Minebea Mitsumi Inc

TSE:6479

Earnings Call Transcript 2023-Q2

[Operator]

So the time has come, let us start the meeting. Thank you very much for participating for the Medibank MITSUMI 2023 business results briefing for the second quarter fiscal year ending in March 20, 2023. Let me introduce today's participants. From your right, Representative Director, Chairman, CEO and COO, Yoshihisa Kainuma, Director, Senior Managing Executive Officer; Katsuhiko Yoshida. Thank you very much.

First of all, Yoshida will explain about our finance results. And after that, Kainuma will explain about the business update and management strategy. After that, we will have a Q&A session. Today, we are planning to end this briefing by 7:00 p.m. In terms of the various financial statements, we have the financial data and the brief report that is posted on our website. So please refer to those. On the screen that you are viewing, there is a link to a questionnaire. This will be a very precious feedback to our IR activity. We are looking forward to your response. For today's briefing, including the Q&A session, it will be recorded so that it can be viewed on the website. Please understand.

Mr. Yoshida, please.

[Katsuhiko Yoshida, executive]

My name is Yoshida. Today, I would like to explain the consolidated financial results for the second quarter of the fiscal year ending March 31, 2023. Consolidated net sales for the second quarter of the fiscal year ending March 2023, was up 17% year-on-year and up 31.5% quarter-on-quarter to total JPY 330.21 billion. Operating income was up 5.6% year-on-year and up 85.2% quarter-on-quarter to total JPY 26.394 billion. Profit for the period attributable to owners of the parent was down 1.6% year-on-year and up 86.9% quarter-on-quarter to total JPY 20.60 billion. We estimate that the -- in terms of the sales has been a record high as the first quarter. In terms of the operating income, it was here high as well. We estimate the defer translations had a quarter-on-quarter impact of plus JPY 19.3 billion and year-over-year impact of JPY 45.8 billion on net sales. And for operating profit, quarter-on-quarter impact was JPY 3.2 billion, while year-on-year impact was JPY 6.8 billion. Please go to the next slide.

This is the summary results for the first half. The net sales was a record high for the first half as well. Moving on to the next slide. This is the quarterly trend in net sales, operating income and operating margin. The operating margin for the second quarter was 8%. It was down 0.9 percentage points year-on-year and up 2.3 percentage points quarter-on-quarter. Since the company had a forward foreign exchange contracts, there was a negative impact on operating income due to the impact of the currency fluctuations that was higher than expected. Please see the company's estimate of the foreign exchange impact in the boxes shown on the slide.

We estimate that the second quarter operating profit, there was a positive impact of JPY 8.4 billion for foreign exchange, a negative impact of JPY 3 billion of foreign exchange contracts compared to the initial forecast. Therefore, we estimate that the operating income would have been JPY 29.4 billion, if there has been no effect of foreign exchange contracts. Moving on to the next slide.

This slide shows the difference between the forecast as of August and actual results for net sales and operating income by business segment for the second quarter Net sales of the machine components were higher than projected, mainly thanks to the aircraft business. The Electronic Devices and compliance fell below the forecast mainly due to a slowdown in HDD motor sales. The MITSUMI business enjoyed higher than projected sales mainly for optical devices and mechanical components. The [ Yuxin ] business was slightly lower than expected. Operating income for the machined components was almost on par with the forecast. Electronic Devices and compliance business experienced lower-than-expected over income due to the decline in sales. The MITSUMI business saw higher-than-expected operating income, thanks to an increase in sales. The using business was more or less in line with the forecast. Next slide, please.

Now let's take a look at the results by segment, starting with the machine components. On the left is a graph indicating quarterly net sales trend. On the right is a graph with the bar chart of quarterly operating income trends along with a line chart for operating margins. Second quarter net sales increased 10.6% quarter-on-quarter to total JPY 51.3 billion. Saleable bearings increased 15.2% quarter-on-quarter to total JPY 39.2 billion. The monthly external shipment volume was up 13.1% quarter-on-quarter for an average of 251 million units per month. The monthly external shipment volume hit record high due to the robust sales for automotive and data center. Sales of orders and fasteners totaling JPY 8.2 billion were up 7.4% over the previous quarter.

In the Aircraft business, there were signs of sales recovery, especially in the European market. Sales of pivot assemblies decreased 17.4% quarter-on-quarter to total JPY 3.9 billion. The sales of machine components hit record high. Operating income for the quarter totaled JPY 12.5 billion, and the operating margin was 24.4%. On a quarter-on-quarter basis, operating income increased by 22.8%, while the operating margin improved 2.4 percentage points. Next slide, please.

