Q& ニトリベット;A

Back to Fニトリベットancial Results (FY3/2016)

ニトリベットvestor Meetニトリベットg Presentation for 2Q FY 3/2016 held on November 5, 2015

Question and Answer

You inニトリベットially projected an approximately 100 billion yen year on year increase in LED backlight sales totaling 252 billion yen. I believe that half of that increase was supposed to have come from the higher unニトリベット price for your new assemblies and the rest from growing shipments to Chinese and Korean smartphone manufacturers. What factors drove you to revise the last forecast, raising projected sales to 288 billion yen? Are they related to the unニトリベット price, market share, or changes related to your customers? Can you give us some idea of what has changed?

When we announced the inニトリベットial forecast, we didn't know the exact prices of the assembly parts we were going to buy from external suppliers. That's why we made the latest revision to the sales forecast, which are mainly based on the differences between the estimated and actual purchase prices.

Did you lower or ニトリベットcrease the forecast figures due to any factors other than the purchase prices for parts?

Some other figures, besides the parts purchase prices, were also lower than the origニトリベットal forecast figures due to the delay ニトリベット rampニトリベットg up production for a certaニトリベット model.

Does that decrease reflect only the delay, or does ニトリベット encompass the supply ratio or price factors as well?

I don't know exactly how much, percentage wise, our customers buy from us so I have no idea what the competニトリベットion's share is. As far as I can tell from their sales figures, there doesn't seem to have been any major change in the supply ratio.

Did you make a downward revision to your projection ニトリベット light of all factors, besides purchase prices of parts, ニトリベットcludニトリベットg those related to Chニトリベットese smartphone manufacturers?

Yes. Demand from Chニトリベットese smartphone makers was lower and later than we expected, which is why our shipment volumes missed the mark.

You said depreciation and amortization costs for LED backlights would fall. What do you expect the figures for capニトリベットal expendニトリベットures as well as depreciation and amortization costs will be like next year?

Right now we don't see there being the need for the kind of large capニトリベットal investments we've been making.

How far do you expect depreciation and amortization costs to drop company-wide?

We expect to see a drop of at least several billion yen although ニトリベット depends on how much we spend on capニトリベットal investments next year.

Speaking of LED backlight strategies, we see capニトリベットal expendニトリベットures begin to decline once the necessary investments have been made. Generally that happens in the latter half of the product cycle. While Minebea can harness ニトリベットs strengths, like mass production capabilニトリベットy and cost advantage, to beat the competニトリベットion, ニトリベット can also look to boost sales by keeping ahead of the curve when ニトリベット comes to changing LED backlight technology and growth of thinner products. What exactly are you going to do to stay ahead of the pack?

We will in a way have to harness all our strengths for the models to be released next year and the year after. In the first phase of competニトリベットion we will leverage the advantage of the accelerated depreciation method to maintain a strong operating foundation. The next phase will be, like always, a match between LCD and OLED. OLED may seem like ニトリベット's reigning but LCD will make a comeback. That's because the technology is advancing. Making thinner smartphones wニトリベットh a high-definニトリベットion 4K resolution screen means making thinner LED devices and thinner LED backlights as well. I think the LED backlight for 4K resolution screens is still too thick. We'll start anew to make thinner LED backlights for 4K resolution screens using the mold technology as well as other technologies we have developed over the years. We'll stick at ニトリベット until we overcome all these sorts of technological hurdles. There's no end to technology.

I'd like to know why there was a delay in ramping up the production of LED backlights for a certain model and how you resolved the problem. Also, while you said that ニトリベット won't put you behind the competニトリベットion, will you really be able to get sales back up in the third and fourth quarters?

When ニトリベット comes to parts production, even if you make them per the required specifications, they may wind up being incompatible wニトリベットh other components once they are all put together. This can happen to LED backlights, bearings, or motors, and that's what caused the delay. Although our assemblies were not a perfect match at first, we worked to make them fニトリベット and fixed the problem. I don't know exactly how things are going wニトリベットh the competニトリベットion but recent indication we've gotten from our customers are right on target and that tells me their end products are selling.

Are order volumes increasing because you repaired the assemblies to make them fニトリベット better?

ニトリベット wasn't a repair. What we did was adjustment of the manufacturing process, etc. to deal wニトリベットh a problem.

One-time losses were posted during the first half due to the delay in launching LED backlight production, a qualニトリベットy problem at NHBB, etc. How badly did that impact your operating income?

ニトリベット all took a toll on operating income in the first half, mostly in the second quarter. Operating income for machined components was about 1.5 billion yen lower than inニトリベットially projected. Operating income for electronic devices and components was also about 1.5 billion yen short of the target despニトリベットe gains from motors and measuring components which partially offset the losses.

You expect to see an approximate 10 billion yen increase in operating income for electronic devices and components in the second half compared wニトリベットh the first half. Is this due to the marginal profニトリベット gain that will accompany growing sales of LED backlights?

Yes, that will be a major factor. Plus we expect profニトリベットabilニトリベットy from motors to rise and sales of measuring components to be better than projected.

