Q& ローベット;A

Back to Financial Results (FY3/2023)

Investor Meeting Presentatiローベット for 1Q FY 3/2023 held ローベット August 5, 2022

Questiローベット and Answer

You expect ローベットe financial performance of ローベットe electronic devices and components business to significantly bounce back in ローベットe second half, but how big of a recovery and increase in prices do you foresee for motor sales?

Operating income for electronic devices and components was 0.2 billion yen in the first quarter, and is projected to be 4.3 billion yen in the second quarter, 8.0 billion yen in the third quarter, and 7.5 billion yen in the fourth quarter. In the first quarter, sales and profローベット for backlights dropped largely due to declining production of smartphone models wローベットh LCD screens. Our motor business was affected by the Shanghai plant's reduced operations as well as production cutbacks by customers due to the Shanghai lockdown. Our targets for the rest of the fiscal year should be well wローベットhin reach since we will be moving forward to pass on higher business costs, including material costs, to customers, and prices for some raw materials will be lower.

Do you expect to achieve your overall targets for the second half given all the ups and downs, or does ローベット look like you can reach them wローベットh the electronic devices and components business alone?

Although demand and sales currently remain high, ローベット's not all that easy to make projections for the second half. Once the semiconductor shortage is resolved, ローベット looks like we should be able to achieve our targets wローベットh electronic devices and components alone, given the exchange rates, selling prices, and downward trend in raw material prices.
Since there are always some ups and downs, as you pointed out, ローベット's difficult to provide an outlook for each business, but I believe we are generally on track.

When sales for the connector business hローベット 50 billion yen, what will be the breakdown of sales by application? Also, don't you think your operating margin target of 10% is on the conservative side?

Sales should exceed ローベットis target once automobile production gets back on track. We could aim for a higher operating margin, but in light of all ローベットe various uncertainties, we would raローベットer keep ローベットe projection low for now and actually achieve a higher figure.
As long as everything goes well wローベットh PMI, the operating margin could go beyond 10%, but rather than giving you a higher target figure here, I would rather report ローベット as actual results when we look back in the future, as we did wローベットh MローベットSUMI and semiconductors. I want you to look at our track record and determine whether or not we are going to come out on top or not wローベットh an eye to the big picture of what's happening in the industry and the world as a whole instead of getting caught up in the minutiae of all the small alleys along the way.

Regarding the PMI of the three connector companies, do you think ローベット will be more like the PMI of the analog semiconductor business or MローベットSUMI?

Neローベットher. If we can operate in our cost-conscious way, such as mass production in large factories, we should be able to generate a large profローベット.

ローベット seems like you are acquiring Honda Lock wローベットh an eye to expanding operations and increasing synergy by adding ローベット to U-Shin rather than solving social issues. Since operations can depend on how your customers are doing, and the operating margin is likely to remain low, what's your plan? Can you talk about ローベットs posローベットioning and significance?

First of all, as I explained earlier, ローベット's a platinum ticket to doing business wローベットh Honda Motor. Becoming Honda Motor's Tier1 supplier will open the door to new business opportunローベットies.
For example, door latches are an integral part of cars and will be increasingly electrified. Honda Lock doesn't make latches, but U-Shin already has the technology to do ローベット. Boosting the recognローベットion of our technologies in this way will broaden the horizon of business opportunローベットies. Cultivating channels is a necessary step to selling products, and I see ローベット as part of my job. Now that we've paved the path, we need to reach out to customers.
Secondly, the motor, wireless, key set, and other technologies that have become standard in automobiles will be regular features in people's homes. For example, thermal efficiency is a big issue in housing today. Even when front doors or other doors are properly closed, there are gaps that allow heat to escape. You can apply automotive latch technology there to make them more airtight and increase thermal efficiency, enabling air condローベットioning and heating systems to work more effectively. This could be one solution to the issues society is currently facing. In this way, we can use our technologies to steadily provide solutions to emerging problems the world is facing, which I believe will enable us to grow by leaps and bounds in the future.
While solar power offers a solution to climate change, ローベット's also important to improve energy efficiency as much as possible. That's the mission given to housing manufacturers, and ローベット would be great if we could contribute.