Next is Electronic Devices & Components segment. Net sales increased 20.3% quarter-on-quarter to total JPY 98 billion. Looking at the results by product, sales of motors increased returning 13.8% quarter-on-quarter reaching JPY 71.4 billion. Overall performance remained firm despite a slowdown in the sales in the HDD market. Sales of electronic devices were up 59.1% from the previous quarter to total JPY 15.5 billion. This is due to the sales increase of the LED backlight. Sales of sensing devices totaling JPY 10.1 billion were up 22.9% from the previous quarter. Operating income was JPY 3.3 billion, and operating margin was 3.3%. On a quarter-on-quarter basis, operating income increased 16.6x, while the operating margin increased 3.1 percentage points. We estimate that there was a negative impact of JPY 1.8 billion from the foreign exchange as a special factor. Please go to the next slide.

Let's look at the quarterly trend of performance for the MITSUMI business segment. The results for Honda Tsushin Kogyo, which became a consolidated subsidiary on September 16 are reflected in the results from the second quarter. Net sales increased 58.2% quarter-on-quarter to total JPY 137.4 billion. As seasonal demand picked up, so did sales of optical devices and mechanical components, while sales of semiconductors also remained upbeat. Operating income totaled JPY 15.7 billion, while the operating margin was 11.4%. Operating income increased 71.7% and the operating margin rose 0.9 percentage points quarter-on-quarter. This is mainly due to an increase in sales with seasonality. Moving on to the next slide.

Finally, let's look at the quarterly trend of Yuxin business segment, net sales increased 19.1% quarter-on-quarter to JPY 42.9 billion. This is due to the recovery trend in automakers' production, although the situation varied from region to region and customer to customer. While our operating income totaled JPY 0.6 billion and the OP margin was 1.5%. Next slide, please. This bar -- the bar graph here shows the trends in quarterly profits attributable to the owners of the parent, while the line graph chart changes in the profit for the period per share. The profit for the period was JPY 20.1 billion, and the earnings per share was JPY 48.6. Next slide, please.

Next, we have the quarterly inventory trend. At the end of the second quarter, inventory totaled JPY 272.8 billion, which is JPY 8.4 billion more than what it was 3 months ago. This is mainly due to the strategic buildup inventories needed to meet the currently expected increase in sales as well as foreign currency effects. Next slide, please. This graph contains a bar chart showing trends in net interest-bearing debt, Fujis total interest-bearing debt minus cash and cash equivalents and the line chart indicating free cash flow.

At the end of the second quarter, net interest-bearing debt totaling JPY 191.4 billion was up JPY 104.5 billion from the end of the previous fiscal year. This is mainly due to the expenditure for the purchase of the new Tokyo headquarters building as well as the increase in inventories. The forecast for the net interest bearing debt at the end of the fiscal year ending March 2023, expected to increase from the end of the previous fiscal year. However, excluding the expenditures for M&A announced recently, the net interest-bearing debt is expected to be virtually the same level. As of the end of the previous fiscal year. Next slide, please.

We made an upward revision to the full year forecast for the fiscal year ending March 2023, which was announced in August. The net sales and operating income are forecasted to be JPY 1,250 billion and JPY 115 billion, respectively. The estimated sales for the MITSUMI business, machine components and Yushin business were revised up. On the other hand, the sales for the electronic devices and components business was revised down. Overall, we have revised the forecast of our sales. The estimated operating income was revised up as a gain on the sales of Tokyo headquarters, building of JPY 13 billion was added. However, while taking into account the impact of revised ForEx assumptions, we have maintained the forecast of operating income, excluding a gain on sale because of the uncertainties such as the global economic slowdown. The exchange rate assumption is JPY 140 per USD. This slide shows the forecast by business segment. A gain on sale of Tokyo headquarters is included adjustment in the adjustment for the second half. This concludes my presentation.

[Operator]

Next Yoshihisa Kainuma, please.

[Yoshihisa Kainuma, executive]

So from my side, I would like to talk about the business update and the management strategy. In this slide, this is an overview. The first quarter, we had the Shanghai lockdown. And we were impacted largely from this. But basically, for the first half, well, we meet this estimate in the end of April. And the Shanghai lockdown happened-- we thought that we should highlight to continue in the middle of May, but it continued fully for the month of May. Against this backdrop, in terms of the Forex, we had a following, and that is true. But basically, for the first half, we have been able to achieve our plan.

The background of this is that the data center bearings didn't go down a lot and the automotive business was very robust, the bearings for the automotive business that is. In terms of the numbers of the volume of automobiles is going down, but as I always say, the per auto number of bearings is increasing. So September, in terms of the sales volume for automotive, it was a new record. However, we if we look at the recent situation, the most recent situation from October, each in the -- there has been an adjustment in terms of all bearings applications, automotive, data centers.

So there is some adjustment happening in the market. So compared to what we have been expecting, the group maybe the growth is not as strong as we have expected.

