Investor Relations | IR Events | Performance Briefing

[ 3rd Quarter of fiscal 2015 Performance Briefing ]Q&A

Q1. Were you anticipating impairment loss at the time of the previous performance briefing? Also, could you tell us about the anticipated effect for the next fiscal year and whether any further impairment losses are expected for 4Q?
A1. The impairment loss was not anticipated at the time of the last briefing. As to the amount of the effect on the next fiscal year, in the metal magnet business we expect an annual reduction effect of around 1 billion yen in depreciation and amortization. We do not plan to record any further impairment losses during 4Q.
Q2. My question is about high-frequency components. Could you tell us about the current situation with modules? Also, could you provide an update on how you expect it to change going forward?
A2. The orders for discrete products have exceeded our plan. In modules, orders that we had originally expected from customers have been lower than our plan. However, in 4Q customers will launch new models and our modules have been qualified for a comparatively large number of these. We therefore expect orders to increase going forward.
Q3. Please provide an update on the situation with VCM and OIS.
A3. We have been selling VCMs mainly to customers in China. VCMs for low-resolution applications are seeing more intense competition; however, we will also launch VCMs for high-resolution applications in response to market needs. Furthermore, as I mentioned at the Business Strategy Meeting the other day, we are currently proceeding with the start-up of OIS, and we plan to achieve growth with VCM and OIS going forward.
Q4. With regard to HDD heads, the forecast for the 3Q shipment index as of the end of October was 106, but the actual index has risen sharply to 117. Could you explain the background to this? The indexes for 3Q and 4Q average out to 106 exactly – does that mean shipments were brought forward?
A4. I believe the actual HDD market shipment volume for 3Q has been announced as around 141 million units, but initially, it was assumed that the overall number for the industry would be around 145 million units. Our understanding is that HDD manufacturers purchased components rather actively based on the assumption of this previous figure. We therefore see the possibility of a slight correction occurring in 4Q, so to answer your question, yes, in the end result shipments were brought forward.
Q5. Could you explain about the new product ratio of HDD heads?
A5. The new product ratio I believe is currently around 30%.
Q6. How will this ratio increase going forward?
A6. Looking ahead we think it will increase to nearly half.
Q7. In HDD heads, the plan is for a considerable decline in shipment volume from 3Q to 4Q. How will your capacity utilization change? Also, we have just heard that servers are growing; could you explain how the product mix will change? And what impact will the change have on earnings?
A7. As you point out, the shipment index changes from 117 in 3Q to 95 in 4Q. In 3Q the data center-related markets for near-line and high-end products performed fairly strongly, and there was also strong demand mainly for external HDDs in the 2.5-inch market. We are expecting the decline in 4Q partly due to seasonal fluctuations, but also due to a correction from the strong demand in 3Q. Furthermore, 500 GB heads for 2.5-inch HDDs have been in the market for some time now since their launch, so there is a gradual shift towards in-house production among HDD manufacturers. We have also factored such changes into our plan. With regard to capacity utilization, naturally we expect it to decline a little as volumes decline.
In terms of the product mix, there are two main factors affecting the situation. As I mentioned just now, the data center-related markets for near-line and high-end products will continue to expand steadily, but products such as the previous generation of 2.5 inch 500 GB heads will gradually shift to internal production. We therefore expect things to move in a positive direction for us as far as product mix is concerned.
Q8. Earlier, you mentioned that you are expecting an annual reduction effect of 1 billion yen in depreciation and amortization in the metal magnet business. Even with this, it seems that earnings will still be under pressure. Could you explain in a little more detail about your earnings in the metal magnet market in the next fiscal year and beyond?
A8. With regard to metal magnets, we have been focusing our business mainly on the automotive markets up until now, but since there is a time lag between getting various qualifications for new products and moving to actual mass production, we recognize, frankly speaking, that next fiscal year the situation may continue to be a little tough.
However, we are making progress in winning customers’ approval for our new type of magnets, which is certainly a good sign for the competitive advantage of the new products. Also, in terms of cost improvements, the recent impairment loss has made us stronger, and we will continue to make steady progress next fiscal year.
Q9. What is the situation regarding the joint venture on upstream processes with a Chinese manufacturer.
A9. We think that in the future we will be able to supply new products in the Chinese market, especially to Japanese-affiliated customers.
Q10. Could you please explain about the changes in segment sales for 4Q?
A10. Subtracting the nine-month sales of 802.7 billion yen from the full-year target of 1,080.0 billion yen, 4Q sales will be 7.7% lower than the sales recorded for 3Q. By segment, we envisage declines as follows: Passive Components Segment, approximately 4%-5%, Magnetic Application Segment, 9%-11%, and Film Application Segment: 5%-7%.
Q11. At the previous performance briefing, I believe you said that you would be devising new approaches to 4Q production and inventory control starting this year. Could you tell me what you are thinking about that now?
A11. As I have explained in the past, we will focus particularly on the balance between our order forecast and inventory level for the period from March, after the Chinese New Year takes place, until April and May, which are in the following fiscal year, and increase inventories for those things that we can.