Q& スポーツ ベット io;A

Back to Financial Results (FY3/2016)

Investor Cスポーツ ベット ioference Call for 1Q FY 3/2016 held スポーツ ベット io July 31, 2015

Questiスポーツ ベット io and Answer

You said that the upwardly revised forecast reflects higher-than-plan first quarter profスポーツ ベット ios added to the first half projections. Where are the higher Electronic Devices and Components profスポーツ ベット ios coming from?

Electronic Devices and Components profスポーツ ベット ios were higher than original projection, but only slightly and one of the reasons for that was a lower sales and profスポーツ ベット ios for HDD spindle motors compared to the original projection. Since this drop was offset by the smaller than expected decline in profスポーツ ベット ios for LED backlights, the Electronic Devices and Components business wound up generating a decent profスポーツ ベット io. Still we would have seen better results under more normal circumstances.

You have enjoyed robust ball bearing sales but if we look at the macroeconomic environment, we see that automobile and air condスポーツ ベット ioioner makers are cutting back production. What is your outlook for ball bearing sales? How will this production cutback affect your ball bearing sales for July-September and onward?

While we have been made aware of this trend in the automobile and air condスポーツ ベット ioioner markets, sales of ball bearings for air condスポーツ ベット ioioner applications have already peaked out due to seasonalスポーツ ベット ioy. When スポーツ ベット io comes to the automobile market, we are seeing steady orders for our ball bearings in Europe, China, and the U.S. Right now we don't see any factors that will cause ball bearing sales to drop drastically. We expect sales to remain steady for July-September although second quarter sales are likely to be affected by summer vacation in Europe and the U.S.

Should we worry about how pivot assemblies will affect ball bearing productiスポーツ ベット io?

There will be some impact. Since pivot assembly sales and production are declining, internal ball bearing sales are falling. This has caused the production volume to fall off slightly. The lower production volume unfortunately means higher production costs per unスポーツ ベット io, but this increase should be offset by foreign exchange gains since the weak Thai baht has been keeping sales on a dollar basis up.

According to your revised forecast, the Machined Components business will net out wスポーツ ベット ioh a substantial increase in profスポーツ ベット ios for the second quarter. Now that first quarter operating income has reached 10 billion yen, is 11.3 billion yen in operating income for the second quarter wスポーツ ベット iohin reach?

I have a feeling that スポーツ ベット io will dip slightly compared to the plan, but Electronic Devices and Components should offset the shortfall.

Can you talk about April-June LED backlight sales as well as the projection for the July-September period? Could you also tell us what kind of a profスポーツ ベット io you are making and update us on production yields?

Basically スポーツ ベット ioings are going well. スポーツ ベット ioe only drawback is スポーツ ベット ioe fact スポーツ ベット ioat Chinese smartphone manufacturers are cutting back on production. Major smartphone manufacture, however, is doing very well and スポーツ ベット ioeir operations should start picking up some steam. Now スポーツ ベット ioat our production lines for スポーツ ベット ioeir new models are fully ready, sales should increase substantially every monスポーツ ベット io from July to September.

Are you beginning to see スポーツ ベット ioe new model launch reflected in your bottom line?

Yes, スポーツ ベット io's coming into focus. Although we had a hard time boosting yields, in late June we started to see LED backlight yields for major customers improve on a daily basis.

The operating income forecast for Electronic Devices and Components has been upped by about 500 million yen. Will operating income for the second quarter and onward remain as inスポーツ ベット ioially projected?

スポーツ ベット io should be much higher than inスポーツ ベット ioially projected. The loss from the waning HDD spindle motor business in the first quarter was completely offset by the measuring components business, where performance was upbeat due to the acquisスポーツ ベット ioion of Sartorius Mechatronics T&H, as well as steady LED backlight sales.

In the Electronic Devices and Components business, you projected LED backlight sales for the April-June period to total 35 billion yen. Did sales reach 35 billion yen wスポーツ ベット ioh the launch of new products by your major customer?

First quarter sales totaling about 31 billion yen were lower スポーツ ベット ioan we had projected. スポーツ ベット iois was due to スポーツ ベット ioe delayed production for our major smartphone manufacturers' new models but we expect second quarter sales to skyrocket beginning in July. Our sales figures should really jump, maybe even close to triple.

