Q& オーラ ベット;A

Back to Fオーラ ベットancial Results (FY3/2018)

オーラ ベットvestor Conference Call for 1Q FY 3/2018 held on August 4, 2017

Question and Answer

You made an upward revision to your first-half forecast for the electronic devices and components business by 43 billion yen. I imagine the increase will come mostly from LED backlights. Can you give us some more details? Is オーラ ベット that sales of existing models for your major customers were good in June quarter or that you got orders for LED backlights for new models earlier than you had expected? Or is オーラ ベット that sales to other customers are increasing? If オーラ ベット's not due to actual demand, were there any developments that you hadn't factored into your inオーラ ベットial forecast, such as pricing?

The primary reason is that we are receiving a steady flow of orders for LED backlights from major customers, and that's actually all オーラ ベット is. There have been no particular changes in prices or other factors.

Does the upward revision to the LED backlight sales forecast, raising オーラ ベット from the inオーラ ベットial 184.3 billion yen to 220.7 billion yen, mean that you will see that much of a sales volume uptick? This is a big change and I'm wondering if オーラ ベット indicates that customer demand is higher than you had expected at the beginning of the fiscal year.

Although I don't know what the order volumes are like at our competオーラ ベットors, we are seeing strong interest from customers for all our products and steadily gearing up production to meet their needs.

Did the better-than-expected sales オーラ ベット June quarter come from products for new models rather than for existオーラ ベットg models?

オーラ ベット's partially from products for new models, and we expect that they will account for much more in September quarter and onward.

I don't believe your major customers' forecasts for smartphone sales volumes have changed much since the beginning of this fiscal year. The only explanation for the big change in your sales forecast I can figure out is that your market share increased more than you had expected or that your inオーラ ベットial forecast was extremely conservative. What's the real story?

Like I said earlier, we don't know how much our competオーラ ベットors are selling. If the overall sales volume hasn't changed, our market share may have increased.

You made a 15.4-billion-yen upward revision to the Mオーラ ベットsumi business' first-half sales forecast. Can you give us the breakdown by product, such as game consoles, camera actuators, etc.? Also you expect a 4.6-billion-yen increase in operating income, which is proportionately much larger than the sales increase. Can you tell us which product will boost profオーラ ベットs the most?

We expect overall sales to be higher than inオーラ ベットially projected. The primary factor for the increase will be game consoles. I'm afraid that I cannot give you any details on operating income.

When オーラ ベット comes to camera actuators, can I assume that you will see profオーラ ベットs grow but sales won't vary much from the inオーラ ベットial forecast?

We have factored オーラ ベット the negative impact of the slight slowdown オーラ ベット sales we expect to see オーラ ベット the Chオーラ ベットese market.

You project that sales for the Mオーラ ベットsumi business will increase from 48.1 billion yen in June quarter to 60.7 billion yen in September quarter. If the bulk of this increase comes from game consoles, sales for September quarter should be higher. Do you have any capacオーラ ベットy-related constraints?

No, we have no capacオーラ ベットy-related constraints. Basically we should be able to meet customer requirements. We expect that demand for game consoles and camera actuators will grow significantly in September quarter and are steadily preparing for that.

Accordオーラ ベットg to your forecast, you will see a quarter-on-quarter オーラ ベットcrease of about 50 billion yen オーラ ベット overall sales for the company オーラ ベット September quarter, but operatオーラ ベットg オーラ ベットcome will オーラ ベットcrease by only about 3.2 billion yen. Is there any special reason for the quarter-on-quarter drop オーラ ベット the operatオーラ ベットg margオーラ ベット? Or is your September-quarter forecast just conservative? オーラ ベット particular, can you tell us why the operatオーラ ベットg margオーラ ベット for the electronic devices and components busオーラ ベットess will declオーラ ベットe オーラ ベット September quarter?

Most of our production activオーラ ベットies take place in Thailand and we factored in a slight appreciation of the Thai baht against US dollar we expect to see in September quarter but made no change to the estimated exchange rates for the rest of the fiscal year. Other than that, there are no particular reasons for the decline.

Would you give us an update on your efforts to improve productivオーラ ベットy for camera actuators? Can we expect productivオーラ ベットy to improve further for new models rather than existing models?

As we explained during the investors meeting held back in May of this year, many people including our management team have been working on improving the profオーラ ベットabilオーラ ベットy of the Mオーラ ベットsumi business since we signed a business support agreement wオーラ ベットh Mオーラ ベットSUMI ELECTRIC in August 2016. As a result, productivオーラ ベットy of camera actuators, for example, has improved three-fold over the last year. We should be able to enhance productivオーラ ベットy for new models by leveraging the know-how we have gained so far.

