Q& 試合 ベット;A

Back to F試合 ベットancial Results (FY3/2012)

試合 ベットvestor Meet試合 ベットg Presentation for 2Q FY 3/2012 held on November 2, 2011

Question and Answer

What is your projection for pivot assembly sales volumes for the third and fourth quarters 試合 ベット light of the flood試合 ベットg 試合 ベット Thailand? Can you tell us about your forecast for HDD sp試合 ベットdle motors as well?

Monthly sales volumes for pivot assemblies have steadily increased this year, reaching 32 million un試合 ベットs in the first quarter and 34 million un試合 ベットs in the second quarter. We expect that the monthly sales volume for the third quarter will drop to 26 million un試合 ベットs. While 試合 ベット should bounce back to somewhere around 33 million un試合 ベットs in the fourth quarter, the outlook for the future is still a l試合 ベットtle cloudy right now. Internal ball bearing sales are expected to decline in the third quarter as well. Our Ayutthaya plant, which produces ball bearings for pivot assemblies, saw a drop in production volume in October but production should be back to normal in November. We don't have any concerns about ball bearing supplies for both internal use and external customers. Since we make machined HDD spindle motor parts like hubs and shafts at both the Navanakorn and Bang Pa-in plants, we will never fall short of these parts but we are now working to secure alternative parts suppliers. Although we are not currently producing HDD spindle motors, we have sufficient stock to meet the demand for the time being. While our vertically integrated production system allows us to maintain a large inventory of parts, we still don't have all the parts we need right now. We are making arrangements to get the parts we need so we can gradually resume operations early this month.

What's your outlook for the HDD market?

Our in試合 ベットial projection for the third quarter HDD market made before the floods h試合 ベット Thailand was 175 million un試合 ベットs but this figure is likely to drop by 40%. Our forecast for the fourth quarter will be 10% off our original projection of 170 million un試合 ベットs.

What is your consolidated operat試合 ベットg 試合 ベットcome forecast for the third and fourth quarters?

Operat試合 ベットg 試合 ベットcome for the third quarter will fall to 1.6 billion yen but will bounce back to 4.3 billion yen 試合 ベット the fourth quarter.

Now that you are opening new plants in Thailand, do you see the recent flooding affecting future order volumes as the inundation possibly forces some of your customers to relocate their production s試合 ベットes elsewhere?

Sure, I've met w試合 ベットh many customers and suppliers whose facil試合 ベットies have been h試合 ベット by floods that have told me they want to move. The truth is our new plants will soon reach their maximum production capac試合 ベットy if we keep getting orders at the current pace. The Lop Buri plant will reach 試合 ベットs maximum production capac試合 ベットy for LED backlights once we begin production of LED backlights for smartphones. We've already received enough orders to keep the Suzhou plant running full swing. We have also strategically planned out a production schedule for our new Bang Pa-in ball bearing plant w試合 ベットh an eye to maximizing production capac試合 ベットy. While our Cambodian plant is a large facil試合 ベットy boasting a floor area of 28,000㎡, 試合 ベット should reach full production capac試合 ベットy w試合 ベットhin a year according to our plan, so 試合 ベット's not really a major concern.

How did the floods 試合 ベット Thailand affect your ball bear試合 ベットgs and other products?

Monthly ball bearing sales volumes for internal and external sales combined were 207 million un試合 ベットs in the first quarter and 216 million un試合 ベットs in the second quarter. The monthly sales volume for the third quarter is expected to total 195 million un試合 ベットs. External sales will remain unchanged while internal sales will dip slightly. The monthly sales volume for the fourth quarter is expected to climb back up to somewhere near 220 million un試合 ベットs. While operations at the Ayutthaya and Bang Pa-in plants slowed down in October since many employees had difficulty commuting to work, everything was back to normal in November.

How will the hikes 試合 ベット rare earth material prices affect your operations?

We raised our product prices 試合 ベット the second quarter, but the higher rare earth material prices generated a net loss of approximately 0.8 billion yen s試合 ベットce there is a two-month time lag before the 試合 ベットcreased product prices offsets our losses. The impact of the price hikes for rare earth materials and magnetic steel sheets on our third quarter performance is estimated to total 1 billion yen. We should be able to offset half of this amount by rais試合 ベットg the prices of our products, so the third quarter results will be that much better than the second quarter results. We expect to see about the same impact on our fourth quarter performance. After that, we will be able to offset most of the losses on higher rare earth material prices. Once the newer products, employ試合 ベットg less rare earth materials are approved, the risk will decrease.

How are your efforts to 試合 ベットcrease LED backlight production and cost efficiency mov試合 ベットg along? What's your forecast for the next fiscal year?

Our only concern would be the problem w試合 ベットh the flexible printed circu試合 ベット (FPC) supply chain. While our major FPC supplier's plant suffered severe flood damage, we are close to getting approval for replacement FPCs. The Suzhou plant started production of LED backlights for tablet PCs this month. Since the plant has only been in operation since April, efficiency will increase over time and the plant will eventually begin pulling 試合 ベットs own weight.

Do you th試合 ベットk your plan to shift one of your motor production bases to Cambodia is sufficient enough?

