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Edited Transcript of 6479.T earnings conference call or presentation 8-May-20 8:30am GMT

Full Year 2020 Minebea Mitsumi Inc Earnings Presentation

Tokyo May 27, 2020 (Thomson StreetEvents) -- Edited Transcript of Minebea Mitsumi Inc earnings conference call or presentation Friday, May 8, 2020 at 8:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Katsuhiko Yoshida

MinebeaMitsumi Inc. - Senior Managing Executive Officer

* Kenji Yahiro

MinebeaMitsumi Inc. - Manager of IR

* Yoshihisa Kainuma

MinebeaMitsumi Inc. - CEO, COO, Chairman & President

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Conference Call Participants

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* Daiki Takayama

Goldman Sachs Group Inc., Research Division - MD, Co-Head of Japan Equity Research & Equity Research Analyst

* Fumihide Goto

Mizuho Securities Co., Ltd., Research Division - Senior Analyst

* Hiroharu Watanabe

SMBC Nikko Securities Inc., Research Division - Senior Analyst

* Shingo Hirata

UBS Investment Bank, Research Division - Director and Analyst

* Shoji Sato

Morgan Stanley, Research Division - Analyst

* Yoshiharu Izumi

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Presentation

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Kenji Yahiro, MinebeaMitsumi Inc. - Manager of IR [1]

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Now it is 5:30, time to begin the meeting. Thank you very much for joining us for the analyst meeting for MinebeaMitsumi March 2020 financial results.

I would like to take this opportunity to express my deepest sympathy for those who are infected with COVID-19 and related people.

Allow me to introduce to you the speakers for today. From right-hand side, Representative Director, CEO and COO, Yoshihisa Kainuma; and Senior Managing Executive Officer, Katsuhiko Yoshida. I have the privilege of serving as the moderator for this meeting. My name is Yahiro. I'm a member of IR and Public Relations.

First, Yoshida will talk about financial results, and then Kainuma will explain to you about management policy and business strategy. After that, then we will have Q&A session. We are planning to end this meeting at 7:00.

Regarding the details of financial statements, it's uploaded on website as part of financial supplementary information and Tanshin flash report for your reference. For your information, this meeting, inclusive of Q&A, is being video recorded for later distribution of website.

Mr. Yoshida, the floor is yours.

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Katsuhiko Yoshida, MinebeaMitsumi Inc. - Senior Managing Executive Officer [2]

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My name is Yoshida. Today, I would first like to explain the consolidated financial results for the fiscal year ended March 31, 2020.

Consolidated net sales for the fiscal year ended March 31, 2020 totaled JPY 978.445 billion, while operating income reached JPY 58.647 billion. And profit for the period attributable to owners of the parent hit JPY 45.975 billion. These figures represent year-on-year increase of about 10.6%, a decrease of 18.6% and 23.6%, respectively, with net sales for the period hitting record highs. Foreign currency exchange rates are estimated to have a year-on-year impact of minus JPY 19.4 billion in net sales and minus JPY 8 billion in operating income.

Next slide, please. Consolidated net sales for the fourth quarter of the fiscal year was up 22.1% year-on-year and down 15.2% quarter-on-quarter to total JPY 226.897 billion. Net sales hit the fourth quarter record highs. Operating income was up 79.5% year-on-year and down 45.6% quarter-on-quarter to total JPY 12.554 billion. Profit for the period attributable to owners of the parent was up 18.2% year-on-year and down 43.3% quarter-on-quarter to total JPY 10.771 billion. Operating income for this quarter includes a special factors totaling about JPY 9.4 billion incurred due to impact of the novel coronavirus and the cost related to M&A activities. We estimate the foreign currency translations have a year-on-year impact of minus JPY 2.8 billion in net sales and minus JPY 1.3 billion in operating income. Quarter-on-quarter impact was plus JPY 1 billion in net sales and plus JPY 0.3 billion in operating income.

Next slide, please. This is the annual trend in net sales, operating income and operating margin. The bar graph on the left is net sales, and the one on the right is operating income, along with the line chart for the operating margin. The operating margin for the year ended March 2020 was 6%, down 2.1 percentage points year-on-year. Regarding the forecast for March 2021, we are currently investigating the effects of the global spread of the novel coronavirus and the lockdown in each country, et cetera, and it is difficult to make a reasonable calculation at this stage. So we have forecasted some profits with a range. Now please note that the figures of the fiscal year ended March 2018 and before are based on JGAAP and are provided for your reference. The same applies herein after.

Next slide, please. This is for quarter trend in net sales, operating income and operating margin. The operating margin for the fourth quarter was 5.5%, up 1.7 percentage points year-on-year and down 3.1 percentage points quarter-on-quarter. The special factors were as I explained earlier.

Next slide, please. Here shows the difference between forecast as of February and actual results for net sales and operating income by business segment for the fourth quarter. Net sales were lower than previously forecasted in all business segments, due primarily to the impact of the coronavirus on orders and our production. The coronavirus pandemic also had an impact on our operating income in each segment. The U-Shin business, however, recognized a certain amount of cost due to a step-up of inventory and fixed assets as part of PPA.

Next slide, please. Now let's take a look at the result by segment, starting with machined components business segment. On the left is a graph indicating yearly net sales trends, and on the right is a graph -- it's a bar chart showing yearly operating income trends, along with a line chart for operating margins. In the fiscal year March 2020, net sales were down 4% year-on-year to total of JPY 180.9 billion. Sales of ball bearings decreased 3.4% year-on-year to JPY 117.1 billion. The monthly average bearing sales volume totaled 189 million units, which is a decrease of 3.6% year-on-year.

Looking at the sales by application. We see that annual sales of ball bearings used in data centers declined year-on-year, but sales were clearly up in the third quarter and onward. On the other hand, sales of ball bearings for automobile applications gradually slowed in the latter half of the fourth quarter, although overall sales were up year-on-year for the fiscal year. Sales of rod-end fasteners were up 4.4% year-on-year to total JPY 39.3 billion. Sales of pivot assemblies decreased 17% year-on-year to total JPY 24.5 billion. While we were impacted by market factors such as the novel coronavirus, pivot assemblies steadily contributed to our bottom line as we held on to an 80%-plus market share. Operating income for the fiscal year totaled JPY 39.9 billion, putting the operating margin at 22%. We saw operating income decrease 16.5%, and the operating income margin declined 3.4%, up [2] percentage points year-on-year.

Looking at the year-on-year results by product. We see that profits for our rod-end fasteners rose, while profits for ball bearings and pivot assemblies fell. For the fiscal year, March 2021, we can see clear uptrend in demand for ball bearings used in servers. Sales for commercial aircraft will be affected by customer production adjustment. Sales for automobile applications is expected to recover gradually, although they will be affected by demand decline in the first half of the fiscal year. Rod-end fasteners are expected to be affected by production adjustments for commercial aircraft. For pivot assemblies, we anticipate a decline in demand as the HDD market shrinks.

