Minebea Mitsumi Inc

TSE:6479

Earnings Call Analysis

Strong Q1 Results and Positive Outlook for the Year

In the first quarter of fiscal year ending March 2025, net sales grew 21.6% year-on-year to JPY 355.5 billion. Operating income tripled year-on-year, reaching JPY 20 billion. Despite a quarter-on-quarter decline, net profit attributable to owners of the parent rose 3.4x year-on-year to JPY 13.9 billion. Strong performance in data center markets and automotive industries led to higher-than-expected sales in multiple segments. The company revised its full-year forecast upwards, now targeting JPY 1.56 trillion in net sales and JPY 103 billion in operating income.

Company Performance Overview

The company had an impressive first quarter for the fiscal year ending March 2025, with consolidated net sales rising 21.6% year-on-year to JPY 355.454 billion. Operating income saw a threefold increase year-on-year to JPY 20.025 billion, although it experienced a slight dip of 1.6% quarter-on-quarter. The profit for the period attributable to the parent surged 3.4 times year-on-year to JPY 13.936 billion, though it declined by 24% compared to the previous quarter.

Strong Segment Performance

The Precision Technologies segment showed a significant 7.8% increase in net sales quarter-on-quarter, reaching JPY 62.7 billion. Operating income jumped 18.4% to JPY 13 billion, resulting in a 20.8% operating margin. The Motor, Lighting, and Sensing segment also performed well, with net sales increasing by 2.2% quarter-on-quarter to JPY 99.1 billion and operating income rising by 42.1% to JPY 5.1 billion.

Challenges in Some Segments

Not all segments were without challenges. The Semiconductors and Electronics segment saw a modest 1.6% rise in net sales quarter-on-quarter but experienced a 50.4% drop in operating income to JPY 4.7 billion. The Access Solutions segment faced difficulties due to stagnant sales in the Chinese market, resulting in a 1.8% decrease in net sales quarter-on-quarter to JPY 81.5 billion.

Optimistic Future Outlook

Despite some challenges, the company remains optimistic. They forecast consolidated net sales to reach JPY 1.56 trillion and operating income to hit JPY 103 billion for the full fiscal year ending March 2025. Key growth areas identified include an expected recovery in data centers and automotive applications.

Inventory and Debt Management

Inventory levels at the end of the first quarter stood at JPY 359.6 billion, up by JPY 64.7 billion from three months earlier. This was largely attributed to a strategic inventory build-up and foreign currency effects. Net interest-bearing debt increased by JPY 42.6 billion, totaling JPY 251.2 billion. The company plans to manage this through increased operating cash flow and judicious capital expenditure.

Revenue Guidance and Market Conditions

The company revised its full-year forecast upwards, reflecting optimism about market conditions. Segment-wise, revenue guidance was increased for all business units, while operating income guidance was revised upwards for the Precision Technologies and Motor, Lighting, and Sensing segments. The company assumes an exchange rate of JPY 140 to the U.S. dollar in these forecasts.

Focus on High-Value Products

The company is focusing on high-value and high-margin products, particularly in the motor segment. They expect margins in this segment to approach 10%, driven by the introduction of higher added-value models. Although profitability is not projected to reach double digits within the year, there is an expectation that certain months will see margins over 10%.

Recovery from Segment-Specific Issues

The motor, lighting, and sensing segment experienced profitability improvements due to a better product mix. However, electronic devices underperformed against expectations. Despite this, the segment as a whole is showing progress towards higher profitability, with an ongoing focus on improving product margins.

Strategic Moves and Market Dynamics

In the automotive sector, the company reported successes such as achieving a 5% operating margin for formerly loss-making segments and profitability improvements in U.S. operations. Contributions from new high-end products for manufacturers like BMW were highlighted as signs of strategic progress.

Foreign Exchange and Market Risks

The company acknowledged the potential risks posed by foreign exchange fluctuations. Despite a stronger yen in recent days, the company remains confident in achieving its main targets by managing these risks through strategic planning.

Earnings Call Transcript 2025-Q1

[Yoshihisa Kainuma, executive]

[Interpreted] Hello. This is Yoshihisa. Today, I would like to first explain the consolidated financial results for the first quarter of fiscal year ending March 2025. Consolidated net sales for the first quarter of fiscal year ending March 2025 was up 21.6% year-on-year and up 1.9% quarter-on-quarter to total JPY 355.454 billion. Operating income increased 3x year-on-year and down 1.6% quarter-on-quarter to total JPY 20.025 billion. Profit for the period attributable to the owners of the parent increased by 3.4x year-on-year and decreased by 24% quarter-on-quarter to total JPY 13.936 billion.