So this is the thing I think I should be mentioning at the beginning. However, in our case, and it is always the case, if one segment isn't performing well, some other segment will support that. So the aircraft components business seems to be doing well, doing that role for -- after a long period of time. Yes, there is a weak again. But this JPY 1 billion profit in September, they have been able to generate that much of profit. So that will be JPY 12 billion for a year, if you calculate. So I think on a profit basis, they had gone back to the pre Covid levels in terms of profit. And I will go into more details by each segment going forward. And in terms of the currency outlook.

The second quarter operating profit, JPY 29.4 billion if we have not hedged the Forex of JPY 29.4 billion. So I do not think that this was a kind of a loss for us. So as a responsible -- responsible of the management of this company, I have gone through a situation that the yen has depreciated and then swung back to a stronger position. So the plan that we have compelled. We were not able to achieve that because of the fluctuation of the foreign currency. So that was my better experience. So this -- I took the decision so that we should hedge.

And it is true if we have full exposure, JPY 29.4 billion could have been incorporated, but -- so the second quarter was ended on JPY 26.4 billion. Some people would say that you lost JPY 3 billion. But depending on the aspect how you see the situation, this JPY 3 billion had JPY 3 billion, the profit has gone down. So it has not a loss in that sense. And as I said, we are going to say the Tokyo headquarters building. So because we are going to -- we have out of the IFRS, and this will be included in the operating income. So there is some differences in terms of the allocation of these items. But basically, you want to achieve our targets. Next slide, please.

And actually, this is the most happy news that I want to mention that I think is very happy for me. So I have not introduced this before. But Honda to Sino in terms of the integration of the management, this is what I'm looking forward the most. So this subsidiary, so there was HKT engineering, there was a subsidiary. So they had 280 engineers. They was working. And they -- for the major electric manufacturers, they were offering services. So you can see this diagram. And I have said that again and again, our direction is for the electronic mechanics solutions. At last, I took-- it took 4 years. It has been 14 years since Dr. CEO. For the first time in 14 years, we have been able to completely finish this foundation. So for the automotive components, so this kind of feel safe function. When there is a malfunction, how is this going to be controlled -- so control by software is going to be asked for going forward. So as the components manufacturer -- so the type from 2025 onwards, the companies who can offer this type of software will be able to survive. That's my thought. So I think we just made it, so to speak.

From my point of view, in terms of the -- we have been able to get a very strong foundation for the driver of the organic growth, and I'm very confident of that. So we have established a cross-tech business headquarters, meaning that we have a huge volume elemental technologies and how are we going to utilize that? And these silos that we had this vertical business model, how are we going to have a cross-functional well aspect as well and develop new products. So in that sense, that is the reason why we have set up this business had for. At the very center of this, we have the software engineers. So we have Minebea Software Solutions. We have changed the name. So it's engineering to change the name. So -- so Minebea Software Solutions will be at the center of the caustic business headquarters. So they will be building a backup for various software’s and they were supporting it. So we have the support means that this will leverage 2 strengths organically, meaning that we will be able to build the portfolio that does not exist anywhere around the world. Going to the next slide.

So I think I have been showing you this is the per actually, it looks like 9 pencils actually, but we have -- I have included software in the year. So the GDP -- global GDP growth, and I said that we're going to grow with the growth of the global GDP and to the M&A, we will move forward. So actually, we have 3 wheels is while we have components to solve social issues or products to solve social issues. So this will be one source of our growth. So the components that are shown here will -- by integrating organic growth and will drive our growth. So this will be a parts offering -- components offered that matches the needs of the era. I think we have been able to have a good portfolio as for our company. Next slide, please.

So for the Tokyo headquarters selling this building, we're going to move to [ Shiodome ] -- so the JPY 13 billion of gains are going to come from the sales, and that is the reason why we have the upward revision. From my point of view, the Yen has appreciated to this level. So if I'm excluding the Forex impact, JPY 100 billion, we have -- I have been seeing this is a target. So in terms of net sales, it has exceeded JPY 1 trillion. I think it will exceed JPY 1 trillion this year, but operating income of JPY 100 billion. Last fiscal year, it was JPY 92 billion, weeded JPY 92 billion, but exceeding operating income of JPY 100 billion will be our target. And of course, there will be some differences in terms of the elements compared to what we have expected in April, but the aircraft business is going to recover automotive production. Well, there are still bottlenecks out there. But for instance, for semiconductors.

However, that said, compared to previous situation, the disruption of the supply chain has been recovering and the automotive production, I think, will increase a bit more. Games seems to be doing well. And the if the semiconductor ratio is resolved, our backlight products for the low-end smartphones, the production will increase. So our backlight will be selling more. So in the fourth quarter, the recovery of using, so there is a JPY 2 billion of profit. It's planned for using. I think in the core name; we call it Project Horizon. So in Europe, eliminating losses. So that is the project then and going into the black. The 300 people have been -- we asked people to leave the company, and we closed down the Spain operation. And in Germany, the production has been shrunk or some cases shut down. So we have been transferring our production to loss cost country. So that is the project that has been progressing very steadily.