Next slide, please. This slide shows the quarter -- quarterly trend. In the machined components segment, the fourth quarter, our net sales decreased 1.7% quarter-on-quarter to total JPY 44.5 billion. Sales of ball bearings decreased 2.4% quarter-on-quarter to total JPY 28.7 billion. The number of ball bearings sold outside the group totaled 189 million units per month. On average, the external sales volume reached 210 million units in March, thanks to growing demand for ball bearings, using [same] orders after it temporarily dropped in February due to the novel coronavirus outbreak. Sales of rod-end fasteners total -- totaling JPY 10.1 billion were up 5.7% over the previous quarter. The coronavirus did not have a significant impact on our fourth quarter results, and operating -- operations are servicing the aircraft industry, especially small and medium-sized aircraft remained robust, although the sales partly slowed down relating to 700 -- 737 MAX. Sales of pivot assemblies decreased 9.8% quarter-on-quarter to total JPY 5.6 billion due partly to the impact of the novel coronavirus. Operating income for quarter totaled JPY 9.4 billion, and the operating margin was 21.1%. On a quarter-on-quarter basis, operating income fell 2.2%, while the operating margin dropped 0.1 percentage point.

Now looking at the result by product. We see the profits for rod-end fasteners rose, while profits for ball bearings and pivot assemblies fell due to the impact of the novel coronavirus.

Next slide, please. Now let's look at the electronic devices and components segment. In the fiscal year ended March 2020, net sales were down 2.2% year-on-year to total JPY 379.4 billion.

Looking at the results by product. We see that sales of motor decreased 4.2% year-on-year to reach JPY 180.2 billion. The decrease was primarily due to the slowdown in the automobile market. Electronic devices sales were up 2.4% year-on-year to hit JPY 162.4 billion, thanks to strong sales of models using LED backlight. Net sales of sensing devices totaled JPY 32.5 billion, decreasing 10.7% year-on-year. Operating income increased 3.7% year-on-year to reach JPY 17.6 billion, while the operating margin rose 0.2 percentage points to reach 4.6%.

Now looking at the results by product that we see that operating income was up for electronic devices but down for sensing devices. In the fiscal year ending March 2021, even the motors are expected to be affected by decline in demand for automobiles launches of new products, including those related to games, are expected to contribute that to our earnings.

So quarterly trends in electronic device and component segment, sales decreased 20.1% quarter-on-quarter to JPY 89 billion.

Looking at the results by part. As you see that sales have modestly decreased 7% quarter-on-quarter to reach [JPY 42.7 billion], while sales of electronic devices decreased 32.5% from the previous quarter to JPY 37.7 billion. This was because some shipments were delayed due to the novel coronavirus, although the demand was stronger than usual seasonality, thanks to strong sales of major customers' models using LED backlights. Net sales of sensing devices totaled JPY 7.5 billion, decreasing 13.2% quarter-on-quarter.

Operating income was JPY 2.7 billion. That put operating margin at 3.0%. Operating income decreased 69.1%, and operating income declined 4.9 percentage points quarter-on-quarter.

Looking at the results by product. Operating income was down quarter-on-quarter for electronic devices as well as motors and sensing devices.

Next slide, please. Let's look at the performance for the MITSUMI business segment. Net sales decreased 5.2% year-on-year to JPY 292.2 billion in the fiscal year 2020. While we saw a sharp revenue increase for optical devices, sales of mechanical components decreased due to a change in the product mix of some OEM products. Operating income was JPY 18.7 billion, and the operating margin was 6.4%. These figures represent a 16.3% year-on-year decrease in operating income and a 0.8 percentage point decrease in the operating margin. Profits for optical devices and analog semiconductors grew while other businesses saw profits decrease.

In the fiscal year ending March 31, 2021, we expect optical devices to buoy sales. Also the forecast includes ABLIC's forecast, which was merged with MinebeaMitsumi as of April 30, beginning in May.

Let's go to the next slide. This is MITSUMI business segment quarterly trends. Net sales decreased 21.2% quarter-on-quarter to JPY 62.4 billion. While sales of automotive devices increased, sales decreased for other products, primarily mechanical components, due to the novel coronavirus impact. Operating income totaled JPY 4.2 billion, while the operating margin was 6.7%. Operating income decreased 42.5%, and the operating margin declined 2.5 percentage points quarter-on-quarter.

Looking at the results by product. We see that profits were up for analog semiconductors but down for other products, mainly mechanical components.

Next slide, please. Finally, let's take a look at the U-Shin business segment. Net sales decreased 15.8% compared to fiscal year ended December 31, 2018 before the integration to JPY 125.5 billion in March fiscal year 2020. The factors for this decrease include the significant slowdown in production, mainly in Europe, in the fourth quarter because of the restrictions imposed on operations due to the novel coronavirus pandemic on top of the slump in the automobile market in China, Europe and elsewhere. Operating income was JPY 2.6 billion, and operating margin was 2.1%. These figures represent a 62.9% year-on-year decrease in operating income and a 2.6 percentage drop in operating margin. Temporary expenses was about JPY 1 billion incurred in relation to the integration of U-Shin operations and the launch of new products. We expect sales and profits to decline in this fiscal year ending March 31, 2021 as the outlook for the automobile market remains slow.

Next slide, please. This is U-Shin's business segment quarterly trends. Fourth quarter net sales decreased 1.9% quarter-on-quarter to total JPY 30.9 billion as the business was hit hard by the restrictions imposed on operations due to the novel coronavirus pandemic as well as the slump in the automobile market. The segment recorded an operating loss of JPY 0.1 billion. Temporary expenses of about JPY 0.1 billion was incurred in relation to the launch of new products, et cetera. This was accounted for as a special factor in the fourth quarter.

Let's go to the next slide. The bulk of our huge growth trends in profit attributable to owners of the part -- parent, while the line graph charts changes in the profit for the period per share. The profit for the period was JPY 46 billion. Earnings for the period per share was JPY 111.1.

Let's go to the next slide. This slide is a quarterly trends. The bar graph shows a profit attributable to the owners of the parent and the line graph is the earnings per share. The profit for the period was JPY 10.8 billion. Earnings per share was JPY 26.3.

Next slide, please. Next, this is the quarterly inventory trend. At the end of fourth quarter, inventories totaled JPY 169.8 billion, which is JPY 6.1 billion less than it was 3 months ago. Inventory of JPY 15 billion was included from the consolidation of U-Shin.

Next slide, please. This graph contains a bar chart showing trends in net interest-bearing debt, which is total interest-bearing debt minus cash and cash equivalents in the line chart indicating free cash flows. At the end of the fourth quarter, net interest-bearing debt was JPY 75.2 billion and was up by JPY 53.5 billion from the end of the previous fiscal year.

Let's go to the next slide. Regarding the forecast for fiscal year ending March 2021, as I explained earlier, we are currently investigating the effects of the global spread of novel coronavirus and the lockdown in each country, et cetera, and it is difficult to make a reasonable calculation at this stage. So we can't forecast sales and profits with the upper and lower ranges. The exchange rate assumption is JPY 107 to the U.S. dollar, both for the upper and lower range.

