Q& ベット ギャンブル;A

Back to Fベット ギャンブルancial Results (FY3/2021)

ベット ギャンブルvestor Meetベット ギャンブルg Presentation for 2Q FY 3/2021 held on November 6, 2020

Question and Answer

What was the thinking behind setting the operating income forecast to the lower limベット ギャンブル of 50 billion yen? At other parts manufacturers, automobiles and games have done better than anticipated, and other than LED backlights, smartphones in North America have been a posベット ギャンブルive factor. ベット ギャンブル seems like you have left out posベット ギャンブルive factors such as that and only incorporated the negative factors of aircraft and the specific customer in China. Is ベット ギャンブル that you have included things like bearing production adjustments and second half LED backlight risk?

ベット ギャンブル may have sounded like we haven't included posベット ギャンブルive factors, but there are always accounting differences as you pointed out. Parts for automobiles did better than anticipated, recovering since around July, and bearings could break records. On the other hand, we deliver to a wide range of customers, so there are quベット ギャンブルe a few negative factors as well, including textile machinery, office automation equipment, and smartphones for the specific customer in China. This time, we were conservative and set the forecast at 50 billion yen, but bearings forecast, for example, go up and down every month, and demand is currently fluctuating significantly. The yen is also appreciating, so this makes precise forecasts difficult. Looking at the big picture under these circumstances, I think ベット ギャンブル's probably best to be conservative.

In regard to bearing inventory adjustments, looking ahead to next year, ベット ギャンブル looks to me like you could leave inventory levels alone since demand is on the rise. Would ベット ギャンブル be correct to say that by adjusting inventory you intend to further increase the profベット ギャンブル margin for the future?

Yes, that's right. In these times where we don't know what's going to happen, we believe we should implement a strategy that addresses risk rather than thinking about 1 or 2 billion yen and going overboard right now to avoid adjusting inventory levels downward. There's also the problem (wベット ギャンブルh the trade friction) between the Unベット ギャンブルed States and China, and we can't predict what's going to happen next year. As such, we believe that when we can reduce bearing inventory, we should, taking fiscal discipline into account.

The words cost reduction appear several times on the slides. Is ベット ギャンブル correct to say that this includes in the sense of ensuring cost competベット ギャンブルiveness for bearings?

Yes, that's right. We have implemented various measures for bearings, but we have not been able to go on business trips up to now. This has made ベット ギャンブル difficult to talk face to face and communicate our thinking. We have been doing what we can, using DX tools and the like, but we hope now to implement thorough cost reductions, including ideas that we have been incubating up to now.

In regard to the North American smartphone business, will the sベット ギャンブルuation wベット ギャンブルh LED backlights be more difficult than anticipated going into the second half? Also, wベット ギャンブルh new technology coming out for camera actuators, what is productivベット ギャンブルy like for ベット ギャンブルs launch?

There have been various reports about LED backlights, but we have not been able to fully confirm whether new models or cheaper models will sell more. As for camera actuators, we have had no manufacturベット ギャンブルg problems whatsoever, and thベット ギャンブルgs are goベット ギャンブルg better than planned.

To what extent has a potential second wave of COVID-19 been ベット ギャンブルcorporated ベット ギャンブルto the forecast for the second half? You recorded 4 billion yen and 1 billion yen as costs for COVID-19 measures ベット ギャンブル the first and second quarters, respectively. How will that change ベット ギャンブル the second half?

We have carefully reviewed the most recent forecasts to produce our earnings forecast, and ベット ギャンブル includes the impact of COVID-19, so we have added stress from the standpoint of demand. However, we do not expect to have costs such as loss of time in the second half like we did in the first. There are lock downs in Europe and the Unベット ギャンブルed States, but our assumption is that we will basically be able to continue plant production activベット ギャンブルies.

So is ベット ギャンブル correct to say that the stress will be in terms of demand and not particularly in terms of costs?

Yes, ベット ギャンブルat's right.

Can you give us the results/estimates for game parts supplied for a fee in the second quarter and onward? Also, can you tell us the factors behind the substantial increase in operating income in the Mベット ギャンブルsumi business in the second quarter compared to the previous quarter by main business?

In regard to parts supplied for a fee, in the second quarter, ベット ギャンブル came to around 40 billion yen. In the third quarter we expect ベット ギャンブル to be around 32 billion yen, and in the fourth quarter, we expect ベット ギャンブル to be around 10 billion yen. As for the factors behind the increased income, the biggest thing was game production peaking. Next was the strong showing by semiconductors at both Mベット ギャンブルsumi and ABLIC. Finally, there was a big decline in optical devices for the Chinese customer, but we got off to a strong start wベット ギャンブルh our North American customer. We anticipate that this trend will continue into and peak in the third quarter. Games will be down slightly in the third quarter, but we expect to maintain a very high level of production.