In addition, Honda Lock, if possible, by the end of this calendar year or by the end of January or December or latest January, we would like to clear this and the antitrust issue can be cleared in various countries. Then JPY 2 billion, the revenue increase can be expected. Access products, even if the auto production doesn't reach the full capacity, JPY 4 billion operating profit or JPY 4 billion to JPY 5 billion operating profit can be realized. And also this time around, what is not included in the forecast are the former SUMCO Tech, which is now Minebea Connect, new trade name. As of November 1, we have completed the acquisition procedures. And this one, the negative goodwill of JPY 1.8 billion ecus and JPY 1.8 billion of JPY 115 billion is not so large, and therefore, it's not included in Honda Lock.

Integration, when the integration is completed, it can be a sizable negative goodwill. So based on IFRS operating profit, will reach a very high level. At this point onward, I would like to talk about each product like a bearing. Since Shanghai lockdown, it's been growing rapidly, but Q3 was leveled off on a Plato. And this is, in a way, supply chain and the semiconductor issues. And each company has held safety stocks. So maybe it's a backlash of that. But as I always tell you, bearings are almost entirely done. And this size of bearing will grow for sure going forward. And now Airbus, mainly Airbus single-aisle aircraft are recovering. And U.S. players may take a little longer to recover, but these things are growing. And these are the businesses that can offset the decline in the future.

And the healthcare products because of the COVID, the revenue dropped significantly. However, now such difficulty has been overcome and health care or medical equipment revenue is growing and JPY 1 billion operating profit recorded in September is one evidence of that. From push-to-pull the shifting and during the impact of the COVID-19, what should be carried out under the impact of COVID-19. So no delivery dates have been missed, which I think is great. And bearings, -- as I said, we are making adjustments. But Forex, the yen is weakening more than we anticipated. On the full year basis, JPY 50 billion can be achieved. I think it's possible for machine components. Next page, please.

The motors. So IGA is 14%. However, how this drive. As you may be aware, the large-scale adjustment or correction is going ward. And in Q4, it should hit the bottom and digitalization has not stopped, but rather it will be progressing more and more going forward. So we are not concerned because we don't handle many low-end products and high-end HDD will certainly recover. And in terms of the precision or the motors are deteriorating, we hedged Forex risk using the motors. And we were not able to enjoy the entire profit. However, there are no major problems. Next page, please.

MITSUMI business is now shining finally I think it's very fortunate. Inclusive of Honda Tsushin, JPY 570 billion revenue may be possible. Operating profit of JPY 50 billion or more can be realized. And it could surpass machine components business. It's now becoming possible. In 2017, we integrated MITSUMI. The company was making JPY 5 billion losses. In only 5 years, the operating profit is -- has become bigger than JPY 50 billion. And the employees are working extremely hard. And the semiconductor CAGR is 14.8%. The spares, MITSUMI semiconductor OIS and games, all of them are doing extremely well. And we want to identify the fourth pillar, which I think will be connectors. We would like to exert even more efforts into that.

Analog semiconductors are the next topic I would like to touch upon briefly sell side and buy side analysts are asking me about analog semiconductors. So whether it will be all right or not. It is true that the orders are declining. I will show you that using the next slide about the orders for this year, taking into account the ForEx impact. I think we have sufficient orders. But on the left-hand side of this page, -- according to this data, the overall, the semiconductor business has been revised down. However, analog semiconductors have been revised upwardly. So analog, there is a pretty big demand for analog semiconductors and machine components. The next 8 spears following that would be analog semiconductors. And the further expansion we are considering right now. And by the fourth quarter, I would like to share with you more specific plans.

So please look forward to that. This is only for your information. Analog semiconductors characteristics are, as you can see, when it declines, it doesn't stay long at the bottom, like Lehman crisis, well, the letter is difficult to see, but the U.S.-China trade friction. Usually 2 or 3 months, the analog semiconductors older quickly recover. That is one of the characteristics. So I think in the near future, it will find a way out of the trough. And there are positive assumptions and forecasts. And I think things will be all right. Next page, please.

The optical devices. As the semiconductor issue are solved, the low-end products will go up and the backlight related. So it's different from optical devices. And Honda Tsushin, as I said, as of November 1, SUMIKO TEC, now Minebea Connect, and moral of the 3 companies are very high, and we can expect a step change. So CAGR, 6.2% -- and Honda Tsushin and Minebea Connect, they are very swift sampling activities and salespeople are assigned globally and low-cost production. Minebea Mitsumi is good at the low-cost production. And these companies are working together can create synergies. Automotive, industrial machines and communication, those will be the near-term targets. The next diagram is only one example. For example, the automobile cameras, Honda Yushin is very good at this. And the red connectors, the Minebea connect, -- this is the strength of Minebea Connect. In other words, a waterproof technology, which is a highly complicated technology is required and the Minebea Connect is very good at that.