Net sales and operating income hit in first quarter record high. We estimate that foreign currency exchange rates have a quarter-on-quarter impact of plus JPY 11.5 billion on a year-on-year basis, an impact of plus JPY 33.6 billion in net sales. Quarter-on-quarter impact was plus JPY 2.6 billion and year-on-year impact was plus JPY 6.8 billion in operating income. Next slide, please. This is the quarterly trend in net sales, operating income and operating margin. The operating margin for the first quarter was 5.6%. This was up 3.3 percentage points year-on-year and down 0.2 percentage points quarter-on-quarter. Please go to the next slide.



This shows the difference between the forecast as of May and actual results for net sales and operating income by business segment for the first quarter. Net sales of PT exceeded the forecast due to the recovery of the data center market from the bottom and the robust sales for aircraft applications. MLS sales exceeded expectations due to motors mainly HDD motors and motors for automotive applications, but sales of electronic devices fell short of the forecast. SE sales was above expectations, mainly in optical devices and mechanical components. AS was above expectations in automotive devices. Operating income for PT exceeded the forecast mainly due to an improvement in production volume of ball bearings. MLS exceeded the forecast, thanks to mix improvement.



SE exceeded the forecast partly due to the effect of increased sales. AS was generally in line with the forecast. Please go to the next slide. This slide shows the quarterly trends of the Precision Technologies segment. On the left is a graph indicating yearly net sales trends, and on the right is a graph with the bar chart showing yearly operating income trends along with a line chart for operating margins. First quarter net sales increased 7.8% quarter-on-quarter to total JPY 62.7 billion. Sales of pole bearings increased 8.1% quarter-on-quarter to total JPY 42.4 billion. The monthly external shipment volume was up 6.1% quarter-on-quarter for an average of 223 million units. This was due to recovery in the fan motors mainly used in the data centers. Sales of rod ends and fasteners totaling JPY 4.14 billion were up 3.8% over the previous quarter. Sales of PMC increased 17.2% quarter-on-quarter to total JPY 5.8 billion.



Operating income for the quarter totaled JPY 13 billion, and operating margin was 20.8%. On a quarter-on-quarter basis, operating income increased 18.4% and operating margin rose 1.9 percentage points. Please go to the next slide. This slide shows the quarterly trend for motor, lighting and sensing segment. Net sales increased 2.2% quarter-on-quarter to total JPY 99.1 billion. Looking at the results by product, we see that sales of motors increased 2.6% quarter-on-quarter to reach JPY 77.1 billion. This is mainly due to the strong sales of motors for HDDs and solid sales of motors for automotive applications. Sales of electronic devices were up 3.9% from the previous quarter to a total of JPY 7.4 billion.



Sales of sensing devices were down 0.7% from the previous quarter to total JPY 9.1 billion. Operating income came to JPY 5.1 billion, and operating margin was 5.2%. On a quarter-on-quarter basis, operating income increased 42.1%, and operating margin rose 1.5 percentage points. Please go to the next slide. This slide shows the quarterly trends for the semiconductors and electronics segment. Net sales increased 1.6% quarter-on-quarter to total JPY 111.2 billion. This was mainly due to the incorporation of Minebea power semiconductor devices. Formerly [indiscernible] semiconductor devices, we became a consolidated subsidiary as of May 2, 2024. Operating income totaled JPY 4.7 billion, while the operating margin was 4.3%. Operating income decreased 50.4% and the operating margin fell 4.4 percentage points quarter-on-quarter. Please go to the next slide.

[Kenji Yahiro, executive]

[Interpreted] This slide shows the quarterly trend for Access Solutions segment. Net sales decreased 1.8% quarter-on-quarter to JPY 81.5 billion. This was mainly due to stagnant sales in Chinese market despite the increase in sales in automotive devices. Operating income came to JPY 3.0 billion, and the operating margin was 3.7%. Operating income increased 31.6% and the operating margin rose 1.0 percentage points quarter-on-quarter.



Moving on to the next slide. The bar graph here shows trends in profit attributable to owners of the parent, while the line graph changes in the profit for the period per share. The profit for the period was JPY 13.9 billion. Earnings per share was JPY 34.5. Moving on to the next slide. Next, we have the quarterly inventory trend. At the end of the first quarter, inventory totaled JPY 359.6 billion, which is JPY 64.7 billion more than what it was 3 months ago. This was mainly due to the strategic buildup of inventories needed to meet the expected increase in sales in the second quarter onward as well as foreign currency effects.



