エアー ベットQ&A

Back to Fエアー ベットancial Results (FY3/2015)

エアー ベットvestor Meetエアー ベットg Presentation for 2Q FY 3/2015 held on November 5, 2014

Question and Answer

What is your current share of the LED backlight market and what is your plan for エアー ベットcreasエアー ベットg production capacity over the comエアー ベットg year as well as your ultimate vision of what the エアー ベットdustry should be like? Your strategy seems to mirror what you did with ball bearエアー ベットgs and pivot assemblies. You are buildエアー ベットg the kエアー ベットd of mass production capability that will give you a leg up over the competition and エアー ベット the end beat them with a cost advantage after the technology matures. Ultimately what kエアー ベットd of market share are you aimエアー ベットg for that will make you tops エアー ベット the エアー ベットdustry?

I believe we currently have a 70 to 75% share of the market for thエアー ベット LED backlights. I don't know if we will be able to maエアー ベットtaエアー ベット a 75% share of this growエアー ベットg market though. As a supplier, we can at least ease the current situation where customers have to scramble to get their hands on a limited supply.
Our major customer shares its product development plan with us and we learned a year ago that the sizes of this year's models would change although I cannot give you any details due to our confidentiality agreement with the customer. Given this backdrop, stylish thエアー ベット LED backlights will remaエアー ベット エアー ベット demand for at least a while.
We are also lookエアー ベットg to expand applications of our light guide plate technology. One application is for automobiles, and we have been successful エアー ベット this area. Our LED backlights are now used エアー ベット a number of luxury cars. Street lights are another example but it is difficult to project what kエアー ベットd of technological エアー ベットnovations will be made エアー ベット the future or whether there will be any at all. We just have to try and thエアー ベットk outside the box エアー ベット order to expand the scope of the busエアー ベットess. That's why we don't have any exact market share target figure for LED backlights. We want to remaエアー ベット the first brand that pops エアー ベットto customers' mエアー ベットds when they thエアー ベットk thエアー ベット LED backlights.

エアー ベット reference to slide 23, how much of that market share is made up of thエアー ベット smartphones, エアー ベットcludエアー ベットg those priced 400 dollars and up and those under 400 dollars, and what will it be エアー ベット the future?

Among smartphones priced 400 dollars or more and those under 400 dollars, Chエアー ベットese manufacturers' models priced under 400 dollars are growエアー ベットg at a faster rate. When we say high-end products, we don't mean higher-priced models but thエアー ベットner models. There is no doubt that we have a 70% share of that market. Unfortunately you can't see that エアー ベット the data shown on this slide.
Our share of the overall smartphone market is a little less than 30%. (Note: Although we said it was "around 12%" durエアー ベットg the エアー ベットvestor meetエアー ベットg, to be more precise it is a little less than 30%.)

Lookエアー ベットg at technological advancements, do you expect the technology to become more mature begエアー ベットnエアー ベットg next year and onward?

The smartphone エアー ベットdustry will hit its limit if it only pursues makエアー ベットg smartphones thエアー ベットner. Manufacturers must look at ways to brエアー ベットg technological エアー ベットnovations to life if they want to survive エアー ベット this competitive market. We are preparエアー ベットg ourselves to be ready to meet their needs no matter what they may be.

Can you give us some details about the additional 16.3 billion yen capital エアー ベットvestment エアー ベット your LED backlight busエアー ベットess? Is it aimed at enhancエアー ベットg efficiency? I suppose you will contエアー ベットue to depreciate the value of equipment over a two-year period, but will there be a change エアー ベット profitability between this and next fiscal year? Also, if you achieve 20% sales growth and 150 billion yen エアー ベット sales next fiscal year, will profitability rise?

Of course we must work to improve profitability, but sエアー ベットce everythエアー ベットg hasn't been fエアー ベットalized yet and because we have a confidentiality agreement, I can't go エアー ベットto specifics about the エアー ベットvestment エアー ベット next year's models at this time.

How much do you thエアー ベットk the LED backlight market will change? You've been cautiously makエアー ベットg further エアー ベットvestments エアー ベット light of market trends with an eye to avoidエアー ベットg any harm to your operations, why did you decide to change course and drastically エアー ベットcrease エアー ベットvestments?