Next slide, please. This slide shows the forecast by business segment. MITSUMI business segment includes the sales and operating income of ABLIC from May, which was merged with MinebeaMitsumi as of April 30.

This is all for my presentation.

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Kenji Yahiro, MinebeaMitsumi Inc. - Manager of IR [3]

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And next, Mr. Kainuma, the floor is yours.

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Yoshihisa Kainuma, MinebeaMitsumi Inc. - CEO, COO, Chairman & President [4]

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Good afternoon. This is Kainuma. I would like to talk about management policy and business strategy.

Last year, I personally find it very regrettable. Since 5 years ago, we have been aiming at becoming a company with JPY 1 trillion, and I have been leading this organization. And in December last year, at the year-end, I was reported by my subordinates that we would be able to reach JPY 1 trillion, but oftentimes, we may be shocked by surprises when things are going well. So JPY 22 billion in shortage and JPY 978 billion. So we are -- we renewed the record high, but still it's short of JPY 1 trillion. And lots of things are written here, and I would like you to read it during your leisure time. But this time around, we maintain the dividend payout. And our dividend payout ratio is 20%, as I always say, which means that between 17.25% and 22.25%. But this time, as an exception, because of this situation, a 25% dividend payout ratio, we would like to maintain for our investors and share buybacks and many other things we have been doing to secure funds for M&A. And from a long-term point of view, to run the company from a long-term point of view, we would like to -- or I would like to maintain this dividend payout ratio and payments. Usually, in mid-July, the payment is made and in our case, we can make a resolution for dividend payout at the Board of Directors. It doesn't take the approval at AGM. So when we send out a notice of convocation of AGM, we can make a decision to pay the dividend in June.

And assumption for this year, it's rather difficult, I think you can imagine why and how this new pandemic will be suppressed. How economy will recover and how fast it will recover will all depend upon how this pandemic will be suppressed. So various vaccines and medicines are being developed right now. If something very effective comes out at an early stage, then the pandemic will be suppressed quite effectively, and economy is likely to recover very quickly. However, if it lasts for a long time and if it persists until wintertime, then the economic recovery could be delayed. And I have no idea how things will be, but saying I have no idea will not get us anywhere. And like I did at the time of Lehman crisis, I thought I would present to you the guidance with the range, and that is the reason why I decided this way.

For your information, sales for April, we already have the number. Compared with April last year, it's virtually the same. That is a fact. U-Shin last year compared with April of last year, the sales for this April, JPY 7 billion, which is a major decline. But Minebea -- former Minebea last year was JPY 52.3 billion, and this year was JPY 53.8 billion. And MITSUMI, JPY 15.3 billion; and this year, JPY 16.8 billion. And MinebeaMitsumi, plus 5 companies, the 5 overseas companies, C&A and various other major companies, 5 of them, if they are included, JPY 51.2 billion last year, and this year is JPY 55.7 billion. So former Minebea and former MITSUMI revenue remained virtually the same, except for U-Shin. Last year was JPY 12 billion, and this year, it's JPY 5 billion.

So last year and this year the starting point was about the same, and the remaining question is how things will recover. It depends on how the pandemic will be suppressed, as I said previously.

Guidance. When we issue guidance, this range of JPY 50 billion to JPY 60 billion, as I said. The recovery scenario, we cannot forecast. However, in the past 11 years I served as CEO for this company, and my gut feeling is the stressed scenario is probably the reasonable thing to do. And operating income of JPY 58.5 billion for last year, inclusive of all special factors like ForEx, if I exclude all those factors, last year, the Thai baht or dollar-baht foreign exchange rate, THB 32.84 was the assumption. However, it turned out 39-point -- 30.96. And we have 40,000 workers in Thailand. So a THB 2 difference was a major obstacle for revenue, but it came back to [83] or -- and we completed ForEx hedging and the reversal of all those, plus stress applied. Machined components, about JPY 10 billion; and electronic components, another JPY 10 billion; and U-Shin, JPY 5 billion. MITSUMI is about the same. OIS will go up. And game consoles are doing quite well. So JPY 25 billion stress has been applied. On the other hand, highly possible factors for profit increase, I will talk about this later on, like ABLIC, plus JPY 4 billion. So at least JPY 4 billion-plus. Minus JPY 25 billion, it will be JPY 60 billion.

So this is my personal projection, the midpoint of my personal projection. So once-in-200-years pandemic. This is larger than Lehman crisis according to some people. But as I said earlier, depending on how it's suppressed, the outcome could be different. But JPY 10 billion range was set, so JPY 50 billion to JPY 60 billion. At the time of Lehman crisis, this company was rather small. So JPY 10 billion to JPY 14 billion was the range back then, and I announced that number in Q1 and Q2. Regarding the range, we were not able to project, but in Q3, JPY 12 billion, in other words, the midpoint, and JPY 12.1 billion was the result. So it was in the middle of the range. And I don't know how things will turn out at this time, but the company has grown 4 or 5x bigger. So as I said, those are the likely results, very close to JPY 60 billion.

So the guidance that I can give you here is very rough, so I have to apologize about that. But this is only way that we can show you the guidance. Nobody can predict what's going to happen in -- by March next year. Nobody will be able to make a projection. So please forgive us to giving you this level of guidance.

So that said, some institutional investors said that in this electronic components sector, "So how is the ranking within this electronic components sector?" And basically, this is to show how good we have been in the ranking for operating income. The institutional investment -- analysts compiled this. So we basically confirmed and looked at the ranking in each of the -- each year. So I think we have been able to go up by 1 notch. So this electronic components sector basically will be influenced by the global economic trend or the ForEx. So it is impacted by these external factors. This cannot be avoided. But even in those cases, we have been steadily been able to improve our -- relatively speaking, improve our operating income. So this slide is to show how we have been able to do that.

So in terms of the novel coronavirus impact. So in mid-May, as of mid-May, all of the factories are operating -- is going to operate, whether it be Europe from this 4th, their factories have started to operate. China, they are 100% in operation already. So gradually, the operating activities is going to recover.

So I was showing you the 3-year plan, but we do not know what's going to happen next year. So to be frank, I cannot show you any guidance for the 3-year plan. That is my frank feeling. So this is an image that I'm showing you here, so please understand that this is an image.