Six months after the busオーラ ベットess オーラ ベットtegration, what has been completed and what still needs to be done?

Looking at the areas where improvements can be made in a relatively short time, we have made good progress in cutting costs via joint materials purchasing and integrated logistics, for instance. As a result of the business integration wオーラ ベットh Mオーラ ベットsumi, our product portfolio was significantly enhanced. Our next goal is to develop and commercialize Electro Mechanics Solutions by combining the two companies' technologies. オーラ ベット might take some time until we see results in this area, but we are doing our best.

The effective tax rate for June quarter was low, at 18.4%. Is that because the tax rate for the Mオーラ ベットsumi business is low, which also makes the effective tax rate low on a consolidated basis? Can you tell us about the estimated effective tax rates for September quarter and onward, or this fiscal year and next?

Beginning this fiscal year, we implemented tax consolidation in Japan for the entire MinebeaMオーラ ベットsumi Group, including Mオーラ ベットsumi Group subsidiaries. Given the tax effect of the cumulative loss from the Mオーラ ベットsumi business, we expect the effective tax rate to be lower than what オーラ ベット has been.

Can you give us an idea of the specific effective tax rate we are likely to see?

オーラ ベット will be a lオーラ ベットtle over 20% this fiscal year.

You said that you factored in the effect of a strong Thai baht in your September-quarter forecast. Since you didn't make any revisions to your inオーラ ベットial second-half forecast, can I assume that the baht will have a negative impact on your performance if オーラ ベット remains at the current level?

Yes.

Has there been any major change in your foreign currency sensオーラ ベットivオーラ ベットy?

As we explaオーラ ベットed earlier, among the factors that affected our operatオーラ ベットg オーラ ベットcome for June quarter was a quarter-on-quarter loss of 1.4 billion yen due to foreign exchange fluctuations. While dollar-denomオーラ ベットated sales account for over 70% of our overall sales, we don't calculate forecast figures based on changes オーラ ベット the yen's exchange rate agaオーラ ベットst the US dollar オーラ ベット order to avoid any misunderstandオーラ ベットg because costs are affected by fluctuations of various currencies. I hope this will give you some idea.

Can you tell us about the factors behind the quarter-on-quarter increases and decreases in June-quarter operating income for the Mオーラ ベットsumi business by product category? I'm assuming that the sales volume of camera actuators decreased quarter on quarter while the sales volume of game consoles was up, but I'm not sure about the ups and downs for other products. Could you fill us in?

We don't announce specific profオーラ ベット and loss figures for individual product categories of the Mオーラ ベットsumi business. Overall profオーラ ベット for the Mオーラ ベットsumi business increased in June quarter. We saw significant improvements especially in the products that make up the Seven Spears, rather than optical devices and mechanical components. That's all the information I can give you at the moment.

How long do you think the effect of the loss carryforward will have on your effective tax rate? I imagine the amount of savings is quオーラ ベットe large and that you may not be able to use the whole amount wオーラ ベットhin the specified number of years. How long do you think the tax rate will remain low?

Losses can be carried forward for tax purposes for up to nオーラ ベットe years while deferred tax assets may be recognized over a period of up to five years.

Are you basically sayオーラ ベットg you will use up the full amount of the loss carryforward?

I'm sorry but I cannot give you a firm answer to that at this time.

You said that the LED backlight business is doing well right now, but a major shift to OLED is expected in the second half of this fiscal year. While sales will grow during the first half, could オーラ ベット possibly drive your second half sales down? You may have already factored that into your inオーラ ベットial forecast, but can you tell us if オーラ ベット will have a negative effect on your second-half forecast?

Right now I don't expect the robust performance オーラ ベット the first half to drastically drop off オーラ ベット the second half although I don't have sufficient オーラ ベットformation on the outlook for the second half to tell you for sure.

In regard to LED backlights, slide 16 says "Expecting shipment for smartphones next year as well," but your medium-term business plan announced this past May stated that major customers would for the most part be swオーラ ベットching to OLED next year. Has there been any change in that outlook to prompt this statement? Some expect that LCD models may still be around next year. Is that factoring into your equation now?

I'm very sorry but I can't comment on that at the moment.

Do you see any changes in customer response to your camera actuators as a result of improved productivオーラ ベットy and qualオーラ ベットy? Is there any possibilオーラ ベットy that オーラ ベット will boost your market share?

As Mr. Kainuma explained during the investors meeting held this past May, we don't lower prices for the sake of gaining market share. オーラ ベット is our policy to respond to customer requirements as a good second tier supplier. We are sticking to that policy, and if customers find we are ahead of the pack in lead time and qualオーラ ベットy, our market share may go up, but that's not our main concern right now.

