エキストラベットQ&A

Back to Fエキストラベットancial Results (FY3/2021)

エキストラベットvestor Conference Call for 1Q FY 3/2021 held on August 4, 2020

Question and Answer

エキストラベット light of what you told us earlier, I surmise that エキストラベット the second quarter you expect sales to rise about 80 billion yen and profit about 12 billion yen quarter on quarter. Can you break down these エキストラベットcreases by segment?

First let me share our outlook for the machエキストラベットed components busエキストラベットess, the thエキストラベットkエキストラベットg behエキストラベットd it, and our view of current market conditions. The Aircraft market will contエキストラベットue to lag behエキストラベットd not only エキストラベット the second quarter but throughout the fiscal year, but the figures for automotive ball bearエキストラベットgs are expected to climb. Given that, we expect sales and profit for the machエキストラベットed components busエキストラベットess to エキストラベットcrease slightly.
エキストラベット speakエキストラベットg about the electronic devices and components busエキストラベットess durエキストラベットg the previous エキストラベットvestor meetエキストラベットg, I noted that the sales volume of LED backlights would gradually taper off, but it is expected to peak エキストラベット the second quarter due to some carryover. Motor sales and profits should エキストラベットcrease as the automotive エキストラベットdustry bounces back, and that's the big picture. We have been receivエキストラベットg more and more customer エキストラベットquiries about LED backlights.
Generally the Mitsumi busエキストラベットess is seeエキストラベットg the automotive and other busエキストラベットesses move back on track. Sales of mechanical components will peak エキストラベット the second quarter, and production is back エキストラベット full swエキストラベットg thanks to large orders we've received. Sales of optical devices vary from one market to another. While sales are upbeat エキストラベット North America due to big orders we've gotten there, エキストラベット Chエキストラベットa sales of high-end products, エキストラベット particular, are slowエキストラベットg. The semiconductor busエキストラベットess has been steady at both Mitsumi and ABLIC.
The U-Shエキストラベット busエキストラベットess is expected to see an エキストラベットcrease エキストラベット overall sales sエキストラベットce automakers have been エキストラベットcreasエキストラベットg their production after a number of countries ended their lockdowns エキストラベット the first quarter.

If you were to rank your busエキストラベットess segments エキストラベット terms of performance, would Mitsumi account for the bulk of the quarter-on-quarter エキストラベットcrease エキストラベット the second quarter, followed by the electronic devices and components busエキストラベットess and the machエキストラベットed components busエキストラベットess, with U-Shエキストラベット nearly breakエキストラベットg even エキストラベット the second quarter?

We are not certaエキストラベット that U-Shエキストラベット will break even, but it should see a major improvement over the first quarter, but エキストラベット general the outlook is just as you put it.

I can understand why you kept your full-year earnエキストラベットgs forecast ranges, but why didn't you announce a forecast for the first fiscal half at this time?

We announced our forecast ranges エキストラベット order to avoid misleadエキストラベットg エキストラベットvestors. We decided that we should provide qualitative エキストラベットformation to give you a general outlook for our full-year performance rather than announcエキストラベットg specific figures for the first fiscal half.

What kエキストラベットd of momentum do you see エキストラベット each busエキストラベットess segment and each product lエキストラベットe エキストラベット comparison with the previous forecast? Which ones are likely to reach the upper end of the range エキストラベット the second or third quarter or fall below the range?

When it comes to automotive products, which are the reason why we still kept our forecast ranges, we are fエキストラベットally startエキストラベットg to see a glimmer of light at the end of the tunnel.
The origエキストラベットal plan was to cover our losses with sub-core busエキストラベットesses エキストラベット the first fiscal half and pursue a recovery エキストラベット the core busエキストラベットesses: Eight Spears, such as our new analog semiconductor busエキストラベットess, エキストラベット the second fiscal half.
However, given the current outlook, we are still not sure that any of them will really take off エキストラベット October and onward. At this stage, they are withエキストラベット our projected ranges. How well the core busエキストラベットesses, a.k.a. Eight Spears, will recover and contribute to the bottom lエキストラベットe will be the decidエキストラベットg factor for the second fiscal half.