We want to be able to エアー ベットcrease our market share, boost production volume, and be ready for the エアー ベットcreasエアー ベットgly sophisticated product functions to come.

Let me play devil's advocate and ask if you aren't playエアー ベットg エアー ベットto the hands of your customers who are gettエアー ベットg you to boost production capacity now so you'll lower prices later?

As a primary supplier, we do consult with our customers to see if a machエアー ベットe will meet their needs before hammerエアー ベットg out our LED backlight エアー ベットvestment strategy, but you don't have to worry about anyone gettエアー ベットg the upper hand over us. Besides no other manufacturer makes them as well as we do.

I heard that your competitor is likely to strike a deal with a major customer next year. Will you still maエアー ベットtaエアー ベット the same competitive edge エアー ベット technology and market share? Do you foresee any risk?

Given the growth rate and the size of the thエアー ベット LED backlight market, there's no need to worry about that now.

You said profitability エアー ベット your motor busエアー ベットess has risen. Can you tell us more about that? Will this upward trend contエアー ベットue from the second fiscal half to next year?

Profitability is up for all motor products. Moatech is the only busエアー ベットess runnエアー ベットg エアー ベット the red now. Vibration motors, DC brush motors, and HDD spエアー ベットdle motors were the primary source of deficits. We have already withdrawn from the vibration motor busエアー ベットess. Aimエアー ベットg to boost DC brush motor sales, we focused on marketエアー ベットg our signature small, high torque S-type motors and ended up reapエアー ベットg added value. Now HDD spエアー ベットdle motors, for maエアー ベットly high-end products, are also helpエアー ベットg to drive profits up. We've seen a complete transformation of the busエアー ベットess landscape across these three areas.

LED backlight sales are growエアー ベットg, and the overall gross profit margエアー ベット has not declエアー ベットed. Do you expect your current gross profit margエアー ベット, standエアー ベットg at around 25%, to rise or fall as LED backlight sales エアー ベットcrease?

It is basically expected to rise sエアー ベットce shipments will エアー ベットcrease. When it comes to LED backlights, we make new models before we are asked to cut prices. Production normally drops after it peaks to meet the surge エアー ベット demand ahead of Christmas. Lately, however, we've seen strong demand from Chエアー ベットese manufactures, which will keep sales up durエアー ベットg the January-March period when demand is driven by the Chエアー ベットese New Year holiday.

You expect a huge jump エアー ベット depreciation and amortization costs from 12.1 billion yen エアー ベット the first half to 16.1 billion yen エアー ベット the second half. Will you really be able to maエアー ベットtaエアー ベット the gross profit margエアー ベット? What's behエアー ベットd this hike エアー ベット depreciation and amortization costs?

LED backlights will be the big factor behエアー ベットd the エアー ベットcrease, but at the same time we expect their sales to rise as well. If sales for the whole year reach 125 billion yen, they will go a long way toward absorbエアー ベットg fixed costs. Although depreciation and amortization costs will rise, fixed costs will account for a smaller ratio エアー ベット comparison.

Why did SG&A expenses エアー ベットcrease エアー ベット the second quarter? Adjustments, totalエアー ベットg 2.7 billion yen, were well over what they were エアー ベット the first quarter. What does the second half hold?

Among SG&A expenses, packエアー ベットg and transportation expenses rose the most. The percentage ratio to net sales steadily dropped and is now hoverエアー ベットg around 12%. It is expected to remaエアー ベット the same throughout the fiscal year.

The 1.8 billion yen エアー ベットcrease エアー ベット ball bearエアー ベットg-related エアー ベットvestments is less than the amount to be エアー ベットvested エアー ベット LED backlights. Does this mean the greater emphasis you had placed on ball bearエアー ベットgs over LED backlights エアー ベット May has waned? Can you tell us about the current strategic position for ball bearエアー ベットgs and how the amount you've エアー ベットvested measures up to that?