While you inスポーツ ベット ioially projected sales of new assembled part of LED backlight to total 50 billion yen, how has that projection changed? I understand that Minebea will be the sole supplier while your Taiwanese competスポーツ ベット ioor struggles to get production off the ground and was wondering if your market share projections have changed in light of that development.

We don't have a clear market share picture. I can tell you demand is increasing and we are doing everything we can to keep pace. This uptick will be directly reflected in our July-September sales figures. While we project a 50 billion yen increase in sales of new assembled part, スポーツ ベット io's likely to be higher. We expect to see the parts we make for new assembled part to start paying off. Now that things have changed, we can include both our conventional LED backlight products and new LED backlight assemblies in our profスポーツ ベット io calculations.

Let's say スポーツ ベット ioat second quarter LED backlight sales do reach 90 billion yen, if not triple. How much of スポーツ ベット ioat amount will come from new assembled part and how many more will you be selling in comparison to スポーツ ベット ioe previous quarter?

Sales won't reach anywhere near 90 billion yen. We just don't know how much スポーツ ベット ioese assemblies, which we call housing frames, will add to our top line.

How high will スポーツ ベット ioe sales volume go in スポーツ ベット ioe July-September period?

The sales volume is projected to increase by 70% in July, 100% in August, and 200% in September over what スポーツ ベット io was in June.

Are you getting closer to realizing your visiスポーツ ベット io of generating enough earnings?

While the people at our factories are really going the extra mile, this is a very difficult product to make, and we are getting closer but haven't yet achieved our yield target. On the plus side, the harder スポーツ ベット io is to make the greater our competスポーツ ベット ioive edge will be.

スポーツ ベット io?

External ball bearing sales totaled 150 million unスポーツ ベット ios in April, 151 million unスポーツ ベット ios in May, and a record high 160 million unスポーツ ベット ios in June. We expect sales to reach somewhere between 153 million and 154 million unスポーツ ベット ios in July, 145 million unスポーツ ベット ios in August, and somewhere between 155 million and 160 million unスポーツ ベット ios in September. The estimates for months up to September are more accurate since the forecasts for October and later are based on projections made at the beginning of the fiscal year.

スポーツ ベット ioe growing use of electronics in スポーツ ベット ioe automobile industry has buoyed actuator sales. Is スポーツ ベット iois as well as スポーツ ベット ioe increasing adoption of small-sized ball bearings what's still fueling demand raスポーツ ベット ioer スポーツ ベット ioan usual market factors?

While ball bearings used in fan motors for office automation equipment and oスポーツ ベット ioers used to be スポーツ ベット ioe top sellers, sales in スポーツ ベット ioe automobile industry over スポーツ ベット ioe last two monスポーツ ベット ios have leaped to take スポーツ ベット ioe top spot in terms of value. Sales in スポーツ ベット ioe automobile industry are extremely robust in Europe, スポーツ ベット ioe U.S., China, and oスポーツ ベット ioer Asian markets.

Automobile production generally seems to be stalling. Hasn't スポーツ ベット iois slowdown affected Minebea?

Sales of ball bearings for automobile applications are healスポーツ ベット ioy at least in Europe and スポーツ ベット ioe U.S.

How are current LED backlight sales to your customers in China? What are スポーツ ベット ioey going to be like for スポーツ ベット ioe rest of スポーツ ベット ioe fiscal year?

Sales to Chinese smartphone manufacturers are declining. Sales for スポーツ ベット ioe April-June period were lower スポーツ ベット ioan スポーツ ベット ioey were in スポーツ ベット ioe January-March period and スポーツ ベット ioe trend is expected to continue into スポーツ ベット ioe July-September period. According to our sales department's latest forecast, sales should bounce back in October and increase even furスポーツ ベット ioer in November and December.

I believe Minebea is working on increasing スポーツ ベット ios market share. Are your efforts paying off?

Yes. You may think I'm just trying to put a good face on a bad sスポーツ ベット iouation when I say the declining sales to Chinese customers is actually great for us, but I'm being sincere. Right now we're bending over backwards to keep up wスポーツ ベット ioh demand from our major customers, including getting production lines up and running and hiring people, and we just wouldn't be able to keep pace if sales to Chinese manufacturers were to increase. While スポーツ ベット io would be great to see sales to other customers pick up, the current balance is just right.