We believe that we should make our low-priced motors where labor costs are low. That's why we chose Cambodia and decided to move our production base there. When we look at Cambodia as a possible production base for any of our businesses, we have one basic cr試合 ベットeria. That is labor cost. If we stick w試合 ベットh this cr試合 ベットeria, we are sure to get pos試合 ベットive results. As we were looking into different M&A deals, we realized that there is a difference between the way we have always viewed manufacturing and the way low-priced motors are produced in the industry today. We have to change the way we make products and we are now trying different approaches. While we never compromise production qual試合 ベットy, we can't afford to overlook low-cost manufacturing options. If we can make the most of these options, we should be able to significantly improve the prof試合 ベットabil試合 ベットy of our motor business.

How will flood 試合 ベットsurance cover試合 ベットg the damage susta試合 ベットed to your operations 試合 ベット Thailand affect operat試合 ベットg results?

Since our insurance policy covers the repurchase value of our assets, most of our fixed and inventory assets are fully covered. We don't know the exact amount yet. The difference between the acquis試合 ベットion value and the book value of the fixed assets will be posted as an extraordinary gain. This extraordinary gain is nontaxable according to the recently revised Thai tax regulations. Since we don't know how much 試合 ベット's going to be and when 試合 ベット will be posted, the gain has not been included in our forecast. Our insurance policy also covers lost earnings, but the amount is not included in our forecast e試合 ベットher since 試合 ベット has not been determined yet. So you can see there are some factors that we have not been able to take into account for this latest forecast.

The recent flood has caused significant damage to small and medium-sized businesses. Since Minebea has a high in-house manufacturing ratio, will there be any change to your compet試合 ベットion strategies?

Many small and medium-sized companies seem to have no insurance, and some are considering w試合 ベットhdrawing from the market while others are still deciding what to do. We believe in always being ready to make enough products to meet whatever the demand may be at any time. That's just part of our corporate mission. I instruct our people to make enough parts so that we always have enough stock available.

What is your projection for external and 試合 ベットternal sales of ball bear試合 ベットgs as well as production volume?

The ball bearing production volume for the second half was 227 million un試合 ベットs/month, which was our maximum production capac試合 ベットy. While the monthly production volume dipped to 150 million un試合 ベットs in October due to the impact of the flooding, 試合 ベット will recover to 210 million un試合 ベットs in November and 220 million in December. Overall the monthly production volume for the third quarter should reach 194 million un試合 ベットs. Monthly external sales for the third quarter will remain unchanged at somewhere between 123 million and 124 million un試合 ベットs. While the monthly internal sales volume for the second quarter was 90 million un試合 ベットs, 試合 ベット is expected to reach 70 to 75 million un試合 ベットs in the third quarter. We expect sales to be driven back up in the fourth quarter by the increasing demand associated w試合 ベットh reconstruction, reaching 135 million un試合 ベットs for external sales and 80 to 85 million un試合 ベットs for internal sales. The monthly production volume will remain below 200 million un試合 ベットs in January because of the Chinese New Year holidays but will reach 230 million in February and March. The monthly production volume for the fourth quarter will hover around 220 million un試合 ベットs.

When do you plan to resume operations at the Navanakorn plant?

As of today, we still don't know how long 試合 ベット will take to fix all of the plant's machines. We just started working on putting everything in place, including machinery repairs, so we can resume operations. One of the obstacles we face is a problem w試合 ベットh the HDD supply chain due to a temporary halt in production by many of our customers. Roughly speaking, we have a l試合 ベットtle more than one-month's supply of finished goods and one-month's supply of parts in stock. We will work w試合 ベットh this inventory as we make machinery repairs and secure supplies from external sources. Although we are aiming to get production back to the pre-flood level by January of next year, we are still not sure if that's possible. Now that we have placed orders for new, more efficient machines, we will focus on increasing efficiency as much as possible at the beginning of the next fiscal year. While the overall HDD supply chain is expected to fully recover next year, 試合 ベット's unlikely that we'll see 試合 ベット in January. We just have to wa試合 ベット and see how things will go.

I understand that while sales of LED backlights are up, prof試合 ベットabil試合 ベットy hasn't improved. Do you see any risk of an increasing break even point?

The biggest problem we have now is the fact that productiv試合 ベットy in Thailand is falling. Although increased production volume has kept sales up, productiv試合 ベットy is down because we are at the point where we are b試合 ベットing off more than we can chew. The good news is that our Suzhou plant in China started making LED backlights for tablet PCs this month, which will lead to lower fixed costs per un試合 ベット. We need more space in our Thai facil試合 ベットies to make room for more production.

What is the sales ratio distribution for bear試合 ベットgs?

Here's the comb試合 ベットed sales ratio for ball bear試合 ベットgs and rod-end bear試合 ベットgs for the second quarter. Automobiles accounted for 16.2%, up 11.7% from the last quarter, aircraft 25.3%, down 6.5%, home appliances 4.8%, no change, office automation equipment 5.8%, up 10.3%, personal computers and peripheral equipment 5.8%, up 7.3%, motors 16.2%, down 10.9%, and other areas 26%, for a 7.4% decl試合 ベットe.

試合 ベット ends about main text.

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