For the machine components. For bearings -- ball bearings, I have nothing to worry about ball bearings. There are some ups and downs, but the demand for ball bearings is going to increase steadily, and our competitiveness is very solid. However, customers, if their operations stop, of course, they'll not be using ball bearings. If the customers go back to 100% -- if the customers do not go back to 100% operation, it means that the ball bearing demand is going to go down. So this is unavoidable. Rather than that, I think we have to be carefully looking at the aircraft-related situation. We have to observe what's happening there. The airline industry, each of the companies, they are weak financially. And people, whether it be overseas travel or domestic travel, there are a lot of countries that are not -- people are not moving. So whether these aircrafts will be selling or not, I think that is a big question. But this is a reference that I want to show you. So our U.S.-related various subsidiaries, the aircraft-related subsidiaries, if you look at the breakdown, about 25% is for the defense industry. So currently, this defense business is not impacted at all. The 14% is medical-related. For instance, X-ray tubes for the X-ray. So there's a lot of orders coming in. And as a trend, it's actually increasing its production for the commercial aircraft. So that's about 60% of the overall business. Out of that, even if we assume a 4% decline, that's a 25% to 30% impact coming from the commercial aircraft. Maybe it'll take about 2 years for a recovery. That is what I am thinking, but I think it's too early to say definitively what's going to happen because there's a lot of drugs that have been developed. And if you look at what's happening in China, and if we look at some countries, people want to go out. They want to go travel, move around. That's kind of what human beings want to do. So people -- a lot of people are saying that the lifestyle is going to change, but as long as their safety is guaranteed, I think people will just resume to their previous lives or lifestyles. So I think we have to observe what's going to happen in this area.

For the electronic device and components targets, and I think basically, people focus on LED backlights. So the volume is going to go down. I always have said so. But we have been preparing for that from before. So the decline of LED backlights can be compensated by other businesses like ABLIC or OIS. From 2 years to last year to last year to this year, the sales has gradually been growing. So OIS is another factor and games because people are staying at home, and games is very popular.

So in area -- various applications, various areas, various countries, we are producing our products, and we are producing a variety of products. So that means, as a result, we have been able to manage our risk. So even if 1 product's earnings capability declines, we can be able to offset that by other products.

For the MITSUMI business, I think one point I want to make is that -- so after the integration of MITSUMI, I always talked about the core business and sub-core business. For the core business, so we have Eight Spear business. We have named this Eight Spear business as a core business. Within this, the analog semiconductors is a core business because the market is large and will not go away easily. And within the niche market, we can exert our strength and uniqueness. So we want to make this our core business. For the MITSUMI business, games and mobile phones, so within our business, this has a -- fluctuates in terms of technology. So we call this a sub-core business. However, in terms of profit, it can generate a certain level of profit. So we wanted to create a core business here. And so the semiconductors was the first that came out. So afterwards, I will talk about this in more detail. But one of the topics I want to communicate is that MITSUMI has been able to come up with the core business. We have a very strong spear that has been created for the MITSUMI business. That is what I want to communicate at this point.

For the U-Shin business, it's 100% automotive business. So they are facing tough times. That's true. However, U-Shin, so it isn't a company that has invested a lot in CapEx, and there's a high level of depreciation. So I think even if it is loss-making, it will not be a huge loss. If we consider the size of a company, it's manageable. So I think this is a good opportunity. We have to do some things. We have to improve the productivity. We have to reduce the fixed cost. And looking at CASE, we have to look into the integration activity with us. So there will be semiconductors, there will be motors, so lock mechanics and access mechanics. We have to develop, and we have to accelerating speed of development.

So ABLIC. So this is excluding power semiconductor, with the 2 companies together, with (inaudible) and semiconductor. This is about approximately JPY 60 billion of sales will be coming out from this integration. So within the JPY 2.5 trillion concept, so then (inaudible) semiconductors have about JPY 100 billion of sales. So we already have JPY 60 billion. So even after 9 years or 10 years, I think we'll be able to exceed JPY 100 billion. And in terms of profitability, it's very high. So I think you'll be able to understand that as time goes by -- but as I've said, this will be the core -- I think this can become the core business of MITSUMI.

Next is in what kinds of areas these analog semiconductors become effective. As you can see here, MITSUMI has 5 spears, so to speak, 5 areas to focus on in semiconductors from 1 through 5. And incidentally, ABLIC has 5 areas as well. So 5 plus 5 equals 10, but 1 and 2 overlap, colored in purple. So these 1 and 2 are overlapping areas, the batteries and parts supply. So out of 5 core areas, these are the overlapping areas. And the ones in blue show MITSUMI's, and the ones in pink show ABLIC's businesses. And the orange ones are the new -- 3 new areas that former Minebea and MITSUMI did not have, medical magnetic sensor and clean boost. This is a registered trademark.

Without a battery, the electricity is boosted. So without batteries, the sensors -- sensing information can be transmitted. So we are involved in social infrastructure-related businesses like the meters that measure precipitation range, snowfall, wind, so on and so forth. But without a battery, the data can still be transmitted to a nearby station. On the small volume of information, of course, but it's a very interesting technology.

And number seven, magnetic sensor, the vertical integration. So our Eight Spears, by combining, we can make even better things like whole elements. ABLIC has this wonderful technology, which is used in the BLDC motors or encoder. The rotation -- include a number of rotations and angle detection. So this integration with ABLIC provides Minebea with various benefits and advantages. ABLIC is located in Chiba prefecture, and we are, of course, allocated in Mita of Tokyo. And semiconductor business is located in Atsugi and Chitose as well. So we are rather in a adjacent environment. Analog semiconductors cannot be copied. And this is probably one of the products that the Japanese people are very good at making. By accumulating the details, we can create wonderful products. So in 8 areas, as I spoke about, we are to grow going forward. In order for us to grow, we need to look for the sites for new plants. Both plants are making 6-inch wafers as the main product. But they are having -- people are having space problem, so we need to find a new site for factories in order to pursue this activity.

So analog semiconductor used to be the eighth spear, but now it's a first spear. And this explains about our countermeasures for coronavirus. 90,000 people we have, but none of them have been infected yet. 1 in the U.S. and 8 in Europe unfortunately infected recently. However, in Asia, and all countries in Asia, we have no infected people. That, I think, is because we have implemented very strong countermeasures in early stage.

So I have already mentioned about this already. So last year, so JPY 100 billion of the financing has been made into long term in terms of our borrowing. So this year, we only have to pay back JPY 3.5 billion of long-term borrowing. So in terms of the cash position, we are in a very good cash position So lastly, an early payment of our dividends and the payout ratio will be 25%.

So that's all for me. Thank you very much for your attention.

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Questions and Answers

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Kenji Yahiro, MinebeaMitsumi Inc. - Manager of IR [1]

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Next, we'll go to the Q&A session. Today's question will be -- we will be receiving from the international investors and analysts who have been registered beforehand and are participating through the telephone conference system.

(Operator Instructions)

So the first question is coming from Goldman Sachs, Takayama-san, please.

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Daiki Takayama, Goldman Sachs Group Inc., Research Division - MD, Co-Head of Japan Equity Research & Equity Research Analyst [2]

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Hello, can you hear me?

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Kenji Yahiro, MinebeaMitsumi Inc. - Manager of IR [3]

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Yes. Yes, we hear you.

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Daiki Takayama, Goldman Sachs Group Inc., Research Division - MD, Co-Head of Japan Equity Research & Equity Research Analyst [4]

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I have 3 questions. So I will ask you one by one. The first 2 is about the overall plan, about the various assumptions.

First of all, if possible, in the first quarter or the first half, in terms of the sales -- overall sales and profit, what will be the weighting against the full year? Of course, the first quarter and second quarter will be tough. But if you have some figures in mind, can you tell me that?