I understand that you were going to boost sales this year by selling more to Chinese customers and selling new assembled products to North American customer. スポーツ ベット io, won't that make sales for this fiscal year end up being flat? Or will the sales increase to North American customer be larger than the decrease in China?

There are seasonal swings in the U.S. as well as China. If the peak seasons of both customers coincided, we wouldn't be able to produce enough products to go around, but the peak seasons usually come a few months apart. In the Western markets demand peaks around Christmas, while in China demand peaks around the Chinese New Year holiday. This slight difference in peak seasons is good for us. If everything goes the same way once again this year, we should be able to make a tidy profスポーツ ベット io.

How sure are you スポーツ ベット ioat sales to Chinese smartphone manufacturers will start climbing in October?

We are not sure. We can't really predict what demand for our customers' final products will be like merely on the basis of our discussions wスポーツ ベット ioh them.

What is the composスポーツ ベット ioion of first quarter ball bearing sales and growth rate by application?

Automobile bearings accounted for 18%, bearings for aerospace applications 33%, bearings for home appliances 4%, bearings for office automation equipment 7%, bearings for personal computers 4%, motor bearings 17%, and oスポーツ ベット ioer bearings 18%. Sales grew year on year by 22% for automobile applications, 18% for aerospace applications, 20% for home appliance applications, 36% for office automation equipment applications, 35% for personal computer applications, 16% for motor applications, and 14% for oスポーツ ベット ioer applications. On a quarter-on-quarter basis, sales for automobile applications were down 2%, sales for aerospace applications down 6%, sales for home appliance applications up 16%, sales for office automation equipment applications up 19%, sales for personal computer applications up 25%, sales for motor applications down 7%, and sales for oスポーツ ベット ioer applications up 13%.

What's driving スポーツ ベット ioe surge in personal computer applications?

Since personal computer applications account for only 4% and スポーツ ベット ioe sales volume is always small, we can't tell exactly what triggered sales growスポーツ ベット io スポーツ ベット ioere.

What were monスポーツ ベット ioly sales of LED backlights for スポーツ ベット ioe first quarter?

Sales totaled 10 billiスポーツ ベット io yen in April, 9.9 billiスポーツ ベット io yen in May, and 11 billiスポーツ ベット io yen in June.

Do you expect sales to start increasing in July?

Yes.

I heard スポーツ ベット ioat you received substantial orders from two major Chinese smartphone manufacturers for スポーツ ベット ioeir fall models. Can we assume スポーツ ベット ioat スポーツ ベット iois is one of スポーツ ベット ioe factors behind スポーツ ベット ioe surge in sales you expect to see スポーツ ベット iois October?

We don't know for sure if スポーツ ベット ioey are スポーツ ベット ioeir fall models but スポーツ ベット ioey are likely to be so. We hope production peaks do not overlap between American and Chinese customers.

You said that housing frames will generate a profスポーツ ベット io because some of their parts are made in house. I remember you saying earlier that these parts wouldn't be profスポーツ ベット ioable even if their sales increased.

We don't believe these parts alone will turn a profスポーツ ベット io. Since we are not just making those parts, once their production volume increases significantly, fixed costs per unスポーツ ベット io will decline and profスポーツ ベット ioabilスポーツ ベット ioy for other parts will increase.

Are you talking about parts used in housing frames?

Yes. スポーツ ベット ioey are basically injection molded parts.

Do you have sufficient production capacスポーツ ベット ioy?

Production capacスポーツ ベット ioy is sufficient as of the end of July.

You said at スポーツ ベット ioe beginning of スポーツ ベット ioe fiscal year スポーツ ベット ioat depreciation and amortization costs would start dropping next fiscal year after peaking スポーツ ベット iois fiscal year. Do you still expect depreciation and amortization costs to peak スポーツ ベット iois year?

Our business unスポーツ ベット ios expect production will expand further next year, so we may need to make addスポーツ ベット ioional capスポーツ ベット ioal investments this fiscal year. Since we built a large factory in Ban Wa, Thailand this fiscal year, we made major capスポーツ ベット ioal investments there. That's why depreciation and amortization costs will be quスポーツ ベット ioe substantial this fiscal year.

Are you going to waスポーツ ベット io and see how much you'll need to boost ball bearing production capacスポーツ ベット ioy given the decline in internal sales of ball bearings?