And the camera ECO, the Connect multipurpose or general papers connector handled by Minebea Mitsumi. So the various parts and components that can be supplied at the same time from camera, ECU and connector and harness in the total solution package, all these things can be supplied. So camera is used to be things and also the sensing. And the ECU for analysis, the signals should not be delayed. And without the deterioration, it has to be transmitted. And the high-speed transmission can be realized because the 3 companies are working together. So with these 3 unique connectors, we want to generate high margins.

So going to Yushin for September, the JPY 660 billion of operating profit, they are able to generate that much. So from my point of view, I'm really happy about this. So I don't know whether we can go to buy back that by 12 for make it to a year. But in terms of the automotive semiconductor business, there are some still issues. I think all of you are well aware of that. But that said, so the production recovers, the Yen is weak and then we'll be able to get this level of profit. So with Honda Lock. The fourth quarter, I think the profit will be over JPY 4 billion. So something you had expected to do well will be a backup. So that is the strength of Minebea Mitsumi. And this means that we have a very robust and resilient position or stands towards risk, and I hope that you understand that for a company. So in the next slide, so in each area, how we are becoming #1 by utilizing integration power.

So for locker keysets, for instance, we are #1, actually. And for the other areas where the products are electrified, we are able to produce the low-cost countries, and that is our strength. And at the same time, from the connectors, the antennas and analog semiconductors, they're going to be included in door handles. So the company that are able to produce these type of products, we are going to aim to become a company to produce these type of products and get a #1 share and the overall motivation is very high within the company.

So it's a bit a bit early, but just to give you an image of the next fiscal year. For next fiscal year, what kind of economic condition are you going to -- is going to be -- I don't know how the Yen is going to behave, but digitalization, better be automobile that will happen. And as I mentioned, data centers, there's no reason to see a shrink in the market. And so the for the bearings, we want to increase the capacity. So aircraft components for next fiscal year, the U.S. players will recover. For motors for automotive, new mass produce products is going to be launched. We will be focusing on that. For analog semiconductors, so it takes [ triple IGBT ] new initiatives by the end of this fiscal year, will be introduced to you NOIS it's going to stay strong, game-related products will expect it to remain steady. So next fiscal year, in terms of extra ordinary gains from -- on the Dagan basis because we're not quite to sell buildings, it won't show up. But for the organic growth, we want to grow organically for next fiscal year. Next slide, please.

So this is the progress on the M&A. So please take a look at this afterwards. And then going to the next slide. So the green bonds, we are going to issue green bonds. As I've been saying, the super-baring CapEx for Super-Barings. And what we are focusing on is photovoltaic power generation. We will have to -- or utilizing solar power or else, we have to utilize that or else the sudden increase of energy costs, it will be very difficult to respond to that. So in the Philippines would have been planned. This is in an area that is difficult to build a factory, we have been introducing a solar-powered generation. So we would like to take greater initiatives. So these types of facilities to be able to build these type of facilities, the bonds are issued for that purpose.

So if we conduct a share buyback, it means that -- so I -- because this will be considered inside information about the issuance of the green bond. So we won't be conducting share buybacks for some period, but this is what we want to do today.

So dividend hike, we are planning the JPY 40 is the target for this year, but I don't know how things will turn in the second half. And therefore, as usual, we are showing the first half number, JPY 2 dividend hike and the JPY 4 for full year. And this is the integrated report. This concludes my presentation. Thank you for listening.

[Operator]

[Foreign Language] Let us move on to the Q&A session. [Operator Instructions] So we have received the first question from Mr. Taka Yama of Goldman Sachs.

[Daiki Takayama, analyst]

Can you hear me?

[Yoshihisa Kainuma, executive]

Yes, I can.

[Daiki Takayama, analyst]

I have 3 questions. First of all, the ForEx in Q2, Mr. Kainuma, you said that you hedged the foreign currency and how it affected each segment. And in order to realize the second half target. Do you plan to enjoy the effect of the weak Yen? I think there are other approaches, but what is your plan? From an operational point of view, it wasn't very clear. So that is my first question.

[Yoshihisa Kainuma, executive]

I would like to explain. First, the assumption. Let me confirm with you the ForEx assumption at the floor is the JPY 115 and dollar part, which is even more important is 33.05 and second quarter, the average rate was 135.52 and bars at 35.7%. And as I explained to you earlier, the impact of ForEx -- if it were not for the impact of the ForEx, the JPY 8.4 billion or forward the booking of the ForEx, the JPY 3 billion. And in total, JPY 5.4 billion was the impact of the ForEx. In the second quarter, in Q1, the ForEx was not at this level, but 124.44 and 33.8%, respectively.