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Katsuhiko Yoshida, MinebeaMitsumi Inc. - Senior Managing Executive Officer [5]

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So as you know, the aircraft business is going to -- we're going to see a decrease in production, and the automotive business is going to be very tough. If you consider those factors, the first half, especially for the first quarter, the situation is going to be very severe. That is our assumption. But -- so JPY 50 billion -- between JPY 50 billion and JPY 60 billion, the full year operating profit range.

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Daiki Takayama, Goldman Sachs Group Inc., Research Division - MD, Co-Head of Japan Equity Research & Equity Research Analyst [6]

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How -- in each quarter, what will be the breakdown?

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Katsuhiko Yoshida, MinebeaMitsumi Inc. - Senior Managing Executive Officer [7]

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Currently, we cannot disclose because we do not have yet sufficient information. Please forgive us to giving you this level of answer.

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Daiki Takayama, Goldman Sachs Group Inc., Research Division - MD, Co-Head of Japan Equity Research & Equity Research Analyst [8]

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So the reason I ask is that the range for the top end and the low end for the full year, if you want to consider that, because I think basically, between the top end and the low end, it's going to be a period already in the first quarter. I thought that maybe in the short term, we'll be able to have more visibility.

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Katsuhiko Yoshida, MinebeaMitsumi Inc. - Senior Managing Executive Officer [9]

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Yes, the first half will be tougher. And the second half, I think we will be able to see a certain level of recovery. That is our assumption. And the numbers has been compiled as such. But specifically, at this point, we cannot disclose specifically what we are thinking for each quarter or each half.

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Daiki Takayama, Goldman Sachs Group Inc., Research Division - MD, Co-Head of Japan Equity Research & Equity Research Analyst [10]

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Understood. Well, my second question is, again, your question about the assumption. For the full year, the top and the low end range, so if we look -- if I look at the sales, the motor, MITSUMI, U-Shin, these 3 businesses, I think in terms of the fluctuation of the sales from the top end to the bottom end is large. So what is the different assumptions that you have made for each of the businesses?

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Katsuhiko Yoshida, MinebeaMitsumi Inc. - Senior Managing Executive Officer [11]

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Again, because we have not any precise assumptions behind these numbers, we look at each of the businesses, and we assume that this will be within this range. For instance, for the motor business, the automotive will be tough, but the other new applications will be ramping up. So these -- for each segments, by each product, I think there's a difference. And -- but overall, we cannot give you any clear or precise numbers.

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Daiki Takayama, Goldman Sachs Group Inc., Research Division - MD, Co-Head of Japan Equity Research & Equity Research Analyst [12]

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So if that is the case, what is the process? What kind of process did you follow to reach these numbers? So Mr. Kainuma has talked about this JPY 60 billion operating profit. So we have this JPY 10 billion of stress and then JPY 50 billion. Is that the starting point? Or is this a kind of the sum of all parts in terms of the sales? You just sum up all the sales and then you calculate the marginal profit and then come out with operating profit?

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Yoshihisa Kainuma, MinebeaMitsumi Inc. - CEO, COO, Chairman & President [13]

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So this is Kainuma speaking. Let me answer your question. So I think it's twofold. One is that, of course, each of the business units, we submit numbers. And every time this happens, but sometimes they're very pessimistic and sometimes, it's very optimistic. So when these numbers are compiled, depending on the business environment, these outlooks will change. So the management will put on -- apply stress in some cases. In some cases, we'll say that we're better than that. So because we have to make a prediction for the 1 year, so this is not a simple task. So this process, we go through this process. But in currently, the 50 -- maybe a slightly over the JPY 50 billion is the kind of sum of all the figures that has been submitted. So that's one aspect.

On the other hand, so if we reallocate all these numbers, because the businesses won't do this, so if we apply all the special factors and then if you just simply apply stress, for instance, this aircraft business. So 25% to 30% decline, it's going to decline by 25% to 30% or the smartphone business. Because we already have been given some indication what the amount is going to be. It has -- it was quite strong. So you add these factors and you apply stress, so -- then when we reach the numbers. So JPY 50 billion is the kind of sum ending. It's slightly over JPY 2 billion. So even without kind of a top-down approach, JPY 60 billion is what we reach. So that's the range of JPY 50 billion to JPY 60 billion. So that's the type of guidance that we're showing. This is a range that we are showing you.

So within these numbers -- so it's not just a process for the full year. Just looking at this specific year, you have the bottom-up and the top-down and then just a range that you arrive at. Yes. And within this, of course depending on the past experience. For instance, April, basically not changed from this year, but you've seen JPY 7 billion decline. That has been the starting point.

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Daiki Takayama, Goldman Sachs Group Inc., Research Division - MD, Co-Head of Japan Equity Research & Equity Research Analyst [14]

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So what type of improvement or -- is going to be seen?

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Yoshihisa Kainuma, MinebeaMitsumi Inc. - CEO, COO, Chairman & President [15]

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For instance, ForEx, for us, the currency exchange rate is favorable for us. The yen against the dollar is stronger. However, Thai baht has been quite weak. So if you consider all these factors, from this starting point that we're seeing here, how much sales or we can increase. So -- or the operating profit. JPY 50 billion is one range, and JPY 60 billion is another range. So that will be the range that we'll be able to assume when we have -- go through this practice. So April, May, June will be bad. And then followed by that, July, August and September will be slightly better than that but not that good. So that is the kind of assumption that we are taking.

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Daiki Takayama, Goldman Sachs Group Inc., Research Division - MD, Co-Head of Japan Equity Research & Equity Research Analyst [16]

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So from -- whether -- the decline from April, you don't know yet how the pace is, but we've continued to go up from May to June onwards?

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Yoshihisa Kainuma, MinebeaMitsumi Inc. - CEO, COO, Chairman & President [17]

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Yes, yes, I think that's right. Because April -- Europe, there's no -- basically no operation being conducted in Europe. And the United States, for the civil aircraft, basically no business at all. On the other hand, the LED backlights, we have business with the MinebeaMitsumi Group. Compared to last year, as a result, is unchanged because there are always fluctuations among businesses. So it's very difficult to make a clean prediction for the full year. But that said, if you take all these fluctuations, we then take into account, the risk will be mitigated. That is based on our experience. And based on this experience, that is the guidance that we came out with.

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Daiki Takayama, Goldman Sachs Group Inc., Research Division - MD, Co-Head of Japan Equity Research & Equity Research Analyst [18]

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Understood. Lastly, this is about ball bearings. But January to March sales and production, well, you have your results to the first quarter, to the second quarter of this fiscal year in terms of volume on the bearings. So what would the volume be looking like?

And you also talked about how the utilization rate is very important. So you want to be aggressive in taking the volume. So 2020, you're going to do that. So increasing the share or increasing the volume, including those activities, what type of production management or the operation management are you going to do? Can you tell us what you plan to do?