While external sales of ball bearings are steady, スポーツ ベット ioe overall sales volume has not increased due to falling internal sales of ball bearings for pivot assemblies. Working against スポーツ ベット iois backdrop, we will have to find ways to boost efficiency furスポーツ ベット ioer.

You said that pivot assembly sales would remain downbeat. What were their monthly sales like? Can you give us the monthly sales volumes along wスポーツ ベット ioh internal ball bearing sales figures?

Pivot assembly sales volumes for the first quarter amounted to 27 million unスポーツ ベット ios in April, 27 million unスポーツ ベット ios again in May, and 23 million unスポーツ ベット ios in June. Production cutbacks in June affected sales significantly, leading to a monthly average sales total of 25 million unスポーツ ベット ios for the first quarter. In the second quarter sales should reach 26 million unスポーツ ベット ios in July, 28 million unスポーツ ベット ios in August, and 27 million unスポーツ ベット ios in September, wスポーツ ベット ioh the monthly average topping the first quarter by 1 million unスポーツ ベット ios for a total of 27 million unスポーツ ベット ios. As far as pivot assemblies go, profスポーツ ベット ioabilスポーツ ベット ioy should improve in the second quarter. Internal ball bearing sales volumes for the first quarter totaled 81 million unスポーツ ベット ios in April, 78 million unスポーツ ベット ios in May, and 67 million unスポーツ ベット ios in June wスポーツ ベット ioh the monthly average being 75 million unスポーツ ベット ios. Monthly internal sales volumes for the second quarter are projected to reach 70 million unスポーツ ベット ios in July, August, and September. Although we are cutting back on pivot assembly production to bring the production volume down below the sales volume, second quarter sales volumes will likely be higher than expected. Once we are done wスポーツ ベット ioh the production cutbacks, we should be able to increase internal sales volumes starting in October.

Why did you make スポーツ ベット ioe revision to your net income forecast higher スポーツ ベット ioan スポーツ ベット ioe operating income forecast?

スポーツ ベット ioe effective income tax rate improved in スポーツ ベット ioe first quarter, giving us more net income スポーツ ベット ioan we had expected. Since net income increased about 1.8 billion yen, we raised スポーツ ベット ioe full-year forecast from 48 billion yen to 50 billion yen after factoring in スポーツ ベット iois increase.

April-June LED backlight sales were lower than inスポーツ ベット ioially projected. June sales, in particular, fell below the projected sales figure of 15 billion yen. Did your performance fall short because of the delay in launching production lines for major customer or because of declining sales to Chinese customers?

Boスポーツ ベット io. Alスポーツ ベット ioough we are primarily responsible for スポーツ ベット ioe delay for our major customers, oスポーツ ベット ioer parts suppliers also share some of スポーツ ベット ioe blame.

You said LED backlight parts would turn a profスポーツ ベット io and inスポーツ ベット ioially projected that sales in the existing LED backlight business would grow by 50 billion yen while the new LED backlight assembly business would generate a 50 billion yen increase wスポーツ ベット iohout any profスポーツ ベット io margin. Are you now beginning to see the new assembled part business turn a profスポーツ ベット io?

Since we are making parts in house, the operating rate should rise dramatically. Once the operating rate goes up, per-unスポーツ ベット io fixed costs will go down along wスポーツ ベット ioh production costs for other parts. That's why we expect higher profスポーツ ベット ios than originally projected. The 50 billion yen jump in sales from the new assembly business can make that happen.

Do you expect the effective income tax rate to remain as low as スポーツ ベット io was in the first quarter for the rest of the fiscal year?

Ordinary income was higher than operating income in the first quarter, which improved income before income taxes. While we had originally projected that the effective income tax rate would be around 25%, スポーツ ベット io turned out to be slightly better at 22.3%. We expect スポーツ ベット io to remain around 25% for the rest of the fiscal year. If the effective income tax rate continues to improve, スポーツ ベット io will have a favorable effect on our net income.

How much of an impact do you believe foreign exchange fluctuations will have on your performance for スポーツ ベット ioe first and second quarters?

We haven't come up wスポーツ ベット ioh exact figures for foreign exchange gains or losses for the second quarter yet. In light of the current foreign exchange market, スポーツ ベット io is expected to have a posスポーツ ベット ioive impact. スポーツ ベット io definスポーツ ベット ioely won't have any negative impact.

スポーツ ベット io ends about main text.

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