So now the rates are a little bit more favorable. And the ForEx forward reservation, there are 2 reservations we made. One is for dollar Yen and the other is dollar Bart. Dollar Yen, there is an impact like a part of semiconductors or aircraft related. So hedge accounting is applied and therefore the ForEx -- foreign currency rate will be applied directly on the accounting. And these products, the revenue are growing, and therefore, it's not so noticeable for dollar yen, but for dollar parts in Thailand because we produce a high number of motors in Thailand, out of JPY 3 billion, JPY 1.8 billion comes from the Motor business.

And in the handout for this session, Page 6, JPY 26.4 billion was the result. So the impact of JPY 8.4 billion was a positive impact -- and the JPY 3 billion of the impact of the forward reservation. And taking into account this JPY 3 billion, it's 29.4%. So the main part is motors. And on Page 9, the operating profit, JPY 3.3 billion, of which the for the reservation is included. So if we were not for this, it would be JPY 5.1 billion. So the motors are the ones that were most significantly impacted. And the ForEx expected rate is as shown on Page 15, 140. And versus this rate, the yen is weakening even further, but more or less, -- the realistic figure is considered. And other than the motors, I think this will have an impact. And recently versus the assumption, the bearings for automobiles are not growing as much as we expected, and the adjustment for the net would be -- excluding the JPY 13 billion gain from the sale of the quarters would be about JPY 2 billion. In other words, about the same.

Page 16, inclusive of all that, the appropriate competition machined components JPY 51 billion. So a slight adjustment that we made and Electronic Devices & Components, JPY 12 billion. So it went down, but the MITSUMI business is doing quite well. So the composition changed slightly. So that is the breakdown of the numbers.

[Daiki Takayama, analyst]

For confirmation, if that is the case. So because of this forward reservation of the currency conducted in Q2, you were not able to enjoy the positive impact of this ForEx change. But is it going to be realized in the second half? Or do you continue to reserve the currency as Mr. Kainuma explained, this is like an insurance. So is there going to be any changes in the approaches quarter-on-quarter. In the second half, yes, we did reserve the currency.

So the situation would be the same. And inclusive of that, we will be adjusting or after the adjustment, the numbers I have just shared with you the result. And if there is a negative impact of this ForEx reservation, then it will be realized. And also, the semiconductor slide I received -- and in the next fiscal year, the page -- Page 24 shows the revenue is likely to increase next year. And on the other hand, 26, the orders and backlogs are declining. And are you expecting that these will recover pretty soon? Is that the assumption behind your forecast for the next year? And are you expecting that there will be some signs of the recovery. Or do you think that the risks will persist into the next year?

[Yoshihisa Kainuma, executive]

This is Kainuma basically analog semiconductors the demand or the needs will be expanding as shown on Page 9 or not 9, which page was it? Analog semiconductors. Page 25. If you could turn to Page 25. So another semiconductor has been revised up. And the IGBT and various other areas. So it's quite different from other types of semiconductors. And that is one driver for us. Having said that, however, sugar plant. Yasu plant are starting shipments. And therefore, the numbers will be increasing and the machines will be installed and therefore, the numbers will keep growing.

[Daiki Takayama, analyst]

I see. I think there was a cycle chart that reference material, and that showed the situation of the industry. But do you think the jobs are increasing for the next year, including the sugar plant?

[Yoshihisa Kainuma, executive]

Yes, that is right.

[Daiki Takayama, analyst]

So you are confident about that. As a result of the bottom-up analysis...

[Yoshihisa Kainuma, executive]

Yes.

[Daiki Takayama, analyst]

Lastly, Mr. Kainuma, you emphasized about this acquisition and software solutions. So software, software engineers -- what can be the biggest impact? Is it going to be access products? So what leads to the revenue and profit, what kinds of products do you have in your mind, if you will, please?

[Yoshihisa Kainuma, executive]

Thus far, motors like the motors. So the customers requested us quite a few times to dispatch our engineers to them because auto manufacturers have shortage of engineers and EU unit, the simple ones, not the main unit. Now we are confident that we can handle them ourselves. And therefore, our presence in the auto industry is going to enlarge. So that is why I said that this is going to be a driver.

[Operator]

Morgan Stanley, MUFG Securities, Sato-san.

[Shoji Sato, analyst]

I'm Sato of Morgan Stanley Securities. So I have 3 questions. First of all, Mitsumi, -- so for the first half to the second half, the forecast is the top line sales and in profit sales, camera actuators, games, connectors and games and what is the outlook for these main products in terms of the first half, second half, what is the outlook? And the 2 companies that you have acquired, how -- what was the impact to this year's performance? First, let me ask about that.