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Katsuhiko Yoshida, MinebeaMitsumi Inc. - Senior Managing Executive Officer [19]

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So in terms of the volume, please report -- let me report. In terms of ball bearings external sales, January, JPY 188 million; February, JPY 227 million; and March 2020 [JPY 210 -- JPY 270 billion] [towards the end of] of February. So [JPY 68 million], JPY 59 million, JPY 62 million. That is for the internal use.

And production, January, JPY 259 million, so JPY 249 million for February; March, JPY 290 million for March. So up until March, we have been seeing a great increase in terms of products and volume. So before the pre-corona days, the external sales, we were assuming that external sales is going to recover. And the production pace, we wanted to bring it up to JPY 300 million. So March, that is the reason why we had JPY 290 million of production in March.

For this fiscal year's first quarter, as you know, there has been various slowdowns in various areas. So the production is going to be decelerating. So JPY 230 million, on average for the first quarter, on average per month, I think the average is going to go down to that level.

For the external sales, JPY 180 million, JPY 190 million will be the level of external sales. So that is the outlook for the first quarter for external sales.

So that's the current status. To give you the outlook, the 5G-related orders is a lot of orders coming from 5G and medical, although the volume is small. For instance, with the artificial heart and lung devices or the blood testing devices, they use a lot of ball bearings, a lot of motors. And these type of areas are good. But if you look at the overall volume, these are very small.

So automotive, specifically for the high-end automotives. Automobiles, our ball bearings are used and we have all been saying so. If the volume goes up, and if the ball bearings for the automotive has started to go up. But we have seen a slowdown in auto markets. So for the automotive market, we'll see a slowdown. That's unavoidable. But I said in the beginning, so it depends on how this pandemic is contained. How is the automotive market is going to look out -- look like? I think we'll be able to see. But if we look at the current situation, that's the status.

And for the home appliances. Because stores are closed -- you won't be able to sell products if the stores are closed. I think you can easily imagine that kind of situation. So China will start the stores. South Korea, they will start the retail shops. So there's a lot of revenge products that are being talked about. So if Japan can control this pandemic by this summer, I think a different type of consumption is going to come up.

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Daiki Takayama, Goldman Sachs Group Inc., Research Division - MD, Co-Head of Japan Equity Research & Equity Research Analyst [20]

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So I think if you look at the demand, I think, basically, production is in line with the demand?

Well, after the Lehman Brothers shock, I think you have been very proactive in increase the capacity. So that has been able to recover quickly, increase the shares. So are you -- I think from last year, you're saying that you were saying they want to take market share and want to be proactive. So I was just thinking that maybe you will be looking at the next stage to be aggressive from the first quarter? I think the -- I will just look at the demand because you have inventory, and I think we'll be able to respond with the inventory.

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Yoshihisa Kainuma, MinebeaMitsumi Inc. - CEO, COO, Chairman & President [21]

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So we do -- rather than trying to produce something that will be wasted, we want to be focusing and logical in terms of production. So I think that's the way we should go.

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Kenji Yahiro, MinebeaMitsumi Inc. - Manager of IR [22]

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Let us move on to the next question, SMBC Nikko Securities, Watanabe-san.

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Hiroharu Watanabe, SMBC Nikko Securities Inc., Research Division - Senior Analyst [23]

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This is Watanabe from SMBC Nikko. Can you hear me?

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Kenji Yahiro, MinebeaMitsumi Inc. - Manager of IR [24]

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Yes, I can.

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Hiroharu Watanabe, SMBC Nikko Securities Inc., Research Division - Senior Analyst [25]

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First of all, the capital expenditure, how you plan to use money, would you explain? Now reading the supplementary information regarding investment, you are slashing, but R&D expenditure is to be increased. So I don't have an impression that you are trying to reduce the amount, but how do you plan to use money? That is my first question.

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Yoshihisa Kainuma, MinebeaMitsumi Inc. - CEO, COO, Chairman & President [26]

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This is Kainuma. Quite frankly, so stress and still products, there are various things. And initially, the amount was JPY 100 billion. But at this point in time, we have reduced the amount to JPY 35 billion. So that is what happened. The reason why I said that is, as I have been explaining how things will recover going forward, it's still not certain at this point in time. In other words, we cannot be so bold. We need to keep watching how the situation will evolve. And then we will approve the applications for investments later on. So that is the reason why we came up with this number.

So if I try to respond to your question, JPY 35 billion. This amount -- at this point in time, this number is much smaller than what we really need to invest.

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Unidentified Company Representative, [27]

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If I may supplement, the JPY 35 billion, this is some of application -- applied number. JPY 43 billion is probably the number Watanabe-san is looking at. Because there is a time lag, some of the projects were approved last year and delayed until this year.

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Hiroharu Watanabe, SMBC Nikko Securities Inc., Research Division - Senior Analyst [28]

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So you are being very selective about the projects, being very prudent at this point in time. I understood that. And earlier, you said that new plant in Philippines, it is to be frozen for -- or some time but increase production of actuators. Would you elaborate on that, please?

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Yoshihisa Kainuma, MinebeaMitsumi Inc. - CEO, COO, Chairman & President [29]

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Actuators. As I said earlier, there is a huge growth potential and now we have high expectations for that. So we maintain our stance.

But the reason why we froze this supply in Philippines, there are 2 reasons. One, in the current premise, we can handle the incremental production. That is what I heard from people working in the field. That is number one. And second reason is making the products in Philippines, it's one option, but using clean room in Thailand may be more cost-effective. That is another point we considered.

So at this point in time, we decided to suspend the project. If it is really necessary, I mean using clean room in Thailand, probably, we will shift our gears to that option, if I may share with you.

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Hiroharu Watanabe, SMBC Nikko Securities Inc., Research Division - Senior Analyst [30]

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So this vacant site in Philippines, you have not started the construction of the building?

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Yoshihisa Kainuma, MinebeaMitsumi Inc. - CEO, COO, Chairman & President [31]

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That is right. We stopped in the last minute.

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Hiroharu Watanabe, SMBC Nikko Securities Inc., Research Division - Senior Analyst [32]

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Lastly, this year, MITSUMI's -- the game application or the motors for games, new products. I think you are expecting the revenue increase from many new products. And Page 21, this shows only the profit. But sales, I think there are many products that will see increase in sales. So if you can share with me some information about that?

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Katsuhiko Yoshida, MinebeaMitsumi Inc. - Senior Managing Executive Officer [33]

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Each -- the sales for each business line, I cannot share with you, unfortunately. But new game-related motors business, we got, and some of them are starting. And how many units and how much sales? Such numbers I cannot share with you because of confidentiality.

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Kenji Yahiro, MinebeaMitsumi Inc. - Manager of IR [34]

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(Operator Instructions) From Mizuho Securities, Goto-san, please.

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Fumihide Goto, Mizuho Securities Co., Ltd., Research Division - Senior Analyst [35]

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Hello, can you hear me?

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Kenji Yahiro, MinebeaMitsumi Inc. - Manager of IR [36]

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Yes, we can hear you.