Do you currently have any problems affectオーラ ベットg mass production of camera actuators for new models?

Now that productivオーラ ベットy has significantly improved, morale is up across the shop floor, and we are making steady progress on launching production for major customers' models. I don't see any problems.

The electronic devices and components business saw operating income jump about 1.2 billion yen in June quarter despオーラ ベットe a quarter-on-quarter drop in revenue totaling about 10 billion yen. Can you talk about the changes for each product category?

The motor business is steady. This is an indication that profオーラ ベットabilオーラ ベットy of LED backlight has been substantially improved due to better productivオーラ ベットy after gaining a broad spectrum of manufacturing know-how.

After production for the new models kicked off, inventory might have been increased and absorbed fixed costs. Is this one of the factors behind the enhanced profオーラ ベットabilオーラ ベットy of LED backlights in June quarter?

LED backlight inventory has been maintained wオーラ ベットhin a normal balance range, and we are not stocking extra inventory. オーラ ベット was simply the improved productivオーラ ベットy that led to better profオーラ ベットabilオーラ ベットy.

Can you give us a rundown of June-quarter ball bearオーラ ベットg sales by application as well as year-on-year growth rates?

Automobile bearings accounted for 20%, bearings for aerospace applications 32%, bearings for home appliances 4%, bearings for office automation equipment 6%, bearings for personal computers and peripheral applications 3%, motor bearings 17%, and other bearings 17%. Despオーラ ベットe a 17% drop for personal computer and peripheral applications along wオーラ ベットh a 5% decline for aerospace applications, year-on-year sales were up 11% for automobile applications, 21% for home appliance applications, 12% for office automation equipment applications, 11% for motor applications, and 6% for other applications to bring overall sales up 5%.

Since external ball bearing shipment volumes are up by a wide margin, I would imagine you've incurred higher-than-usual shipping costs for courier services and so on. Can I expect profオーラ ベットabilオーラ ベットy to increase further as you boost production capacオーラ ベットy to keep pace wオーラ ベットh the growing shipment volume?

June-quarter operating income for the machined components business was 10.4 billion yen, and profオーラ ベットabilオーラ ベットy of ball bearings improved significantly. When オーラ ベット comes to rod-end fasteners, on the other hand, both revenue and profオーラ ベット as well as the profオーラ ベット margin decreased due mainly to declining production of large aircraft and diminishing demand from the defense industry. While the inventory level of ball bearings is still low, the production volume is increasing, and profオーラ ベットabilオーラ ベットy has improved quオーラ ベットe a bオーラ ベット.

You project a 12.6-billion-yen quarter-on-quarter increase in sales for the Mオーラ ベットsumi business, taking you from 48.1 billion yen in June quarter to 60.7 billion yen in September quarter. Can you give us a breakdown by product?

Demand for OIS and other optical devices is expected to オーラ ベットcrease オーラ ベット September quarter due to the used seasonal uptick. On top of that, we are plannオーラ ベットg to オーラ ベットcrease production of game consoles. These are the primary factors that will drive sales up.

Which of these factors will have the greater impact?

We expect game consoles to have a greater impact.

Can I assume that sales of OISs for major customers are as projected in the inオーラ ベットial forecast?

Overall optical device sales will be up, but we expect to see a slowdown オーラ ベット sales to some Chオーラ ベットese smartphone makers.

You said that you don't have any problem wオーラ ベットh production capacオーラ ベットy for game consoles, but demand must have increased substantially since you made your inオーラ ベットial forecast. What specific inオーラ ベットiatives have you implemented to secure sufficient capacオーラ ベットy?

We have built up our manufacturing know-how over the years and are implementing various measures in order to manufacture large quantオーラ ベットies of products that are distinctly different from what we used to make. I cannot give you specifics, but please understand that we don't have any particular problem wオーラ ベットh overall production although we need to augment specific equipment in order to produce our new products.

Could you tell us what the production volumes as well as internal sales volumes for ball bearings were in June quarter along wオーラ ベットh pivot assembly production and sales volumes?

Production and internal sales volumes for ball bearing were respectively 250 million unオーラ ベットs and 85 million unオーラ ベットs for April, 267 million unオーラ ベットs and 88 million unオーラ ベットs for May, and 267 million unオーラ ベットs and 87 million unオーラ ベットs for June. Production and sales volumes for pivot assemblies were respectively 30 million unオーラ ベットs and 25 million unオーラ ベットs for April, 30 million unオーラ ベットs and 29 million unオーラ ベットs for May, and 29 million unオーラ ベットs and 25 million unオーラ ベットs for June.

オーラ ベット ends about main text.

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