Moving on to the next slide. This graph contains a bar chart showing trends in net interest-bearing debt, which is total interest-bearing debt minus cash and cash equivalents and the line chart indicating free cash flows. At the end of the first quarter, net interest-bearing debt totaling JPY 251.2 billion was up JPY 42.6 billion from what it was at the end of the previous fiscal year. Although operating cash flow is expected to increase at the end of the fiscal year ending March 31, 2025. The company expects to make expenditures mainly in M&A related expenses for Minebea power semiconductor devices and other companies.



Moving on to the next slide. We made up for the deprovision to the full year forecast for the fiscal year ending March 31, 2025. We now target net sales of JPY 1.56 billion and operating income of JPY 103 billion. The full year forecast factoring only the amount by which the first quarter results exceeded the forecast in terms of both sales and income. The details of by segment are shown on Page 14, regarding sales, we revised upward in each business segment. For operating income, the PT and MLS segments have been revised upward. The AS segment remains unchanged, and the SE segment has been revised downward. The exchange rate is assumed to be JPY 140 to the U.S. dollar.



Moving on to the next slide. This slide shows the forecast by business segment. Moving on to the next slide. This chart shows the difference between the revised forecast at this time and the forecast as of May. This is all for my presentation.

[Yoshihisa Kainuma, executive]

[Interpreted] So please turn to the next slide. So I think these are today's points that I want to talk about. But basically, please take a look at this at your later. But I think what is mistakenly can be said is that we have gone back to the vehicle situation. In terms of additional industrial machines, machinery hasn't started to recover. But currently, I think we have started to see some positive stories. So I think the bottom out has been seen without mistake. So these factors, I think, basically, it's not that all come back to the full recovery.



But overall, I think it's going back to pick of it level. So second point is that the earnings coming from the backlight business has basically gone out. But the work situation has a positive for us, we have the highest level of financial results. Going forward, I think we have a very positive outlook. And I would like to share why I think so from now on. Let's go to the next slide. So I think what we're expecting in the second quarter is quite positive. However, I don't -- in terms of the ForEx situation, I think that you can understand what's happening right down on the third quarter -- or the second quarter on and in terms of what decision we're going to make. I think we want to take some more time to consider our outlook for the second quarter and onwards. So on a year-over-year basis, operating income has tripled. So I have talked about this in May.



So we have the high-end small lot diverse products has come back and the machine components that has a high value, and then we have been able to see these type of products come back. So maybe this in 2 days, the yen has gotten stronger by JPY 10. If you look at the fourth quarter ForEx rate, it was JPY 123.14. So I don't know whether it's between JPY 149 and JPY 150. So we have that difference in [Tiber]. So actually, so the 36.38 to the dollar. And today, well, it depends on the time of the day. So THB 35.56 to the dollar. So I think this is among our range. I think we'll be able to achieve the main target.



Then let's go to the next slide. So what we have been saying repeatedly is that the economic situation -- what will lead the economic recovery will be bearing business. So when the economy is going down, the ball bearings will be the last to fall. As you can see, the ball bearings has started to recover. In July, so it's about JPY 300 million. I just ended; we closed the books 2 days ago in July. So 299.9650 units. So 300 million units, and we've been able to be close to $200 million in terms of the unit -- so before COVID this happened very briefly. But going forward -- so August, we'll have the summer vacation. But for September, October, November. So for November, I think, will we be able to exceed 300 million overall bearings. And you can see in this chart, you can gradually -- we are seeing an increase in terms of volume.



By application specific numbers, we don't disclose that. But for April into life, we compare these 2 months. So it's for fans, 43% up. And this is due to the data center market. It has started to recover. For the medical applications, is 51% increase. You can see that currently, we have a very strong market and pivot. We have -- data centers is going to recover and increasing. So 20 million pieces. So whether it be internal sales or external sales, this has gradually increased and that's the situation for ball bearings. And the rest is shown on the slide. So that is the current situation of the market. And I think this is quite realistic that this is the reality that we are seeing right now.



And then let's go to the next slide. So here, I think you can read it at your leisure. But as you can see, the data center-related demand has started to come back. And I think that's what happened right now. The ordering motors, we have been focusing on various profitability improvement initiatives and the margin has started to improve. As I have said, smartphones, basically, that business has ended. But in terms of the profit, we have no issue even if we don't have this business. So the smartphone issue of the -- I think basically, what -- this quarter would be the last time we'll be talking about the smartphone business.