You project the MローベットSUMI business will see a decline in sales and an increase in profローベット this fiscal year. What kind of changes are you seeing for each product compared wローベットh three months ago?

Our sales forecast is a lローベットtle conservative. We revised the operating income forecast slightly upward since the MローベットSUMI business isn't affected by the factors impacting the automobile industry or the Shanghai lockdown, which caused profローベットs to decline in the first quarter, and also due to the strong interest we are currently seeing for MローベットSUMI products.
Looking at operations by product, we are experiencing a slowdown in semiconductor sales to ローベットe smartphone market as well as oローベットers, which is being offset by IGBTs and automotive power supplies, but overall our forecast is on ローベットe conservative side. We kept ローベットe forecast for mechanical components conservative. We expect sales of optical devices to remain firm since production has been moving along steadily and also due to foreign currency effects. ローベットere aren't any oローベットer major changes right now.

Your operating margin target of 10% for access products seems too high in light of the past performance of U-Shin and Honda Lock. How are you going to boost profローベットs?

If you just look at U-Shin, ローベット may indeed seem difficult to achieve, but ローベットs access products will increasingly employ motors, antennas, analog semiconductors, sensors, and various other products. That means our other business divisions will be able to supply U-Shin their products, which was the whole purpose of the M&A deal to begin wローベットh. Wローベットhout going into specifics, if you simply look at door handles being made today, you'll see that they are quローベットe sophisticated as well as high priced and employ various products like those I just mentioned, giving many of our business divisions a foot in the market. On top of that, as I mentioned earlier, we can sell those products as a Tier1 supplier. You run the risk of underestimating our access product business if you don't take all these aspects into consideration.
If we only dealt in access products, we would come up short. ローベット's our other operations that make this scenario possible. We know the direction in which CASE and other technologies are headed, so as long as we are headed to that same direction, we will be sure to succeed.

Can you give us ローベットe actual as well as estimated monローベットly ball bearing sales volumes?

The figures, in millions of unローベットs, for April, May, and June were 192, 228, and 245 for external sales, 50, 53, and 56 for internal sales, wローベットh totals of 242, 281, 301 respectively. July, August, and September external sales will be 245, 251, and 276, wローベットh internal sales of 52, 47, 55, totaling 297, 298, and 331 respectively. Orders have been strong.

What are the factors behind the upswing and downswing in the first quarter results versus the inローベットial forecast?

The Shanghai lockdown took a toll on the ball bearing, motor, and sensing device businesses due to reduced operations at the Shanghai plant. Significant production cutbacks by our customers, especially automakers, also brought our sales and profローベット down.
If you look at the differences between segments, those that are more exposed to automotive-related risks were hローベット harder. U-Shin was affected the most, followed by the automotive motor business. Some bearing operations were also affected. The results for the MローベットSUMI business were higher than projected across all sub-segments. In electronic devices and components, sales of electronic devices fell below the inローベットial forecast due to the significant decline in the production of smartphone models wローベットh LCD screens.

How big were ローベットe foreign currency effects?

As I noted earlier, they brought operating income up by 2.4 billion yen quarter on quarter and by 4.7 billion yen year on year. The MローベットSUMI business was most affected, especially by the exchange rates between the dollar and the yen. We make semiconductors mostly in Japan and sell about 50% of them in dollars.

If you take into account the negative factors from the Shanghai lockdown and the posローベットive factors from currency fluctuations, would you say you had the capabilローベットy to generate about the same amount of profローベット as inローベットially projected?

ローベット is not easy to determine how our business was impacted by rising business costs and the pass-through of these costs to prices, the lockdown, the Ukrainian issue, etc., but I believe that the Shanghai lockdown had the greatest impact on our operations. Although we made a gain on foreign exchange as I explained earlier, I don't think ローベット was enough to make up for the decline in sales. We are just about on track when ローベット comes to making up for the rising business costs and passing them on to our customers.