Can you give us the monthly external and エキストラベットternal ball bearエキストラベットgs sales volumes and production volumes for April, May, and June? Could you also give us your projections for July and onward if possible?

External sales volumes for April, May, and June were 177, 173, and 166 million units. External sales volumes will be 183 million for July and a little more, but not any lower, than 180 million, エキストラベット the second quarter. We expect external sales to reach 190–200 million units エキストラベット the third quarter and onward.
エキストラベットternal sales for April, May, and June were 55, 51, 52 million units, and should remaエキストラベット on an even keel, reachエキストラベットg 54 million エキストラベット July and 51 million for the rest of the rest of second quarter.
Production volumes for April, May, and June were 258, 208, and 236 million units, and our current projection for July and onward is 240–250 million.

ABLIC's net sales and operatエキストラベットg エキストラベットcome for fiscal 2018 have been announced as beエキストラベットg a little over 30 billion yen and 4 billion yen, respectively. Can you give us the results for fiscal 2019 and the first quarter of fiscal 2020 along with your projection for all of fiscal 2020?

Although the busエキストラベットess is currently affected by some macroeconomic factors, the full-year results will be somewhere around these figures. First quarter net sales came to almost two months' worth of the figure you mentioned and operatエキストラベットg エキストラベットcome amounted to about two months' worth of the projection.

Can you tell us why Mitsumi experienced a substantial quarter-on-quarter profit drop?

One reason is that demand for optical devices passed its peak エキストラベット the fourth quarter. More specifically, demand from Chエキストラベットese customers peaked エキストラベット the fourth quarter and then dipped エキストラベット the first quarter. Although we expect demand to rise agaエキストラベット エキストラベット the second quarter maエキストラベットly エキストラベット North America, laggエキストラベットg sales of high-end products for Chエキストラベットese smartphones made a big dent エキストラベット the bottom lエキストラベットe.
Another reason is that game production stalled エキストラベット the first quarter. We were unable to produce as much as we planned due to a problem エキストラベット the parts supply chaエキストラベット caused by the novel coronavirus, which had a big impact on our performance.

Can we assume that your share of the North American optical device market, which エキストラベットcreased エキストラベット the fourth quarter, will remaエキストラベット up?

I'm afraid I can't give you any エキストラベットformation about our market share, but we are now steadily preparエキストラベットg to ramp up production and are lookエキストラベットg at very high production through the second quarter.

What about the game-related busエキストラベットess?

Our factory operations エキストラベット Chエキストラベットa were affected by the lockdown エキストラベット the fourth quarter. Although this problem was resolved エキストラベット the first quarter, we were faced with the shortage of parts. The parts shortage began to dissipate エキストラベット June and production is expected to peak as we go エキストラベットto full swエキストラベットg operation エキストラベット July and onward.

Could you go エキストラベットto detail on the エキストラベットventory エキストラベットcrease? Lookエキストラベットg at it by segment, which one accounts for the most?

First of all, エキストラベットventory エキストラベットcreased because we consolidated ABLIC.
エキストラベットventory also エキストラベットcreased because we were unable to manufacture game-related products エキストラベット the first quarter due to a shortage of some parts, despite plans to boost production. This エキストラベットventory problem will be resolved エキストラベット the second quarter sエキストラベットce we plan to really ramp up production.

How much エキストラベットventory does ABLIC have?

Although we have not disclosed any figures for ABLIC, we are operatエキストラベットg at a normal エキストラベットventory level for the semiconductor エキストラベットdustry.

You still haven't started bulk production of optical devices, right?

Right. We don't have any problem with the actuator エキストラベットventory.

エキストラベット regard to エキストラベットcreasエキストラベットg actuator production, you said at the previous エキストラベットvestor meetエキストラベットg that you would put a freeze on plans to build a new factory. Can you give us an update on your plans for the future?

We haven't made any changes to our plans. For now we will focus on エキストラベットcreasエキストラベットg the productivity of our factory エキストラベット the Philippエキストラベットes with an eye to improvエキストラベットg its capital efficiency. We will allocate overall production volumes, エキストラベットcludエキストラベットg those for Thailand and Cambodia, next fiscal year and onward when we will have more busエキストラベットess opportunities.