And then let's go to the next slide. So SE semiconductor and electronics. As you can see, this is shown here. The optical devices more than we have expected a couple of percentages shares, what we lost a couple of percentage points of shares. So I'm sure you have heard about that. And I think that's true because our ramp-up has been a bit delayed. That's one of the reasons. But in terms of the impact of the overall situation, I think it's quite marginal. So I don't think that's a big issue that we have here. And the optical devices, we call this a sub core business. But due to our spear strategy, we had to make our products very resilient, and that has become effective. Not all of the products are showing their best performance. Well, that's very difficult to achieve in the first place. There are some differences product -- business product.



But more -- if we have more businesses that are positive, we will be able to see these results. And we have no major concerns. Even if the share trend at the situation, the overall impact on our overall business won't be that large. And if the recovers, I think there will be a positive factor on the business. So going to the next slide. So there are 3 major topics that I would like to refer to, first and foremost, for the automotive devices. So the former MITSUMI was used to make antennas, et cetera. So they have been able to generate more than 5% operating margin at last. So they have been loss making for a long period of time. And so at last, they have been able to show results.



And gradually, but gradually, the operating profit has increased. And I think this will be a very promising business. I look forward to this business. And the second point is that in the U.S., so the former Honda Lock factories has turned profitable. So from these factors, well, the situation in China, as you know, our customers are struggling in the China market. So of course, the component makers have been impacted by the situation, but there are differences depending on the product, of the automotive devices has started to recover, the U.S. has become profitable. So the deceleration in China, I think we can do have a system that we can offset the declaration in China.



So the third point is that we have been able to get the approval from the BMW and we're disclosing this. At last, what wing handle is going to be used. So I think a lot of people complained why are you in the consolation segment during COVID. But as we have been always saying, so because the technological change is going to happen here, that is the very reason that we are in this business. This will become electronic component but at last, well, if we come to this point, nobody will be expecting us, but we have been able to come to this point. So the passion and vision create -- so we have a passion to create a difference.



So this has allowed us to bring out this product. So this integration has been a slogan, and we have been conducting business in this way. So for this -- for the access products for the high-end vehicles, I think things are going to change going forward, but we will be able to enter this market personally. I think this is a very pleasing thing.

[Kenji Yahiro, executive]

[Interpreted] So I just talked about the BMW but also other manufacturers as well are also introducing similar technologies. So I cannot disclose their names, but that's the current situation we find ourselves in. The next page, please. At this point in time, the current overview or the situation of the company as well as our future. So we've had a 15-year trajectory, and we talked about this back in May, and there are 3 points that I want to talk about. So the first one is that we have had a success of structural reform.



So we were able to make a record high of JPY 68 billion. And then LED backlight accounted for the majority of it. But this is now gone. But despite that JPY 100 billion has been achieved, so we were successful in structural reforms. And also, I couldn't put everything on this slide. So there are new all sorts of products, which will be launched going forward in the market. So finally, at last, we will be reaping the benefits. There is what had to happen in my view. And above all operating margin is low. Some people have appointed this one out. But recently, within the company, we are also trying to improve on actual operating margin.



So we need to buy for customer products supplied parts and excluding them a true operating margin, if you like a 10%, we'd like to achieve this. And if that happens, JPY 2.5 trillion, JPY 250 billion, we will be more convincing numbers. So this is JPY 2.5 trillion sales and JPY 250 billion. In operating income targets will be maintained and operating margin will be what we will be focusing on going forward, we will start in a sort of a management already.



So the next page, please. Currently, since the financial crisis, the Japanese market is now declining share price is coming down, but with a long-term viewpoint, we would like to do a share buyback. Having said that, today, this will be disclosed. The performance linked share system. There is a notice in regards to that and also performance linked continuation the determination of our third-party allocation about the disposal of our treasury stocks.



According to that notice for executives, additional trust-related disposal of our treasury shares will happen on the 20th of August. So this will take place. And until we finish this, it's not possible for us to do a share buyback. There are such regulations in place. So we will start a share buyback on the after the 21st of August and until December 23, 2024. That is what we are planning to do. So that's all for my explanation. Thank you very much.

[Operator]

[Interpreted] Next, I would like to go into the Q&A session. So there's a first question that is going to be asked from Goldman Sachs Securities Daiki Takayama please.

[Daiki Takayama, analyst]

[Interpreted] I have 3 questions. First of all, this is about a comprehensive question. This is about the strength of data centers compared to the beginning of the year, it has become stronger and we have some good visibility about that. So I think this is contributing to the full year lift of the precision and the models. But in terms of the reflection of this situation, in terms of Kainuma review, is it going to be above your guidance I think you spoke quite strongly about the situation.