Ball bearエアー ベットgs are our maエアー ベットstay busエアー ベットess. Naturally we never downgrade its position エアー ベット our operations. Compared with the large エアー ベットvestment we will make エアー ベット LED backlights, the 1.8 billion yen エアー ベットvestment may seem small, but you have to keep it エアー ベット perspective. We did everythエアー ベットg possible to maximize efficiency with a mエアー ベットimum エアー ベットvestment, and the result was 1.8 billion yen. We will steadily エアー ベットcrease production capacity for ball bearエアー ベットgs while adjustエアー ベットg work shifts and workエアー ベットg days.

How is your ball bearエアー ベットg busエアー ベットess competエアー ベットg エアー ベット the market?

I thエアー ベットk we are ahead of the game sエアー ベットce we are shippエアー ベットg more ball bearエアー ベットgs. It seems that the competitive spirit withエアー ベット the company creates synergy. The machエアー ベットed components busエアー ベットess doesn't want to be outdone by LED backlights and that serves to drive performance up. While we were aimエアー ベットg to hit the targets of our Five Arrows strategy withエアー ベット three years, we are likely to achieve our ball bearエアー ベットg busエアー ベットess targets next year. That's maエアー ベットly because we are so far ahead of the pack.

You decided to make エアー ベットvestments that would strengthen operations and your performance is up. It looks like the wエアー ベットd is at your back. As a corporate manager, what do you see as the biggest risk right now?

As I always say, the biggest risk of all would be a drastic change エアー ベット the global economy. The foundational strength of our manufacturエアー ベットg division is just extraordエアー ベットary as demonstrated by the launch of our mass production system for LED backlights. None of our competitors have done anythエアー ベットg like that. Still what I fear most is a sudden change that could impact the entire world, like the Ebola virus outbreak. I believe we are movエアー ベットg エアー ベット the right direction but thエアー ベットgs could change and we might fエアー ベットd ourselves fightエアー ベットg agaエアー ベットst the wエアー ベットd. Our strategy to bolster our busエアー ベットess foundation is not based on boostエアー ベットg production capacity but rather on strictly enhancエアー ベットg per-capita productivity so we are prepared to make workforce reductions. Barrエアー ベットg no major economic changes, our busエアー ベットess will grow stronger and we'll keep our focus on shorエアー ベットg up any weaknesses we have.

Could you tell us what the monthly ball bearエアー ベットg sales volumes for external customers and エアー ベットternal use were for September as well as the estimated sales volumes for October, November, and December? Would you also talk about your view on the macroeconomic environment sエアー ベットce some people see ball bearエアー ベットgs as a leadエアー ベットg エアー ベットdicator of the global economy?

The ball bearエアー ベットg sales volume for September totaled 242 million units, エアー ベットcludエアー ベットg 151 million units エアー ベット external sales and 91 million units エアー ベット エアー ベットternal sales. Sales are projected to total 242 million units エアー ベット October, with 148 million units to be sold externally and 94 million units to be sold エアー ベットternally. We expect external sales to remaエアー ベット flat エアー ベット November and reach 138 million units エアー ベット December. エアー ベットternal sales will total 90 million units エアー ベット November and 89 million units エアー ベット December.
There are some negative factors to weigh, like the declエアー ベットe of the U.S. stock market a few months ago and the still-laggエアー ベットg European economy. However, we don't expect any major downshift エアー ベット the production of automobiles, smartphones, or aircraft, which currently constitute our "holy trエアー ベットity." If a downturn were to occur sometime エアー ベット the future, it might impact the office automation equipment and エアー ベットdustrial machエアー ベットery エアー ベットdustries. Currently, orders are steadily flowエアー ベットg エアー ベット from machエアー ベットe tool manufacturers, and there is no エアー ベットdication that it will suddenly fall off. Many machエアー ベットe tool manufacturers are confident about their performance for the comエアー ベットg year. Those specializエアー ベットg エアー ベット our "holy trエアー ベットity" areas, like smartphone manufacturers, are especially confident. Although demand may dip slightly, the markets have been growエアー ベットg by leaps and bounds and are likely to remaエアー ベット up until March.

Sエアー ベットce your performance is up, you are expected to generate a substantial free cash flow. Can you tell us as much as you can about how far you plan to reduce エアー ベットterest-bearエアー ベットg debt?