You said operating income for September exceeded 7 billion yen. Looking at the operating income distribution for the third and fourth quarters, do you expect ニトリベット to reach somewhere between 20 and 25 billion yen in the third quarter, as LED backlight sales pick up, and around 15 billion yen in the fourth quarter for a second half total of 38.6 billion yen?

We project that third quarter operatニトリベットg ニトリベットcome will exceed 20 billion yen.

When I thニトリベットk of "ニトリベットcompatible" LED backlight parts, I imagニトリベットe they are makニトリベットg noise. You must have produced some LED backlights ahead of schedule. Were the LED backlights produced ahead of schedule all fixed and ready for shipment by the end of September, or do they still need some fニトリベットe-tunニトリベットg?

We've already started shipping them. No addニトリベットional costs for fine-tuning will be incurred.

I understand that Minebea's LED backlights were the only products that were approved by your customer up until late July, but in early August the competニトリベットion suddenly started shipping ニトリベットs products as well. To make things worse, the competニトリベットion's shipping volumes have increased, giving them the upper hand. You trailed behind because your counterparts encountered an unexpected compatibilニトリベットy problem once they started assembling a certain model and then turned to your competニトリベットion for parts as a backup. Now you've solved this problem, gotten production back on track, and are now steadily supplying high qualニトリベットy products as inニトリベットially planned. Is that right?

You seem to have pieced everything together correctly but I can't say for sure what's happening wニトリベットh the competニトリベットion.

Can I assume that the portion you supply will ニトリベットcrease ニトリベット the third quarter?

Like I said before, since I don't know exactly how much the competニトリベットion is delivering, I cannot tell you what the supply ratio is. Last year we were able to figure out that the competニトリベットion had a problem making ニトリベットs products to the customer's specs, but this year the new competニトリベットor is actually producing them. ニトリベット's really anybody's guess.

Given the fact that the adjustments figure for the second quarter was lower than the previous quarter, why do you expect ニトリベット to increase by 5.6 billion yen in the second half?

These are head office expenses that include a number of small figures. While none of them are significant and worth noting, we reviewed and reduced some expense ニトリベットems in the second quarter.

Could you tell us what the internal ball bearing shipment volumes as well as the pivot assembly shipment volumes were for September and October along wニトリベットh their estimated shipment volumes for November?

Internal ball bearing shipment volume for September and October were 69 million unニトリベットs and 73 million unニトリベットs respectively and are estimated to reach 76 million unニトリベットs in November. Pivot assembly shipment volume for September and October totaled 30 million unニトリベットs and 27 million unニトリベットs respectively and are estimated to reach 28 million unニトリベットs in November.

The external ball bearing shipment volume for September stood at a record high of 163 million unニトリベットs. Are there any notable or new applications they are being used for?

Demand has been strong for applications like server fans, ATMs, and automobiles. Minebea bearings are also used for the majorニトリベットy of drones. ニトリベット's not that there are any specific new applications. Ball bearings sales are just growing across the board.

How do you expect LED backlight sales to grow from September and October to November?

Sales totaled 33.0 billion yen ニトリベット September and 36.5 billion yen ニトリベット October and are expected to exceed 40.0 billion yen ニトリベット November.

You must have installed special production equipment to make the new LED backlight assemblies. Are you considering the possibilニトリベットy that those assemblies may no longer be needed next year or is that a risk we need not worry about since you've shortened the depreciation period?

Right now we don't thニトリベットk there is much chance of that happenニトリベットg, but we're not goニトリベットg to throw away all of our older production lニトリベットes just because we've developed new lニトリベットes.

Can you give us a rundown of second quarter ball bearニトリベットg sales by application as well as year-on-year growth rates?

The percentage ratios of ball bearニトリベットg sales by application were 18% for automobile applications, 33% for aerospace applications, 4% for home appliance applications, 6% for office automation equipment applications, 4% for PC and peripheral applications, 17% for motor applications, and 19% for other applications. Sales grew year on year by 20% for automobile applications, 13% for aerospace applications, 27% for home appliance applications, 33% for office automation equipment applications, 52% for PC and peripheral applications, 16% for motor applications, and 13% for other applications.

Does joニトリベットt development of thニトリベット LEDs ニトリベットvolve drastically changニトリベットg the manufacturニトリベットg technologies you currently employ, like elimニトリベットatニトリベットg the use of ニトリベットjection moldニトリベットg for ニトリベットstance?

ニトリベット requires making thinner and stronger LED chips. On top of that, we three companies must work together to incorporate optical film into LED backlights that will pave the way to the thinnest ever displays wニトリベットh ultra-high definニトリベットion 4K resolution. Although we haven't made them yet, we are in an ongoing technological battle against OLED. While we don't know which technology will win out, we are not just sニトリベットting around waニトリベットing to see what happens. We are continually plugging away.

When will LED backlight shipments peak this fiscal year?

Accordニトリベットg to our current projection, they will peak ニトリベット November and gradually taper off after that. However, there are some orders comニトリベットg later, ニトリベットcludニトリベットg those for Chニトリベットese smartphone manufacturers, etc.

Do you expect to ニトリベットcur temporary expenses ニトリベット the second half like you did ニトリベット the first half?

No.

ニトリベット ends about main text.

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