So in terms of the -- how far do you think that the data center is going to go upwards. In terms of the risk for the automotive business, according to what I have said, I think you said that more or less you can be able to hold your ground, but the risk is worsening. So for the ex-solution for the same motor business, do you have to do review your plan? So what is the plan that's already incorporated what is a positive and downside risk that is not may come up going forward?

[Yoshihisa Kainuma, executive]

[Interpreted] Well, first of all, I think, generally speaking, the upward revision that we have made this time is for the first quarter. Well what we have seen an increase compared to the plan for the first quarter in the first place. So it's a straightforward revision. In terms of the risk evaluation, as I have just said, there are some differences depending on the products and businesses. As of the current stage, we think we can absorb any differences or ups and downs. And I think that's the way to understand what we're saying. So first of all, for the ball bearings, the number volume for the data centers. It is -- I'm not saying that we're going to see an increase of the ball bearings for the data centers. But the second quarter onwards for the sub core business the profit contribution is going to start to come in.



And this seems to be stronger than we had expected. For instance, smartphones. So there is some adjustment in the market, but I think the -- we're now entering in the replacement stage for smartphones, and there is some -- and for instance, AI embedded smartphones. I do not think that we have to be overly pessimistic about the situation. So currently, we have started to see recovery. In terms of the ball bearings indicator, it's not the case that we are seeing a record high. Compared to April, as I have said, we have seen a recovery. So as of now, we think we can absorb any downturn through these types of individual factors.

[Daiki Takayama, analyst]

[Interpreted] Understood. So, my second question, so this is about the actuators. So, you said that your ramp-up delay, you lost some share. Can you elaborate what's happening? And on the other hand, it's a short-term situation, and so you can resolve this. It's only about the ramp-up. So, can you give us, for instance, the timeline in terms of when you can -- you think you can resolve the situation?

[Kenji Yahiro, executive]

[Interpreted] Yoshihisa is going to answer.

[Yoshihisa Kainuma, executive]

[Interpreted] As Kenji Yahiro has explained at the beginning. So, the new -- some of the models were the new bundles that they ramp-up has -- there was on trouble at the ramp-up stage. So, in terms of the share, we -- I think we have maybe lost some share. So currently, this trouble is being resolved. And from the second quarter onwards, specifically from all this onwards, more or less, we will be able to go back to the normal utilization and the manufacturing situation. So that's what's happening right now.



So, in term -- and if you compare it to the guidance, even if we incorporate these factors, the -- compared to the original guidance, we are overachieving. So, the first quarter and second quarter -- from the first quarter to the second quarter, the mark seasonality manufacturing is being front loaded in terms of the overall volume, we are taking a conservative view.



So this for the -- for this one new model, even if you are losing some share. And in terms of the share that we have lost, it's not that much. Even if we reflect that for the original guidance that we gave in May. Against that, we are over that. For the full year, we think we'll be able to or against the guidance that is, we think we'll be able to be -- achieve the guidance -- that's the current situation.

[Daiki Takayama, analyst]

[Interpreted] I understood. So the June and inventories has gone up. Is that the reason? Because of the situation or this is a normal situation?

[Yoshihisa Kainuma, executive]

[Interpreted] Well, foreign currency is one factor. Another factor is for the Hitachi par device. Well, for the Minebea par device, we have newly consolidated about JPY 20 billion. Inventory has increased due to tele consolidated Minebea part device. And it's not that the inventory is going up because of the trouble because the demand season is in the second quarter for the game consoles. So the former model production peak was in the first quarter. So these type of products that has a seasonality. The peak tends to be in the first quarter and the second quarter. So we have the inventory to be prepared for the seasonality. So it's not the case that the inventory has gone because we have lost the share.

[Daiki Takayama, analyst]

[Interpreted] Understood. So going to the third question related to the PPS questions, for the SE profit outlook, we have downgraded that, meaning that the semiconductor actuator game, if you can divide it into 3. So where do you see the decline in these 3 business areas?

[Kenji Yahiro, executive]

[Interpreted] Well, I do not think that actually is going to go down to this level. But as Kainuma has mentioned, -- so PT is good and motor is solid and access solutions for automotive, China and as the inventory situation for some customers has reduced the production this profitability. But so if you increase this JPY 103 billion, maybe we should be a bit conservative for this segment. So -- maybe this is just trying to make me so to speak. But that said, if you look at the semiconductor business, this will be the same as the previous guidance. On the optical devices, at JPY 1 billion with the other product group, we have been conducting adjustment so that basically, we can show the numbers. So semiconductor is the same and optical device is JPY 1 billion.