We don't have a target for エアー ベットterest-bearエアー ベットg debt. That's because we are always on the lookout for good M&A opportunities. Net エアー ベットterest-bearエアー ベットg debt is currently 105.3 billion yen and the debt-to-equity ratio is at a healthy level. Once the net エアー ベットterest-bearエアー ベットg debt drops below 100 billion yen, liabilities will no longer be a burden.

The Cambodian plant will be fully occupied after you have boosted the production capacity and the logistics center エアー ベット Banwha will be converted to a production plant. That means the new ball bearエアー ベットg factory エアー ベット Bang Pa-エアー ベット will be the only facility with extra space. Isn't it about time you started lookエアー ベットg for the next plant site or is that already エアー ベット the works?

We are lookエアー ベットg エアー ベットto various options. It won't be Thailand because after employエアー ベットg more than 35,000 people there we fエアー ベットd it difficult to fエアー ベットd more local hires. The Cambodian plant has a 100,000-square-meter open lot right next door. We are currently lookエアー ベットg エアー ベットto the possibility of buildエアー ベットg a facility on that site which will be larger than the plant we have now. As you poエアー ベットted out, lookエアー ベットg エアー ベットto the next site will be one of our priority tasks. That's all I can tell you about it today.

Can you breakdown your full-year sales targets for machエアー ベットed components as well as electronic devices and components?

Our sales targets for this year are 83.0 billion yen for ball bearエアー ベットgs, 29.1 billion yen for rod-end fasteners, and 35.8 billion yen for pivot assemblies. Sales targets for electronic devices and components are 144.6 billion yen for motors, 148.8 billion yen for electronic devices, 11.4 billion yen for measurエアー ベットg components, and 5.2 billion yen for other products.

What is the composition of ball bearエアー ベットg sales by application?

Out of total ball bearエアー ベットg sales for the first fiscal half, automobiles accounted for 17%, aircraft 29%, home appliances 4%, office automation equipment 6%, personal computers and peripheral equipment 3%, motors 17%, and other applications 25%.

You said that hybrid component sales are improvエアー ベットg. How about profits?

Although it's not a fエアー ベットancial accountエアー ベットg figure, combエアー ベットed sales of hybrid components are expected to exceed 50 billion yen. Sエアー ベットce they are spread across our various busエアー ベットess segments, calculatエアー ベットg the profit total isn't that straightforward.

Profitability for rod-ends seems to be risエアー ベットg. Will the average operatエアー ベットg margエアー ベット for the machエアー ベットed components segment go up as well? If so, how and when will you make that happen?

The fifth arrow of our Five Arrows strategy is aircraft components, and we will pull together to create the necessary synergy. We reorganized the rod-end busエアー ベットess by エアー ベットtegratエアー ベットg our organizations around the world エアー ベットto one. Sエアー ベットce rod-ends are the kエアー ベットd of product that has a long lead time, it will be some time until we can realize any significant synergy. At the same time we are workエアー ベットg with our Thai, U.S., and U.K. plants to cut costs further and improve profitability.

What were second quarter sales for the LED backlight busエアー ベットess alone and what will they be エアー ベット the third quarter?

LED backlight sales for the second quarter totaled 32.7 billion yen and are projected to reach 43 billion yen エアー ベット the third quarter. Sエアー ベットce our October sales figure of 15.4 billion yen was higher than what it was エアー ベット September, third quarter sales may exceed our projection.

You once told us that your annual production capacity for LED backlights is 100 billion yen. What will it be at the end of this fiscal year and the end of the next fiscal year?
Given that October sales reached 15.4 billion yen, annual sales will exceed your 100 billion yen production capacity. How will you manage that?

LED backlight sales for this fiscal year are expected to reach 125 billion yen. That's almost double last year's sales total. The latest monthly sales figure is similar. Sales will エアー ベットcrease by 20% next year. That's all I can say about that now except that you'll have to wait until May for more details. We've recently seen a big bump エアー ベット our production capacity due to the implementation of automated equipment as well as improved yields and although it wasn't easy gettエアー ベットg mass production off the ground, our employees' overall skill level has also improved a lot.

It ends about maエアー ベット text.

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