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Fumihide Goto, Mizuho Securities Co., Ltd., Research Division - Senior Analyst [37]

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I have 2 questions. One is about the current situation. So how is your portfolio being effective to counter the situation that you're facing right now? So if you look at April, year-over-year, it's basically the same as of last year. And for the ball bearings first quarter outlook, so JPY 180 million to JPY 190 million, I think basically this is the same level as sort time a while ago. So the reason why you've been able to maintain this level, although the summer condition is tough, so where is -- can you tell me which is going up and which area is going down? So because we think that overall the situation is deteriorating, but have are you been able -- I want to understand how your portfolio is actually affected in coping with the situation.

The other question is that in Slide #26, so you talked about how to think about the guidance. So JPY 81 billion, what is the meaning of this JPY 81 billion? So exclude all of these special factors, what is the -- how did you arrive to this JPY 81 billion? These are my 2 questions.

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Katsuhiko Yoshida, MinebeaMitsumi Inc. - Senior Managing Executive Officer [38]

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So then let me explain about this JPY 81 billion. So if you go to Slide 4, special factors, lower left-hand slide, special factors, including coronavirus impact. So JPY 116.4 billion, JPY 14.6 billion year-over-year, JPY 0.8 billion.

So basically, if you include these factors, that will bring us to JPY 81 billion. Is it -- do you understand?

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Fumihide Goto, Mizuho Securities Co., Ltd., Research Division - Senior Analyst [39]

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Sorry. JPY 114.6 billion plus [8] plus [58.6]? Yes, yes. I understand what you're all talking about.

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Yoshihisa Kainuma, MinebeaMitsumi Inc. - CEO, COO, Chairman & President [40]

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So by product, first quarter portfolio trend. What we've seen for the first quarter would be the machined components, I think basically, it's going to go down a lot. The reason is that with the aircraft, for the commercial aircraft decline in production. So it was not happening in the fourth quarter in the last fiscal year. It's going to -- has happened in the first quarter of this fiscal year. So I think this is a kind of a late-cycle situation for the ball bearings for the fourth quarter production and sorry, sales was not -- was okay in the first quarter. So it's going to have an adverse impact. So the automotive and the aircraft impact for the first quarter is going to be seen for the machined components. So this is kind of speaking. So comparing the April situation from last year to this year, I understood that was your question. Is that okay?

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Fumihide Goto, Mizuho Securities Co., Ltd., Research Division - Senior Analyst [41]

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Yes, yes. My question was about the. But of course, if we can talk about the first quarter direction, that will be good as well.

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Yoshihisa Kainuma, MinebeaMitsumi Inc. - CEO, COO, Chairman & President [42]

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So then let me answer your first question. Well, basically, so the former Minebea business, so the machined component was down the April, but the LED backlights offset that. And that's the reason why the sales was the same as last year.

For MITSUMI, the last year's start was very bad because the game business -- because they has produced a lot, they saw that. And from February, they haven't seen an increase of the business. Maybe if they overmade -- because maybe against the demand, they overproduced. So April, the business was not that good.

So this fiscal year, from February, March in China, the gaming-related business was frozen, and the supply chain was disrupted. So this was the situation. So for -- basically, they were bad for April this year and last year. So that's the reason why we were the same. Maybe that's a good understanding. So they -- one negative factor was U-Shin went down by JPY 7 billion. So that's the April-to-April comparison.

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Katsuhiko Yoshida, MinebeaMitsumi Inc. - Senior Managing Executive Officer [43]

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So let me just talk about the first quarter outlook. The motor business because the automotive business is slow. So year-over-year, it's going to be -- go down for the backlight business. Electronic devices will go -- be on the positive side.

And for MITSUMI, overall, we will be on the positive side, and we have the ABLIC 2-month worth of contribution. So year-over-year, I think their production is going to increase. In terms of the automotive for U-Shin, that is, so with Q1. So the automotive production trend will be impacting our business, meaning that -- we will be impacted substantially by the situation. So that's basically the assumption that we're using.

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Fumihide Goto, Mizuho Securities Co., Ltd., Research Division - Senior Analyst [44]

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For the LED backlight, the positive for the MITSUMI, the reason why it's going to be contributed on the positive side, what is the reason?

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Katsuhiko Yoshida, MinebeaMitsumi Inc. - Senior Managing Executive Officer [45]

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Well, for the LED backlights. So the fourth quarter last fiscal year, there was a very strong demand on orders. So we had a tight demand situation. So -- oh, excuse me, we had production in Thailand. So we are not impacted by China, but the customers were impacted by the coronavirus situation in China. So we saw a slight slowdown. But in the first, I think -- and that's basically been pushed back to first quarter this fiscal year. So the first quarter, we have been -- we are assuming that the sales is going to be robust. That's about the backlight.

And for MITSUMI, so for the machined components, the supply chain is somewhat decelerating. However, year-over-year, it's on the positive trend. So that will be reflected on the sales. And with optical devices, again, the same trend. And ABLIC's 2-month worth of contribution can be added on. So year-over-year, I think we'll be able to see a considerable level of increase in revenue.

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Kenji Yahiro, MinebeaMitsumi Inc. - Manager of IR [46]

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Any other questions? (Operator Instructions) UBS Securities, Hirata-san.

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Shingo Hirata, UBS Investment Bank, Research Division - Director and Analyst [47]

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This is Hirata from UBS Securities. I have 2 questions. One, actuator business taken up by MITSUMI. For 2021, you have a strong outlook, and I want to know more about the background. Smartphone market is likely to deteriorate about 10%. But you anticipate growth. Do you anticipate the growth by increasing share or growth in China and installation rate? So what is your views on that?

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Katsuhiko Yoshida, MinebeaMitsumi Inc. - Senior Managing Executive Officer [48]

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With regards to our share, I don't think we are in an appropriate position to comment on that, but we should be able to maintain about the same level of share as last year. And average selling price has been increasing as things have got more functionalities. So the average selling price and unit price have been increasing in North America as well as in Chinese market. So we are seeing more business opportunities. So that is how we project about actuators.

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Shingo Hirata, UBS Investment Bank, Research Division - Director and Analyst [49]

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The other question is about the guidance. So in MITSUMI business, you said that ABLIC's numbers are included. Can you be more specific about sales and operating income?

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Katsuhiko Yoshida, MinebeaMitsumi Inc. - Senior Managing Executive Officer [50]

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I cannot share with you exact numbers, but the numbers that we published of more than JPY 30 billion sales and more than JPY 4 billion profit. So those are the actuals from last year. And we are to -- we have been accumulating even more profit since then.

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Shingo Hirata, UBS Investment Bank, Research Division - Director and Analyst [51]

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So JPY 30 billion or JPY 4 billion are to be exceeded, and in terms of the contribution?

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Katsuhiko Yoshida, MinebeaMitsumi Inc. - Senior Managing Executive Officer [52]

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Yes, that is right.

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Kenji Yahiro, MinebeaMitsumi Inc. - Manager of IR [53]

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So again, this is Mr. Goto from Mizuho Securities.

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Fumihide Goto, Mizuho Securities Co., Ltd., Research Division - Senior Analyst [54]

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Can you hear me?