So I don't think that's such room for adjustment for other products. Well it's very tough to explain that. So there's no major adjustment.

[Operator]

[Interpreted] Let's move on to next question. [indiscernible] MUFG. Sato Shoji.

[Shoji Sato, analyst]

[Interpreted] My name is Sato. So I have 2 questions, please. The first question is -- it is about a number. I'm afraid, from April to June and July to September ball bearing production, external and internal sales monthly year breakdown? Would you be able to provide those details? And that's my first question.

[Yoshihisa Kainuma, executive]

[Interpreted] Okay. A ball bearing production. First in April, the actual is unit is JPY 100 million, 245, 268 and 266. This is the actual. And then from July onwards, at JPY 281, 276 and 283 million. And as for sales in April, external sales would be JPY 217, 219, 232 million. Those are the actuals up to June and then July, once again, actual is JPY 245, August 229 and 240 million for September. And also, as for internal sales from April JPY 49, JPY 46, JPY 50, JPY 55, JPY 54, JPY 49 million for each month. So this is the outlook we have.

[Shoji Sato, analyst]

[Interpreted] Okay. Thank you -- thank you very much. So this time around, on a full year, external sales plan is maintained pretty much. And the internal sales is a JPY 10 million ups increase. Again this is a backup drop, what is your full year production plan compared with the May plan? How has it changed or how will it change?

[Yoshihisa Kainuma, executive]

[Interpreted] Well, at this point in time, in the second quarter, at the average production number will be JYP 280 for the Q3 JYP 300 for fourth quarter JYP 316 million. So there will be a gradual increase. That is our assumption. So it is going up now. And also the sales side, both internal and external sales in total Q2 average is JYP 291, 295 and 309 million -- so we really maintaining the inventory level pretty much. And then there will be a difference in terms of operation days and taking that into account, we have this overall plan. That's the current situation.

[Shoji Sato, analyst]

[Interpreted] So against this plan, will there be any more upside or at this point in time, external sales plan compared with usual years, it is the same as usual years? Is that a fair assessment, we should say?

[Yoshihisa Kainuma, executive]

[Interpreted] The assumption is that there will be an upside. So we have some stress scenario here. We are stressing these numbers.

[Shoji Sato, analyst]

[Interpreted] Okay. And my second question is that --my question is similar to the previous question. So is first quarter actual and also change in the second quarter from the first quarter, optical devices have been explained already, but systems and semiconductors, what was the situation in the first quarter? And from the second quarter onwards, a high related trend in your view?

[Yoshihisa Kainuma, executive]

[Interpreted] Well, thank you very much. So breaking down the numbers for you, sales JPY 111.2 billion in the second quarter, JPY 160 in billion JPY 160.7 billion. And in the third quarter, JPY 275.5 billion. So semiconductor in this situation is pretty much in line with the expectation and optical devices, see a slight upside and machinery in the first quarter, it was very strong. And in the second quarter, the system is in line with the previous performance and optical devices will be a double of the first quarter, so the sales will increase. So looking at the optical devices only vis-a-vis the fourth quarter, the first quarter will be down, and then it goes up in the second quarter.



And then in the third quarter, it also goes up. So these are the assumptions. And on top of that, on the profit side, JPY 15 billion in the first half of the year, and then the actual is JPY 4.7 billion. So in the second quarter, JPY 10.3 billion. So the machine components is the same as before. And along with the sales and production increase, semiconductor goes up. And also from May, a power device really has been consolidated. So this portion, these are included in the second quarter. And so for consolidation has happened. So the absolute amount will go up. I believe this is how this will progress.

[Shoji Sato, analyst]

[Interpreted] A follow-up question about machine components in the second half of the year. What is your forecast or outlook?

[Yoshihisa Kainuma, executive]

[Interpreted] As for the machine components in the second half of the year, still it is very difficult for us to foresee. But in the third quarter, it will go down. And then in the fourth quarter, it will go up slightly. That's how we assume – that's assumption.

[Operator]

[Interpreted] [Operator Instructions] Going to the next question over to Akinori Kanemoto.

[Akinori Kanemoto, analyst]

[Interpreted] I have one question. So the motor lighting segment, so the motor has been 10% margin has been achieved. So I would like to ask about the progress. The first quarter segment profit was 4.9% profitability. It doesn't seem that the profitability has improved that much. But the motor has improved and others, the loss has expanded or I would like to know more about the details behind this.

