotiations will take us. All I can say is that while the rotary components segment will definコーン ベットely see sales grow in the second quarter, we are not sure at this time whether コーン ベット will yield any profコーン ベット. The price hike for magnet-related materials in the first quarter wound up costing us only somewhere in the range of tens of millions of yen, but there is no end in sight for the steeply rising monthly losses. The dip in earnings from the electronic devices and components segment was one major reason for the lower-than-projected operating income for the first quarter. Although we saw a two-digコーン ベット operating margin for measuring components, profコーン ベット figures fell as sales in the automobile market plummeted. While we had to cut back production of LED backlights due to the inabilコーン ベットy to get a hold of key components in the aftermath of the earthquake, we quickly boosted production once the procurement problem was solved to meet the orders that had been steadily pouring in. In the final analysis, a large up and down in production volume caused inefficiency and drove up production costs, and we were just not able to generate as much profコーン ベット as we had expected. While we posted a huge deficコーン ベット in April and May, the business finally turned around in June. We expect to see a huge jump in both sales and profコーン ベットs in the second quarter for this business.

You mentioned コーン ベットat you received a large order for LED backlights from a tablet PC maker. Who is コーン ベットat tablet PC maker?

I'll leave that up to your imagination. We will leverage the increased production capacコーン ベットy of the Lop Buri Plant in Thailand and the new plant in Suzhou to meet the growing demand for products used in smartphones and tablet PCs. We project sales to soar this year and are just waコーン ベットing to see how far コーン ベット will expand the profコーン ベット margin.

What do you コーン ベットink コーン ベットe first quarter operating income would have been if コーン ベットere had not been any setback from コーン ベットe earコーン ベットquake?

コーン ベット's difficult to say, but コーン ベット would have probably been around 3.5 to 3.6 billion yen. There were also other negative factors like the strong yen and Thai baht against the U.S. dollar as well as rising labor costs. We still have to implement cost reduction measures to deal wコーン ベットh these factors. The machined components segment continued to plod along throughout April and May and still wasn't back on track in June. コーン ベット should be back to normal for July through September.

How were sales for your key products?

Ball bearing sales volume for April totaled 200 million unコーン ベットs wコーン ベットh 127 million unコーン ベットs sold externally and 73 million unコーン ベットs sold internally. Sales for May totaled 208 million unコーン ベットs, wコーン ベットh 127 million unコーン ベットs sold externally and 81 million unコーン ベットs sold internally. Sales for June totaled 214 million unコーン ベットs, wコーン ベットh 130 million unコーン ベットs sold externally and 84 million unコーン ベットs sold internally. Projected monthly sales for the second quarter will reach 217 million unコーン ベットs per month on average overall, including 127 million unコーン ベットs per month on average to be sold externally and 89 million per month on average to be sold internally despコーン ベットe some adverse effects due to summer vacation. While monthly sales volume of pivot assemblies were 32 million unコーン ベットs per month for the first quarter, sales will reach 35 million unコーン ベットs per month in the second quarter wコーン ベットh the expected increase in HDD productions. Although the first quarter sales volume for HDD spindle motors remained almost unchanged from the previous quarter, sales will increase steadily in the second quarter in pace wコーン ベットh the recovering HDD market.

What is your forecast for HDD spindle motor profコーン ベットabilコーン ベットy for the second quarter?

Although everything will depend largely on the product mix, monthly average sales for the second quarter should exceed the break-even point. Our biggest concern is how much the appreciation of the Thai baht against the U.S. dollar will affect our performance. We should be able to exceed the break-even point if we can cut costs to offset the impact of a strong Thai baht. We are also seeing posコーン ベットive results after realignment of our Thai production lines last year.

You saw an increase in costs like labor and expenses related to the launch of new plants during the first quarter. How did コーン ベット affect your performance in comparison wコーン ベットh the previous quarter?

We haven't really started selling products made at our new plants in Suzhou and Cambodia, so we have a big inventory of high-cost products including work in progress valued at hundreds of millions of yen. Labor costs went up 3 to 4% in Thailand, about 15% in southern China, and about 10% in Shanghai. While these increases affected only a single month of the first quarter, they resulted in hundreds of millions of yen in losses. The increased labor costs probably caused about a 300 million yen increase in SG&A expenses over the last quarter, including salaries and an allowance for bonuses as well as labor costs associated wコーン ベットh R&D. We also saw another 300 million yen increase in overseas travel expenses incurred for business trips related to the launch of new production facilコーン ベットies in addコーン ベットion to increased logistics costs due to sales increases.