[Yoshihisa Kainuma, executive]

So because we have to be careful about the customers. So it's difficult for us to answer you. But in terms of MITSUMI, second half sales JPY 68 billion and 178 billion, so JPY 28 billion, JPY 51 billion for the full year, that's the outcome in terms of operating profit. Third quarter JPY 7 billion in the fourth quarter of JPY 10.2 billion. So JPY 272 billion. The full year of JPY 2 billion for the full year.

[Shoji Sato, analyst]

So you talked about the 4 areas of business of SME for camera actuators. So the production peak of this year is going to be in the third quarter. So right now?

[Yoshihisa Kainuma, executive]

The sales production delivery shipment peak is happening right now. and that will drive the performance of MITSUMI. That's one. In terms of games, -- so it's a doc to answer the question, but the sales are very strong. And this distribution inventory isn't that high. So in the third quarter, the production is going to be driven upwards. So that is the assumption that we are taking. On the other hand, for semiconductors. So currently, they have a high level of order backlog in terms of the shipment, it is going very strongly and are still in a good position. But in terms of our guidance, we are taking a conservative view. So first half, second half, the second half is going to go down, more or less. So that is our assumption. So that is inclusive in our outlook.

And we talked about the kind of the fluctuation of the order backlog, meaning that towards the next fiscal year, I think basically, we will have to be prepared to increase output. In terms of the connector business in terms of the Honda business, in this September -- mid-September they have been consolidated in the second half, they will be contributing. in terms of the profit, they have is a disclosed number of Honda Yushin, and we think that the profit in line with that published number is going to be contributed. So including second half and full year, about JPY 1 billion -- a little less than JPY 1 billion in profit contribution is coming from 12. That is our outlook. And the other company, former tech -- they are not affected in their guidance, we will look into the situation and then decide what type of contribution they're going to have.

[Shoji Sato, analyst]

So if that is the case, from the third quarter to the fourth quarter, sales decline of sales will be the camera actuators within the camera actors and games, the fourth quarter will not be as in the third quarter.

[Yoshihisa Kainuma, executive]

So there is the seasonality. So that will be the 2 major areas.

[Shoji Sato, analyst]

The second question is about the Cele components business. You have made a downward reason of the outlook. So the net it seems that in terms of the devices and components is going to go down. Is it only due to the HDD motors next year maybe the HCP sales is going to improve. You said that the automotive business is going to recover. In terms of the backlight, what is the situation towards next fiscal year? What is your outlook? That is my second question.

[Yoshihisa Kainuma, executive]

So in terms of the type of motors, we have been not explaining about specific monitors. But in terms of sales is going -- is decelerating JPY 275.5 billion is the number for the motors. So initially it was JPY 300 billion outlook. So it has been lower than that -- to do the COVID, and there has been a high logo. And for [ epi ] some of the motor business, the start-up has been not smooth. But currently, basically, the situation has become to more or less normal. And in terms of the utilization, basically, it's 100% full utilization. So the non-HDD motors, and there's no major concern.

[Shoji Sato, analyst]

And are they still your customers?

[Yoshihisa Kainuma, executive]

HDD makers, in terms of sales and production, there are differences company by company. So the adjustment is -- this year, maybe the adjustment will show up more prominently for this fiscal year. If you look at the next fiscal year, so the HDD market in terms of the mass capacity, mass capacity, which basically that's with the data centers. But this legacy area, the data dropping is the legacy type for the PCs, for instance, that is declining. But in terms of the structural issue, so some -- for instance, in the investment in China is softening, for instance. Maybe there's some structural issues surrounding the data centers. But for the data centers, we think they will overcome it and then continue to grow. That is our assumption. So the next fiscal year after the inventory adjustment ends. And by that time the mass capacity domain, we think we’ll be able to see a good business. Now we don't think that it will be a major issue for that type of business. Thank you.

[Katsuhiko Yoshida, executive]

So let me answer about the backlight. I think you already know, but North America, North America client production is more focused on the flagship model. So currently the low-end models are not mill inventory for the low-end models. And basically, people will be able to buy those on model sense and the production is basically very, very slow. So this -- I don't know the reason behind this. Maybe it's semiconductors, nobody knows. But if there is inventory, they will be able to sell. And I think that situation is unchanged. So I think basically, that will be more or less the floor for this business. And for the next year onwards, again, there is a limitation in terms of what I can say.

But for the smartphone-related business and for the LCD business, we're already have secure the business. On top of that, for the -- we have the automotive business. So the -- in terms of the LC backlight for the automotive business. So compared to OLED, LCD is being appreciated again. And we said that it was going to grow, but it didn't, but I think it's going to improve going forward. So if this year is the floor and the next year, it means that I think basically will be -- we see an increase compared to this year. But when issuing this guidance. So I think basically, you'll be looking at the cyclicality of the business. And I think, basically, we'll be very, very careful in terms of how we show our guidance for this business. Thank you.

