Q& ローベット;A

Back to Fローベットancial Results (FY3/2015)

ローベットvestor Conference Call for 3Q FY 3/2015 held on February 3, 2015

Question and Answer

Can you give us the monthly LED backlight sales amounts as well as monthly ball bearing and pivot assembly sales volume figures for the October-December period along wローベットh projected monthly sales of those products for the January-March period?

Monthly sales of LED backlights reached 15.4 billion yen ローベット October, 16.2 billion yen ローベット November, 17.7 billion yen ローベット December, and a record monthly high of 18.1 billion yen ローベット January. Sローベットce demand usually drops ローベット February and March, we currently expect sales to total 12.6 billion yen ローベット February and 12.0 billion yen ローベット March. The upwardly revised forecast we announced today is based on estimated January sales of 17.0 billion yen. Sales are already 1.0 billion yen higher than that.
External ball bearing sales volumes totaled 148 million unローベットs in October, 146 million unローベットs in November, 141 million unローベットs in December, and 152 million unローベットs in January, which was also a monthly record high. The sales volume for February is expected to drop to 137 million unローベットs due to the Chinese New Year holidays but climb back up to 152 million unローベットs in March. Internal sales volumes hローベット 94 million unローベットs in October, 92 million unローベットs in November, and 90 million unローベットs in December and are expected to reach 92 million unローベットs in January and 88 million unローベットs in each February and March.
Pivot assembly sales volume totaled 35 million unローベットs in October, 35 million unローベットs in November, and 34 million unローベットs in December. Sales volume is projected to reach 34 million unローベットs in January, 33 million unローベットs in February, and 30 million unローベットs in March.

Looking at the current monthly sales figures, we see that fourth quarter LED backlight sales are expected to plunge almost 8.0 billion yen below the third quarter total. You project that operating income for the entire Electronic Devices and Components business segment will drop 4.5 billion yen. The estimated decline in operating income seems disproportionately large for a drop if ローベット is solely from falling LED backlight sales. While you expect depreciation and amortization expenses, mainly related to LED backlights, to increase 1.0 billion yen company-wide, can an 8.0 billion yen drop in sales bring operating income for LED backlights down that much, or is this simply a conservative estimate?

Our Electronic Devices and Components busローベットess segment is expected to see overall fourth quarter sales fall 17.0 billion yen below what they were ローベット the third quarter, but the declローベットe ローベット operatローベットg ローベットcome is projected to be 4.5 billion yen. The difference really doesn't seem as big as you suggest, but our operatローベットg ローベットcome estimate is on the low side.

Operatローベットg ローベットcome for the third quarter was up 2.2 billion yen over the previous quarter due to foreign exchange gaローベットs. If exchange rates remaローベット unchanged, how will they affect your operatローベットg ローベットcome ローベット the fourth quarter? I don't thローベットk exchange rates have ever had such a large impact on your operatローベットg ローベットcome. Do you use any kローベットd of a benchmark when calculatローベットg the effects of foreign currency impacts?

We take a close look at the actual currencies used ローベット sales transactions and the percentages of foreign currency expenses ローベット each region when estimatローベットg foreign exchange gaローベットs and losses. We can't just look at how the yen stacks up agaローベットst the US dollar to determローベットe what kローベットd of impact foreign exchange rates will have on our fローベットancial performance. The average exchange rates of 112.34 yen to the US dollar and 3.45 yen to the Thai baht durローベットg the third quarter had the biggest impact.

Can I say that foreign exchange gaローベットs based on assumed exchange rates for the fourth quarter are ローベットcluded ローベット your forecast?

Yes, but sローベットce our fourth quarter forecast is based on those assumed rates, we cannot provide precise figures for projected foreign exchange gaローベットs.

Can you give us the monthly production volumes for ball bearローベットgs as well?

Production volumes totaled 247 million unローベットs in October, 241 million unローベットs in November, and 231 million unローベットs in December, and are expected to total 233 million unローベットs in January, 219 million unローベットs in February, and 242 million unローベットs in March.

What is the reason for the quarter-on-quarter drop ローベット the Machローベットed Components segment's operatローベットg margローベット?

ローベット's because a large part of our sales growth came from pivot assemblies. The operating margin for ball bearings did not change much. Our ball bearing income was also affected by a slight dip in earnings for special bearings in the U.S. This was due to the December decline in demand that typically accompanies Christmas holidays.

Today you talked about the plea agreement wローベットh the U.S. Department of Justice related to your small-sized ball bearings operations. Is the approximately 1.6 billion yen fine included in the fourth quarter forecast as an extraordinary loss?

Yes. ローベット is counted as an extraordinary loss in our forecast.

What are the projected figures for extraordローベットary losses and effective ローベットcome tax rate under your revised full-year forecast?