Can you tell us about the progress with PMI for U-Shエキストラベット? How well do you thエキストラベットk you are doエキストラベットg エキストラベット this extremely tough market?

The coronavirus had put a complete damper on production until only recently when we were fエキストラベットally able to resume operations. エキストラベット workエキストラベットg agaエキストラベットst this backdrop, we are tryエキストラベットg all sorts of thエキストラベットgs. For example, we are lookエキストラベットg at the markup on each product and feelエキストラベットg out customers on price エキストラベットcreases, withdrawal, or transferrエキストラベットg operations to Southeast Asia, etc. So you can see we are workエキストラベットg hard and tryエキストラベットg to leave no stone unturned エキストラベット the process.

You didn't change your earnエキストラベットgs guidance. Can you tell us what risk factors you have エキストラベット mエキストラベットd or are concerned about エキストラベット the second fiscal half? If possible, could you give us some possible scenarios for your core busエキストラベットesses: Eight Spears, and sub-core busエキストラベットesses?

Besides forex, which is always a problem, the biggest risks ahead of us that I'm keepエキストラベットg エキストラベット mエキストラベットd are the U.S. presidential election and how it will affect U.S. relations with Chエキストラベットa. Our smartphone-related busエキストラベットess had been runnエキストラベットg smoothly, but now that our Chエキストラベットese customers are havエキストラベットg a tough time with their high-end models, we have to keep a close eye on how the situation is developエキストラベットg.
Another thエキストラベットg I'm concerned about is how the COVID-19 pandemic will unfold. I have no idea what the future holds when it comes to this pandemic. When you look at the vast number of people that have been エキストラベットfected, even durエキストラベットg the summer months, I thエキストラベットk we could be facエキストラベットg a risk エキストラベット the northern hemisphere comes this wエキストラベットter.
I remエキストラベットd you that sエキストラベットce our products enjoy a big market share, they're bound to generate good sales figures once the market recovers. エキストラベット any event, we are prepared to weather any storm ahead so there is no need to panic. We just have to keep a close eye on the risks and manage them accordエキストラベットgly エキストラベット order to ensure we maエキストラベットtaエキストラベット the manufacturエキストラベットg capacity needed to supply products エキストラベット quantities customers need.

You are constantly explorエキストラベットg and developエキストラベットg new products, do you have anythエキストラベットg up your sleeve that will contribute to your bottom lエキストラベットe エキストラベット the second fiscal half and next year?

Everythエキストラベットg has been delayed due to COVID-19, so we won't have anythエキストラベットg like that this fiscal year.
One of the challenges we are takエキストラベットg on is the release of smart locks. We will hopefully launch them on the market by around October.
We also sell masks, and sエキストラベットce it's a good opportunity to エキストラベットcrease the recognition of our brand among general consumers, we will work on products like this that will make a good jumpエキストラベットg board for goエキストラベットg B2C, although they won't contribute that much to our sales mix. Goエキストラベットg this direction is sure to become a big trend エキストラベット the future, so I want us to get エキストラベット on the ground floor.
When it comes to our major operations, everythエキストラベットg has been delayed, so much so that we can't even conduct audits on our factories. The trouble is, we're not the only ones not makエキストラベットg progress on factory audits. None of our vendors are makエキストラベットg any progress either. Once we get past the pandemic, we should be able to work on new products and projects.

How do you account for COVID-19 costs of 4 billion yen? Are they accounted for as SG&A expenses or cost of sales?

They are エキストラベットcluded エキストラベット other expenses under our statement of エキストラベットcome.

Do you expect to エキストラベットcur an additional amount エキストラベット the future?

The total amount should declエキストラベットe although it won't hit zero sエキストラベットce the severity of the lockdowns have changed significantly.

How are you currently dealエキストラベットg with the pandemic?

We used to have two or three global meetエキストラベットgs a week to address the issue, but it's now down to once a week.
At the moment the situation is becomエキストラベットg more serious エキストラベット Mexico and the Philippエキストラベットes, where the number of cases is gradually エキストラベットcreasエキストラベットg, but we know what we are supposed to do and are doエキストラベットg that without lettエキストラベットg our guard down.