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Kenji Yahiro, MinebeaMitsumi Inc. - Manager of IR [55]

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Yes, please go on.

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Fumihide Goto, Mizuho Securities Co., Ltd., Research Division - Senior Analyst [56]

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Sorry, this is the second time for me. For the ball bearings, JPY 180 million to JPY 190 million first quarter outlook. So what is the breakdown by application? Is there any change in the breakdown by application? Last year's -- middle of last year, I think it was about JPY 180 million. I think the fan motor applications was half compared to the past, and the automotive was basically holding its level. So we went back to JPY 20 million -- JPY 10 million then it's going to come down again. So if you go by application, what's the breakdown between in that by application within JPY 180 million to JPY 190 million for bearings?

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Katsuhiko Yoshida, MinebeaMitsumi Inc. - Senior Managing Executive Officer [57]

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So I think it's the completely reverse of last year. So automotive is going to go down substantially. That is the forecast for the first quarter. On the other hand, fan motors, we are going -- predicting very -- we are -- we're seeing very strong orders. So currently, so the business plan that we have compiled before the coronavirus situation I think basically is even stronger than that for fan motors.

So the fan motors, compared to the past peak, maybe more than JPY 10 million, and automotive is basically half compared to the past. I think that is that the breakdown you're talking about. Maybe not half automotive, but automotive. I think tens of percentage points decline is in first quarter. For the fan motors, the past peak, I think it's going to exceed the past peak. Summer months, we'll be exceeding the past peak for fan motors.

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Fumihide Goto, Mizuho Securities Co., Ltd., Research Division - Senior Analyst [58]

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So about -- because data centers or the 5G telecommunication infrastructure business is increasing, is that the reason why?

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Katsuhiko Yoshida, MinebeaMitsumi Inc. - Senior Managing Executive Officer [59]

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Yes, yes. That's our understanding.

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Fumihide Goto, Mizuho Securities Co., Ltd., Research Division - Senior Analyst [60]

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So if that is the case. In terms of the mix of the profitability, is this a positive?

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Katsuhiko Yoshida, MinebeaMitsumi Inc. - Senior Managing Executive Officer [61]

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So I think basically, we have to think which plant is going to operate and how is the inventory level. So we cannot give you a kind of a one-fits-all answer. But with these conditions in mind, how are we going to operate efficiently? I think that's what we have to consider. Thank you.

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Kenji Yahiro, MinebeaMitsumi Inc. - Manager of IR [62]

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Morgan Stanley, Mitsubishi UFJ Securities, Sato-san.

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Shoji Sato, Morgan Stanley, Research Division - Analyst [63]

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This is Sato from Morgan Stanley. I have 2 questions. One, MITSUMI optical-related business seems to be very robust recently. And by region, which region is stronger than the others? And additional values will be heightened, starting with this year's model, so I heard. So shipment of those products, when the shipment will start, if you could tell me. That is my first question.

My second question is ball bearings. April to June external sales, JPY 180 million to JPY 190 million is the guidance. And when do you think things will actually start to pick up in a full-fledged manner So when you say recently, do you mean first quarter? And you think April to June will be also strong?

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Katsuhiko Yoshida, MinebeaMitsumi Inc. - Senior Managing Executive Officer [64]

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Well, April to June will be affected by seasonality. So compared with Q4, it will be -- it will go down, but towards Q2, it will increase once again. And by region, North America -- because of seasonality in North America, the production will increase going forward. And the Chinese market has a different seasonality. So Q1 and Q2, we may not see an increase.

May I -- may I speak about the actuator? Or if that is the case, the new products to be shipped in North America, the shipment will start in Q2. Inclusive of the new products, there will be a peak in Q2 and Q3.

And ball bearing recovery pattern, as Kainuma explained a while ago, it depends on the recovery scenario of COVID-19, but Q1 shall be the bottom. Automotive utilization hit the bottom. And Q2 onwards, we shall see some kind of recovery. If that is the case, with regards to production, if I may repeat, the Q1 is the bottom, on my right.

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Shoji Sato, Morgan Stanley, Research Division - Analyst [65]

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So April to June will be worse than January to March. That is the projection you have at this point in time?

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Katsuhiko Yoshida, MinebeaMitsumi Inc. - Senior Managing Executive Officer [66]

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Well, the inventory level is another factor we need to consider, and to what extent demand will recover will be one of the questions. But Q2, in terms of the production, Q2 is likely to be better. That is how we think at this point in time.

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Kenji Yahiro, MinebeaMitsumi Inc. - Manager of IR [67]

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So is Izumi-san from SBI Securities, can you try to connect again?

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Yoshiharu Izumi, [68]

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Hello? Hello?

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Kenji Yahiro, MinebeaMitsumi Inc. - Manager of IR [69]

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Yes, we can hear you. Go ahead.

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Yoshiharu Izumi, [70]

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For the automotive-related business, so there's a lot of pessimistic situations, but there are a lot of plants or the companies that are reopening their production. So maybe if you have this coronavirus situation, I think people will want to drive their own cars more. I think that has been kind of a talk.

But for your business, in terms of the future outlook for the automotive business, what is your outlook? Can you give me a hint? And this is a very short-term question, but from your point of view, so the supply chain for the automobiles, they -- I think -- I understand this a lot. Do you think there is a lot of inventory in tier 1? Even if the production for automobiles restart, in terms -- and do you think that there will be a lot of time lag for you to actually feel the recovery of the production?

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Yoshihisa Kainuma, MinebeaMitsumi Inc. - CEO, COO, Chairman & President [71]

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Well, basically, exactly as you pointed out. So what is going to be -- happen going forward? We don't know because maybe people think that it's safe to drive your own car because I think we have allowed people to use their own cars for commuting, and the gasoline prices are becoming cheaper. So if things stay this way, maybe that will be true.

However, to be frank, at this point, to make any prediction is very difficult. But our assumption is that, as we have said, this April to June, everything has stopped. But things have started to be started, meaning that this first quarter should be this bottom. Then from this bottom, what will be the recovery trajectory? I think this -- that depends how this pandemic is contained or controlled. However, if you look at the current situation, I think in terms of the countermeasures for the pandemic, I think, basically, has been disseminated because we have 90,000 people as employees, but nobody was infected. So maybe 90,000 people, some are asymptomatic, maybe because they're taking countermeasures or related infected people. Maybe the -- if they come out, and then if you get to understand this kind of situation, I think the production activity will recover. So in terms of components, like automotive components, U-Shin is the biggest portion. So Tier 1 has a lot of inventory. I don't think that there will be a delay because we -- they handle bigger components, and then they use the Kanban method. You don't think that there's a bid a lot of inventory. But there is some things that we have produced too much and it's piling up, for instance. So for instance, the driving angle sensors for the automobiles, we maybe made too much of these. So maybe things are different product by product. But within the mainstream products of our automotive components, I don't think that there are many major issues.

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Kenji Yahiro, MinebeaMitsumi Inc. - Manager of IR [72]

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The time has come to end the meeting and therefore we would like to close the Q&A as well as this analyst meeting. Thank you once again for joining us.