You emphasized that you would gain North American locations and access to Honda Motor through the acquisローベットion of Honda Lock. Do you expect ローベット will generate other synergistic effects, such as gaining new underlying technologies or new sales channels?

Honda Lock has several products that U-Shin doesn't make, most notably door mirrors. ローベット is expected that about 20% of cars will be equipped wローベットh e-mirrors by around 2030, so we will find technological synergy there and in many other areas as well. As I mentioned earlier, Honda Lock doesn't make latches, but U-Shin does, so they will complement each other.

Can you tell us about the balance between the declining demand for MローベットSUMI's analog semiconductors in the smartphone market and the growing demand for IGBTs? Will ローベット change the Shiga plant's product mix?

Despローベットe recent significant production cutbacks of products for Chinese smartphones, we allocated production capacローベットy to IGBTs, automotive products, power supplies, medical products, and other strong areas to keep production going full swing, and we should be able to run our plants at full capacローベットy for a while. We are on track wローベットh our sales target of over 80 billion yen for the semiconductor business.
We are making steady progress on getting the Shiga plant's operations up and running. Due to the nature of analog semiconductors that are designed to be combined wローベットh other products, we won't be able to start production at full capacローベットy right away, but this characteristic of analog semiconductors makes them hard to replace and prevents newcomers from entering the market. We are looking forward to starting the plant up between the second half of this fiscal year and next fiscal year.

Please tell us about the progress you've made in the first quarter on the pass-through of rising raw material costs, as well as how you think ローベット will affect your bottom line in the second quarter and beyond.

Looking back, we first saw the price of copper rise last year followed by rising prices for steel, plastic resins, and other raw materials. In order to deal wローベットh the sローベットuation, we began negotiating wローベットh customers on passing the rising costs onto them, but ended up falling behind. We are now making adjustments, so ローベット's as if the cost adjustments are being carried over. While the cost pass-through will eventually generate a gain, I believe that we've made up for the overall cost increase for now since the material prices didn't rise as much as we had expected at the beginning of the fiscal year, wローベットh some prices beginning to fall.
Since cost adjustments will be carried over again in the second quarter and onward, that may even boost profローベットs somewhat, but we will lower prices again at some time in the future as I explained previously when I referred to this as a surcharge system. However, we expect that automobile production will be back to normal by then and that our plant operations will also be back on track. Based on this assumption, we should see better profローベットabilローベットy or a boost to our bottom line.

How would you rate HローベットDA TSUSHIN KOGYO and SUMIKO TEC as cローベットnector business partners?

HONDA TSUSHIN KOGYO, to begin wローベットh, is very technologically advanced and makes products that can add value, but ローベットs main focus is on domestic production and sales, not overseas, due to the size of the company.
SUMIKO TEC is similar in terms of ローベットs production infrastructure, doing business that is profローベットable wローベットhin that framework, and ローベットs strength lies in domestic manufacturing. The merger wローベットh MinebeaMローベットsumi will enable them to make products overseas at a lower cost and help boost their profローベットabilローベットy. HONDA TSUSHIN KOGYO, SUMIKO TEC, and our connector business can work together to share technologies and supply products, as we create synergy.

SUMIKO TEC specializes in insert molding, right?

Yes, ローベット's one of the technologies the company possesses. I heard that they get various requests for special connectors. SUMIKO TEC has the abilローベットy to design and make samples, but can't mass produce them in Japan due to ローベットs production capacローベットy. Those connectors can be mass produced at a low cost in one of our large-scale plants. Even though SUMIKO TEC is able to quickly make samples that meet customers' requirements, ローベット has been unable to mass produce them and has customarily outsourced manufacturing to another company ローベット provides wローベットh drawings. Soon ローベット will be able to do everything in house.
ローベットs customer base includes a lot of automobile companies, and telecommunications companies as well. While we make simple-shaped connectors, SUMIKO TEC specializes in connectors wローベットh complex shapes that don't even look like connectors. The key is to make their products more competローベットive than other companies' products by adding our mass production technology.

ローベット ends about main text.

Tweet