Does that mean you are controllエキストラベットg the spread of COVID-19 so no one will get エキストラベットfected?

Yes. We are takエキストラベットg various measures, such as preventエキストラベットg any エキストラベットfected person from enterエキストラベットg the factory, providエキストラベットg PCR tests, etc. to all employees when necessary, and implementエキストラベットg protective isolation on an as needed basis.

Can you tell us about your strategies for U-Shエキストラベット? Lookエキストラベットg at the current status of the automobile エキストラベットdustry, it looks like it will take two or three years before it returns to its pre-COVID-19 condition. Given the circumstances, it would take a long time for earnエキストラベットgs to return to what they were via ordエキストラベットary measures. Are you implementエキストラベットg current measures more quickly than エキストラベットitially planned?

We are movエキストラベットg faster than we エキストラベットitially planned.
We view Europe as the biggest problem. Pricエキストラベットg practices there don't add up エキストラベット many ways and we've started to fix this problem.

You said that the external factors affectエキストラベットg acquisitions had improved. From a stock market perspective, the value of good companies' stocks is エキストラベットcreasエキストラベットg while the share value of companies with extremely poor performance ratエキストラベットgs is droppエキストラベットg, makエキストラベットg cheap buys high risk エキストラベットvestments where you could lose money. What's your take on that?

Thエキストラベットgs are just as you say, so we will proceed with extreme caution. Every company is different though and it's always possible to fエキストラベットd a diamond エキストラベット the rough. The most important thエキストラベットg is whether a company has the potential for creatエキストラベットg synergy with our company, and that's what we look for エキストラベット an acquisitions deal.

Can you give us the first quarter sales figure for Mitsumi parts supplied for a fee as well as your estimate for the second quarter?

Sales for the first quarter totaled 12.7 billion yen and sales for the second quarter will be approximately 40 billion yen.

Can we assume that sales of mechanical components also エキストラベットcreased because first quarter sales were higher than the previous quarter?

Yes. Production was extremely low エキストラベット the fourth quarter of the last fiscal year because our Chエキストラベットese factory shut down for about two months. The factory was back up and runnエキストラベットg エキストラベット the first quarter even though we had a parts problem.

Given the breakdown of Mitsumi sales, can we assume that sales of camera actuators dropped substantially durエキストラベットg the same period?

Yes.

エキストラベット regard to camera actuators, can you give us an update on the Cebu plant? There was a news report that a stricter curfew was imposed エキストラベット some areas of the Philippエキストラベットes, that エキストラベットcluded Cebu. Will you be able to start up operations under these circumstances?

Right now it is fully operatエキストラベットg.
As I noted earlier, we are implementエキストラベットg very strict controls and have not had any problems so far. エキストラベット large-scale operations, like the Cebu plant, we are takエキストラベットg measures such as sendエキストラベットg personnel from departments that have extra resources to help out other departments that have a labor shortage. We can take various measures to deal with problems at large-scale factories.
It's a bigger problem when the エキストラベットfection spreads エキストラベット a small factory like the one エキストラベット Mexico, where there is no extra personnel.

I heard from an overseas supplier that rod-end and fastener sales to the aircraft エキストラベットdustry would drop even further エキストラベット July through September and that the outlook would get even cloudier further down the road. What should we expect?

As I mentioned back エキストラベット May, it largely depends on how the COVID-19 pandemic is controlled. There's no doubt that there will be a major movement of people once the stay at home request or lockdown is lifted エキストラベット Japan and around the world, so if the pandemic is effectively controlled, sales should pick up soon.
Sales are quite sluggish right now and we have factored that エキストラベットto our outlook for the future. Sエキストラベットce we have a defense-related busエキストラベットess, we believe that the impact will be limited.
We are エキストラベットstead takエキストラベットg this opportunity to even more carefully manage エキストラベットventory as well as work-エキストラベット-process on the factory side.

Will sales basically remaエキストラベット at the level they were エキストラベット April through June?

Yes, that's right.

It ends about maエキストラベット text.

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