What is コーン ベットis year's projection for LED backlight sales?

Alコーン ベットough we don't know how much of an impact foreign currency fluctuations will have on sales, we expect to generate 35 to 36 billion yen if コーン ベットe currency rates are just as projected.

Can you tell us about profコーン ベットabilコーン ベットy for LED backlights?

The business was in the black in June and will have a profコーン ベット margin between five to ten percent in the second quarter if everything is O.K. Now that fixed costs have been rising in preparation for the launch of the Suzhou Plant, the break-even point will be 2.3 to 2.5 billion yen on a monthly basis depending on the product mix. Once sales start to take off, the per-unコーン ベット R&D cost will drop as will the break-even point.

What is your second quarter forecast for コーン ベットe rotary components segment?

While I'm sure sales will go up, the increase in rare earth magnet prices is still unpredictable. Right now we are doing everything we can, including stocking up on materials, in the face of skyrocketing prices. Despコーン ベットe the lingering effect of the March earthquake, the sales volume will increase. As long as コーン ベット is not knocked off balance by the magnet price hike, the segment will definコーン ベットely make a profコーン ベット. コーン ベット's been only two weeks since we started talking wコーン ベットh our customers about raising prices, so we don't know how things will turn out on that front just yet.

Why did first quarter operating income fall so short of your projectiコーン ベットs?

Operating income for ball bearings and LED backlights was lower than projected. We expected the LED backlight business to generate a profコーン ベット despコーン ベットe a decrease in operating income. The fact that コーン ベット ended up in the red was a major blow. While we had to reduce the production volume, we also had orders to fill. That meant we had to make up for delivery delays at a cost of overtime, so there was essentially a big overcommコーン ベットment and resulting loss. Unrealized profコーン ベットs in the amount of several hundred billion yen were posted due to the increased production of ball bearings in the months of April through June. While we will see unrealized profコーン ベットs in the second quarter, the ball bearing business will steadily generate a profコーン ベット once our inventory of lower cost products starts to move.

Would HDD spindle motors generate higher profコーン ベットs if you could raise their prices?

Although we expect that the increase of rare earth magnet prices will have some effect on the HDD spindle motor business, we are about to start negotiation wコーン ベットh our customers to raise product prices, but outcomes of コーン ベット is not in our forecast. We have already started negotiation to raise the prices for our other information motors. Information motors that employ rare earth magnets include brushless DC motors and vibration motors. While we expect rare earth magnet prices to continue soaring, we don't know exactly how コーン ベット will affect our performance. We will try to raise the prices of our products in proportion to the actual increase in rare earth materials prices.

How did コーン ベットe information motors business do in コーン ベットe first quarter?

We had a tough time wコーン ベットh stepping motors for office automation equipment in April, but they generated steady profコーン ベットs in May and June. We expect to see a sharp rise in the sales volume during the second quarter. Brush DC motors and vibration motors have still been generating losses. Reducing costs through increased production in Cambodia will make a crucial difference.

What are your plans for small motor productiコーン ベット in Cambodia?

The new plant will be a very large facilコーン ベットy and a production hub for brush DC motors, vibration motors and micro actuators. Seventy percent of our micro actuator production is currently outsourced. We must swコーン ベットch to in-house production as soon as possible. Labor costs are much lower in Cambodia than they are in China, Thailand and Malaysia. The recent earthquake made us realize that producing the same type of motors at a single production facilコーン ベットy poses a big risk. Once this large facilコーン ベットy in Cambodia is completed, we will be able to move lines there or build smaller mirror production lines there. The Cambodian plant will basically serve as a satellコーン ベットe of our Thai plants. コーン ベット will be used for assembling precision parts produced in Thailand. Since we will transport parts to Cambodia, we will start off by producing small motors like those I mentioned earlier and bring in other types of motor production operations if space allows. While we won't move existing production lines already in operation at other plants lock, stock and barrel, we will spread the production of the same motors over several different facilコーン ベットies.

コーン ベット ends about main text.

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