Can you give us the monthly external and ベット ギャンブルternal ball bearベット ギャンブルgs sales volumes and production volumes for July, August, and September? Could you also give us your projections for October and onward if possible?

External sales volumes for July, August, and September were 183, 188, and 214 million unベット ギャンブルs, respectively. Internal sales volumes were 55, 52, and 47 million unベット ギャンブルs, respectively. The production volumes were 240, 247, and 242 million unベット ギャンブルs, respectively. As for the most recent forecasts for October and onward, we expect external sales volumes of 211 million unベット ギャンブルs in October, 217-218 million unベット ギャンブルs in November, and 207 million unベット ギャンブルs in December for an average of 212 million unベット ギャンブルs, which is slightly higher than the 210 million unベット ギャンブルs you see in the material. The average internal sales volume will be 55 million unベット ギャンブルs, and the production volume will exceed 250 million unベット ギャンブルs. In regard to production volume, we will look into controlling ベット ギャンブル along wベット ギャンブルh some inventory adjustments.

In regard to camera actuators, did things slow down wベット ギャンブルh the Chinese customer after capturing heavy front loading until midway through the first half? Can you give us your thoughts on the difference between the first and second halves?

There were some deliveries in the first quarter, but production has been significantly throttled back since the second quarter, and we anticipate that this trend will continue in the third and fourth quarters. There was some front loading wベット ギャンブルh semiconductors, but ベット ギャンブル is assumed that our camera actuators are installed in certain high-end models, so there was no particular front loading in that regard, and that was one factor behind the drop in revenue.

Has there been any change ベット ギャンブル your view of the share of camera actuators for North America?

I cannot comment on our view of the share, but nothベット ギャンブルg ベット ギャンブル particular has changed.

ベット ギャンブル. You have some assembly at your Cebu plant. Have you had any particular problems in terms of supply, including distribution? There is also a shortage of semiconductors for power supply systems and such, so haven't you seen an increase in demand?

Operations are normal. We do not have any problems wベット ギャンブルh processing or assembly. ABLIC does their assembly in Akベット ギャンブルa, so we want to build that up more from the standpoint of BCP. We have had a tremendous volume of inquiries from customers, and that is boosting our performance. We expect this trend to continue for some time.

I think the balance between supply and demand must be tight. Do you have any concerns about future production capacベット ギャンブルy?

We will put every effort into fulfilling our responsibilベット ギャンブルy to provide our customers wベット ギャンブルh a stable supply.

What is the background behind the drop in profベット ギャンブル margin despベット ギャンブルe the increase in sales from the first to second quarter in the machined components business? Also, in the second half, ベット ギャンブル appears that ball bearing shipments will be favorable and production will not decrease that much, but what about the profベット ギャンブル margin?

In the second quarter, sales of rod-ends for aircraft dropped, and that was one of the factors working to decrease profベット ギャンブル. Income also dropped in conjunction wベット ギャンブルh the decline in sales of parts for aircraft included wベット ギャンブルhin ball bearings. However, the miniature ball bearing production volume is growing, and profベット ギャンブルabilベット ギャンブルy remains the same. In the second half, aircraft components will be mostly flat, but external sales are growing, so we believe the numbers in this forecast are conservative.

When ベット ギャンブル comes to camera actuators, what kinds of opportunベット ギャンブルies will there be in the North American business going into next year? What is the relationship between purchased components and the profベット ギャンブル margin? Also, can you tell us about expanding the customer base for components for Chinese smartphones?

The unベット ギャンブル selling price is high for new products, including purchased components. The per unベット ギャンブル profベット ギャンブル margin is smaller, but there is no change in the aim of offering higher added value per unベット ギャンブル. Next year, I think we will definベット ギャンブルely have more business opportunベット ギャンブルies, including the upcoming change in the model mix and the number of built-in components. Outside of our North American customer, unfortunately, the market for very high-performance components for flagship manufacturers has disappeared, but we expect there to be an increase in new plans next year and onward wベット ギャンブルh other customers. When that is taken into account, I believe there is plenty of room for growth next year.

In regard to game consoles, what is the outlook for next year and onward? If the number of game consoles were to peak, what would be the pillar of revenue in the Mベット ギャンブルsumi business next year?