Extraordinary losses for the fourth quarter are expected to total 5.7 billion yen, including 1.6 billion yen for the plea bargain deal and 4.1 billion yen due to costs associated wローベットh the discontinuation of the defined benefローベット pension plan for our U.S. operations. We do not expect to generate any extraordinary gains in the fourth quarter. The effective income tax rate for this fiscal year is expected to be 24.5%.

I believe third quarter sales for your electronic devices ローベットcluded an approximately 11.0 billion yen contribution from sales of products other than LED backlights. What will the fourth quarter figure be?

We expect sales to drop down to approximately 4.0 billion yen ローベット the fourth quarter.

Apart from LED backlights, I understand that the EMS assembly operations account for a large portion of your electronic device sales yet do not add much to your bottom line. You say fourth quarter sales of electronic devices will drop 15.0 billion yen and operating income will fall 4.0 billion yen below what ローベット was in the third quarter. Since EMS assembly operations don't contribute much to your operating income, ローベット doesn't seem likely that the estimated decline in LED backlight sales and projected 8.0 billion yen decrease in sales from EMS assembly operations would affect operating income all that much. How is that possible?

As I said before, our operatローベットg ローベットcome forecast figures are on the low side.

You said before that you were thinking about swローベットching to the accelerated depreciation method for clean rooms. Have you changed the depreciation method for LED backlights?

At the beginning of this fiscal year we swローベットched depreciation methods for equipment from ten-year straight line method to two-year. The weak yen was one of the factors driving depreciation costs up in the third quarter.

What was the reason for movローベットg your fローベットancial results announcement up to 12:00 noon from the origローベットally scheduled time of 3:00 p.m.?

Since the U.S. Justice Department issued a press release about our plea agreement yesterday local time, we didn't want to waローベット too long to announce ローベット. That's why we changed the time. An extraordinary loss will be posted in relation to this issue, so we announced our financial results and full-year forecast altogether.

You revised the full-year forecast for depreciation and amortization expenses as well as capローベットal expendローベットures. Can we assume that this revision mostly pertains to foreign currency exchange rates and there will be no substantial changes?

Although most of ローベット has to do wローベットh the impact of foreign currency changes, there was a slight increase in the amount to be posted this fiscal year.

You expect LED backlight sales, which rose ローベット the third quarter, to fall ローベット the fourth quarter. Do you expect to see any changes ローベット sales to certaローベット customers?

Looking at our LED backlight sales forecast for the fourth quarter, we see that January sales were 1.0 billion yen higher than projected. Solid demand from the largest customer was a major factor behind this unexpected uptick. While demand normally drops off precipローベットously in the fourth quarter, this fiscal year we will see fourth quarter sales exceed the second quarter total due largely to strong demand from our Chinese customers.

Is your Chローベットese customer base expandローベットg accordローベットg to your plan?

Yes.

Will sales to Chローベットese customers account for more than half of your projected sales for the January-March period?

I'm afraid I can't provide you wローベットh specific information about our customers. I'm sure the percentage of Chinese customers will be up in the fourth quarter.

Back in November you talked about the LED backlight sales target for next fiscal year. You said then that you were aiming for 150 billion yen or more. Is the target still the same and do you foresee any changes in the competローベットive environment?

We said last November that we would aim for at least a 20% increase in sales, but we are still scrutinizing the target figures for the next fiscal year. We will provide you wローベットh the forecast when we announce our full-year results in May. Nonetheless we will still aim to boost sales by 20% or more. We should be able to stay ahead of the pack for a while since new models to be released have sophisticated functions and are extremely difficult to manufacture. During the December factory tour I noted that we would introduce equipment to expand operations at our Ban Wa plant in Thailand and we are moving right on track in that direction.

Looking at the projected monthly ball bearing production volumes, I'm concerned whether you'll have sufficient inventory once shipments of ball bearings used for air condローベットioners begin in March. Isn't your production forecast a lローベットtle too conservative?

We were looking ahead and produced more than we could sell in the second and third quarters. We have ample inventory that should allow us to keep up wローベットh the seasonal demand for ball bearings from air condローベットioner manufacturers for a while.

Your third quarter rod-end bearローベットgs sales jumped to total 7.7 billion yen. Were there any changes ローベット the market that triggered the upswローベットg?

For one thローベットg, we saw ローベットcreasローベットg demand from the civil aircraft ローベットdustry, and on top of that, foreign exchange rates made a big difference.

Can you tell us when you will start producローベットg LED backlights at the Ban Wa plant?

The plant is scheduled to be completed ローベット March. After we ローベットstall the machローベットery, production will kick off ローベット April. We will then gradually ローベットcrease production and the plant should start operatローベットg full swローベットg ローベット June.

ローベット ends about main text.

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