[Yoshihisa Kainuma, executive]

[Interpreted] With motors, profitability has improved, so not as high as double digit, but so it's single digit, but close to double-digits. Well, well, maybe I should this be a strong expression, but it has been improving. In terms of profitability, not loss-making, but was tough was the electronic devices. So against expectations, the profitability was lower. And so I think all in all, that's what's happening with the motor lighting and sensing segment.

[Akinori Kanemoto, analyst]

[Interpreted] So towards 10%, you are progressing towards that. So when this -- are you going to do 10% and this 10% number is floating around?

[Yoshihisa Kainuma, executive]

[Interpreted] So the product mix were late to 10% by 8.7% to 8.8% currently. But going forward, various models, more high added value models is going to come around and I think we'll be able to achieve 10%. But I think it's difficult for us to achieve that in 1 year. But there will be some months that within the year that the margins will go over 10%. That's what's going to happen for this fiscal year. So in the midterm, the 10% started to seem visible. So there are some months that will achieve that level. For this fiscal year, that's what -- this is what's going to happen for this fiscal year.

[Operator]

[Interpreted] And let's move on to the next question. Marusan Securities, Shigekazu Ishida.

[Shigekazu Ishida, analyst]

[Interpreted] So I have some questions about numbers once again about inventories. So earlier, you already provided some explanation on inventories. So on a real-term basis, Q-on-Q increase and a portion, how much? So that's my first question. And also as a result, a P&L impact in the first quarter, for example, profit goes up from the second quarter onwards, will there be a negative impact because of the inventory situation. That is my first question on inventories.

[Yoshihisa Kainuma, executive]

[Interpreted] Well, thank you for your question. Foreign currency effects and also power device impact excluded from the first quarter through the second quarter, approximately a JPY 60 billion increase has happened. So it will be less than half in the end. So the only actual increase is only about JPY 20 billion. So that much a portion because of the game production increase, gaming production increase and also smartphones and production increase is -- and these account for that portion. So on a real-term basis, it's not that we have an excess of inventory. So that's not our understanding of recognition.

[Shigekazu Ishida, analyst]

[Interpreted] And what about the impact on profit?

[Yoshihisa Kainuma, executive]

[Interpreted] So factor inventories around. It's not that we have our inventories of products ramped up. Of course, for the smartphones part, there are some work in progress. It's not that at the overage has gone up and undermining a profit. That's not the case. We are maintaining a normalized production situation. And because of the increased or ramp-up of production, we have some materials are prepared in inventory because especially for smartphones, we have materials prepared for future production. This is the same for games as well.

[Shigekazu Ishida, analyst]

[Interpreted So earlier Akinori also asked a similar question. In your guidance this time around, you revised the guidance, there is an upside for the first quarter. And you simply added that to the revised guidance. So are you also revisiting in the second quarter, third quarter and so on and so forth. And -- is that also reflected in this revised version of the guidance? Because looking at the revision for each segment in the second half of the year, there will be some ups and downs in each segment. So overall numbers to come up with the numbers. Are you just making adjustment for the overall coordination or if it's not the case, I would like to know more about it, please?

[Yoshihisa Kainuma, executive]

[Interpreted] Well, thank you very much for securing materials and also PT and MLS. The current situation on a profit level, if you just maintain the current numbers, there will be so much deviation from a reality. So it is a somewhat a stressed scenario -- is a scenario and SE is doing some more adjustments than other segments. But foreign currency assumption is also changing. So what will happen in the end to that area that is another important question. In the second quarter, we maintained some conservative outlook for the second quarter because if you show completely different numbers, it will confuse and above for all of you. So PT and MLS given the overall situation, somewhat stronger. So SEs are compensating for that. So as a result, SE numbers are more conservative as a result. That is the overall composition.

[Shigekazu Ishida, analyst]

[Interpreted] So in reality, you just added an upside for the first quarter?

[Yoshihisa Kainuma, executive]

[Interpreted] Yes, overall numbers. Your understanding is correct.

[Shigekazu Ishida, analyst]

[Interpreted] And also my third question is that wind handles, you shared a story about that. In Access Solutions, you are you have to be making efforts. And as a result, there are new projects coming your way. What about the sizes of those new projects for the next 2 to 3 years? How much volume or value can you secure with these new projects to the extent possible, please?