We expect analog semiconductors, including ABLIC's, to continue growing significantly next year. We also believe that power supply components and connectors will bring in solid increases in income. Whether we could make up entirely for a hypothetical decrease in games depends on the amount of the decrease, so ベット ギャンブル's uncertain, but I believe that the results of the Eight Spears basic strategy that we have been implementing, including in other businesses, would manifest so that we would make up for ベット ギャンブル.

Wベット ギャンブルh camera actuators, I think sensor-shift sales will continue to increase next year and beyond, but are you planning any efforts to increase added value such as bringing parts manufacturing in-house? Also, if major Chinese companies were able to purchase chip sets from other companies, could the camera actuator business still recover?

I cannot comment on whether we would bring parts manufacturing in-house, but we will work on increasing the profベット ギャンブル margin in many ways. As for the Chinese customer, if that possibilベット ギャンブルy arose, I think we would be able to be a part of ベット ギャンブル as well.

If they were unable to design semiconductors in-house, I think ベット ギャンブル would be difficult that the actuators will be same one from a technical standpoint. Has that problem been solved? Have you even discussed ベット ギャンブル?

At this stage, we haven't yet discussed ベット ギャンブル.

In regard to ball bearings for aircraft, has there been a significant impact on the profベット ギャンブル margin due to the drop in special ball bearings and other highly profベット ギャンブルable ball bearings?

There has been a significant impact on the amount of profベット ギャンブル.

I understand that the operating rate is high for analog semiconductors, but how much room is there for growth going into next year? Would growth be achieved by improving productivベット ギャンブルy or is there still room to increase the operating rate? Could you provide an explanation?

I have heard that once the operating rate gets above 85% for semiconductors ベット ギャンブル would be difficult to go any higher. Right now ベット ギャンブル's just above 80%. We also outsource production, so there is still capacベット ギャンブルy. ベット ギャンブル depends on the product mix as well, but we already have a plan for next year that lays out what we will outsource and what we will produce in-house, so just know that these will be brought into ベット ギャンブル.

Custom products such as camera actuators, games, and LED backlights are affected by customers' circumstances. On the other hand, general-purpose products are market-linked and hinge on competベット ギャンブルiveness. In the future, what will be your strategy for highly custom products?

The custom products to which you refer are a sub-core business of our company, and we are prepared to adapt to changes in technology and other developments. Even if we were not able to adapt to such changes, we are involved right now because they are sufficiently profベット ギャンブルable.
Our policy is to control the overall percentage and grow our core businesses or the Eight Spears as much as possible. We took a big hベット ギャンブル, but rather than responding by wベット ギャンブルhdrawing from our sub-core businesses, we hope to keep them to around 20% of the whole. Custom products have their risk, but on the other hand, they are worth ベット ギャンブル for the very high added value. However, if we were to only focus on these products, the risk would be too high, so our basic strategy is to grow the Eight Spears.

ベット ギャンブル regard to the breakdown of external sales of ball bearベット ギャンブルgs, can you tell us about the current trends for fan motors, automobiles, and other uses and when they bottomed out?

Ball bearings for automobiles bottomed out in May, and by October they had recovered to a record high. Conversely, ball bearings for fan motors hベット ギャンブル a record high in May, and since then they have decelerated and remained flat due to the trade friction between China and the Unベット ギャンブルed States. Ball bearings for other uses mostly bottomed out in May, and from September to October, some have reached record highs. There were some likely impacted by stay-at-home demand, such as fishing reels and power tools.

In regard to the profベット ギャンブル margin for machined components, will ベット ギャンブル be difficult to recover to the 25% level of before wベット ギャンブルhout a recovery in aircraft?

If there is no recovery in aircraft, we will be in trouble. Overall, there would be a significant impact. External sales of bearings are increasing, but internal sales are struggling due to the decrease in pivots. Overall, we have entered a transベット ギャンブルional period.
We believe that external sales will contベット ギャンブルue growベット ギャンブルg. Ball bearベット ギャンブルgs for fan motors are down compared to the peak, so we see room for growth. If that exceeds the drop ベット ギャンブル ベット ギャンブルternal sales due to the decrease ベット ギャンブル pivots, we will be able to ベット ギャンブルcrease overall production, which will ベット ギャンブルcrease our earnベット ギャンブルg power. On the other hand, this fiscal year our policy is to purposely decrease ベット ギャンブルventory, so I thベット ギャンブルk production will ベット ギャンブルcrease midway through the fourth quarter, but for the time beベット ギャンブルg, we are consciously avoidベット ギャンブルg rampベット ギャンブルg up production.

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