[Yoshihisa Kainuma, executive]

[Interpreted] Okay. You're asking about the comprehensive integration projects, flash handle and motors will be introduced. So that is the integration of projects. For example, in Europe, there are some major manufacturers, JPY 100 billion over the next 7 years. So we have one such projects at BMW this time around. I cannot say the exact number because we don't have an approval from BMW, but it's not as big as those. Having said that, it is still sizable. In that sense, we have started winning quite a few projects already.

[Shigekazu Ishida, analyst]

[Interpreted] Okay. And also, AS for China, even China struggles, you'll still be able to cover it with the rest of your business? Could you please elaborate on the risks again. Are you really that confident that you can overcome these risks?

[Yoshihisa Kainuma, executive]

[Interpreted] What would be frank here, well, we are not a god. So we -- I don't know how much magnitude of risks exist. We cannot measure that. But Shigekazu you have been following us for DCS, and maybe not a decade a few years. So probably regrow loss making is a value for us because it becomes a more positive, it becomes profitable, and it will help us. And then as I said earlier, there are this uneven situation across different businesses, and we try to reduce the post-making part, but we are trying to increase the profitable parts and that's why we've been enjoying the growth. So if you just have one product or if you adjust in one region, if you just rely on the one thing that will be appropriate for automotive, China is struggling, but the motorcycles are doing okay. And India, we will establish plants and factories in that country going forward.

[Shigekazu Ishida, analyst]

[Interpreted] So when you look at this overall situation, what will happen in a few months' time?

[Yoshihisa Kainuma, executive]

[Interpreted] That's a difficult question for me to answer. But looking at the overall picture, of course, some demand will go up and then some demand will be gone -- drop. So our current assumption is that, of course, we cannot quantify the magnitude of risks in China. We only know later, but we believe that we can absorb that loss with the rest of the businesses. So that is how we look at the situation.

[Operator]

[Interpreted] [Operator Instructions] I'd like to go to the next question from UBS Securities, Hirata, I'm Hirata from UBS Securities.

[Shingo Hirata, analyst]

[Interpreted] Can you hear me? I have 2 questions. First question. So SE segment, semiconductors. For the -- you have been integrating the Minebea power device for May and the second quarter is going to be fully contributing. So excluding that, in terms of the organic basis, what is the market conditions that you're seeing? So there has been some talk about the adjustment in the Chinese semiconductor business and there's some weakness in the Industrial Machinery business. So from your point of view, on a real basis, what is your outlook about the semiconductor market?

[Yoshihisa Kainuma, executive]

[Interpreted] So for our company, we have been -- a lot of companies under the segment. We have MITSUMI conductor, ABLIC and a power device. And in terms of power device, as I have said before, what we have to do is increase the prices. Another thing we have to do is to -- the customers has struggling. So what we should have been producing, but we have lost that opportunity, but we are trying to catch up.



So these are the things that we have to do. So in terms of the time line, it will take a bit more time. On the other hand, for instance, ABLIC -- so if the server market improves, so we supply that loophole. So this is a high-end product. So it means that we have a lot of products that can offset some of the downside within this segment. For MITSUMI, the power-related semiconductors, I think we have to take that into consideration. But that said, the smartphone volume, if that goes up, well, and again, there will be some downs depending on the situation. And I think all in all, we are in this market condition right now.

[Shingo Hirata, analyst]

[Interpreted] Understood. My second question is about the automotive business. For Access Solutions, -- are you are going to turn around loss-making to the traffic? And I think you have this growth strategy. With the ball bearing automotive applications or for the under automotive applications for those type of segments, what -- how does automotive business, look, I -- so besides the AS segment, what is your outlook for the automotive business?

[Yoshihisa Kainuma, executive]

[Interpreted] So from our point of view, automotive is going to be more and more electrified. There's a lot of factors here a comfortability automobile to become more and more electrified. So [indiscernible] or any other type of mobility. Our business will continue to grow. So in some cases of cars, we use ball bearing and will not. But I think from overall, from our point of view, I think basically, we're going to see a growth in this market.

[Shingo Hirata, analyst]

[Interpreted] So what is the same outlook?

[Yoshihisa Kainuma, executive]

[Interpreted] Yes. Of course, because the number of motors are used in the car is going to increase. And so that's kind of a quasi-motor or so resonate devices, for instance, is going to be used in automobiles more and more.

[Operator]

[Interpreted] [Operator Instructions] Well, thank you very much. Then I would like to conclude the Q&A session here. On that note, I would like to conclude today's briefing. After the meeting is over, you will see the screen of survey for IR activities, your feed park will be very valuable. So please take a moment to respond to the survey. Thank you very much for your participation today.



[Statements in English on this transcript were spoken by an interpreter present on the live call.]