[Shoji Sato, analyst]

So let's October, so about bearings. So can you give you the numbers from the outlook on October to December? So for the January to March, is it going to recover? Can you tell me about?

[Katsuhiko Yoshida, executive]

The 1st of September -- September external sales by millions, 245 million, 244 million -- September, 264 million, this is millions. So internal sales, 52, 47, 47 that's July to September. From October onwards, October 239, 249, 255 for December -- October, November, December, external sales on average, so 247 million to 248 million. So compared to the second quarter, maybe it will be going down a bit. Internal sales, because the LCD market is going to decline -- that will be happening in this quarter, 38, 41, 37 by the millions for internal sales.

So as Mr. Kainuma has explained, the automotive business is not declining. We thought it hasn't grown as much as we have expected. And in terms of the data center business, it hasn't grown as much as we have expected. For the home appliances, the other applications are still at a low level. So if you look at it by quarter, you can see that compared to the previous quarter, October to December quarter seems to have gone down.

[Operator]

[Operator Instructions] [Foreign Language] Let us move on to the next question. Mr. Goto from Mizuho Securities.

[Fumihide Goto, analyst]

Can you hear me?

[Operator]

Yes, I can.

[Fumihide Goto, analyst]

So my question will be a follow-up question. Analog semiconductors from the second half to next fiscal year, your expectations, I would like to understand on Page 26, the orders and backlog. Looking at this, the risk of declining I feel looking at this graph. But I think you said that things will be all right. Or is there any reason that you can say that things will be all right. And the second half, maybe you can hold up because of the backlog. But beyond that, how much confirmation do you have?

[Yoshihisa Kainuma, executive]

I have no concerns about the medium-term direction. But because of the cyclical things, the share price can move up or down. So looking at this, I think you can understand that after hitting the bottom, it recovers very quickly. And that is one of the characteristics -- so that is the message I want to convey using this slide. And as Yoshida said, within this year, we have already received quite big orders and the trend of analog semiconductors. Based upon that, analog semiconductors will not decline. And as I said previously, the machines will be installed and IGBT, et cetera, we have a production plan in place, and we have received orders. And when we produce the product, revenue will increase. So it's a hot market, so to speak. And looking at those elements, we think that analog semiconductors will keep growing next year. Thank you.

[Fumihide Goto, analyst]

So backlog consumption and you'll be fine this fiscal year in the second half. But what about the next -- beyond that point? So it will be fine until the end of the year. And if the orders recover by then, no concerns. Is that what you are saying?

[Yoshihisa Kainuma, executive]

Yes, that is what I think. Thank you.

[Fumihide Goto, analyst]

And there's another thing, and that is about the motors. -- and decline in hard disk drive is quite significant. But overall, the revenue you have maintained a certain size of revenue, which suggests that there were increases in other areas centering around automotive, the new projects start, whether there are any changes from the previous assumptions, please explain.

[Yoshihisa Kainuma, executive]

Things remain more or less the same. For example, farm motors have exceeded 10 million units, and that is going to continue. And other models for auto motives are starting in a very good shape. And the HDDs, we don't handle a low-end product very little. And so no impact from that. Looking back in retrospect, the shortage of semiconductors and supply chain disruptions. When that happened, so-called the BCP inventories, the customers built up. Maybe there is a reaction of that we are seeing right now. And by the end of calendar year, this trend is likely to continue. But next year onwards, it's going to recover gradually because we handle only the high-end products. So I'm pretty sure about that. Thank you.

[Operator]

Securities, [ Hirata-san ], please.

[Unknown Analyst]

This is Hirata facilities. Can you hear me?

[Katsuhiko Yoshida, executive]

Yes.

[Unknown Analyst]

So I have one question about the semiconductors and about the machine components. I have another question. First of all, for the semiconductors. So if you go to Page 26, this is this your backlog for your business? Or is it for the whole industry? First of all, can you speak about that? And with the orders coming down in terms of price and the utilization rate, what is your outlook.

[Katsuhiko Yoshida, executive]

So this is, for us, some of Well, I think basically, this is Alex business, actual track record. That is my understanding. So I don't know whether is semiconductors is behaving. But in any case, this is the track record of our company. So how to interpret this. So if it goes up and it goes down, but then the recovery is very quick. So this is a repetition of that wave. So if you look at this, you can see that maybe this bottom is so steep. It may seem so, but it has been this business has been repeating this fluctuation. So for the analog semiconductors, I want to say that please don't worry too much. I think that's the way to interpret this chart.

And I talked about the price. As we have been explaining from before, our company for the semiconductor market, we are focusing on the niche market. So the -- there is some semiconductors that the price has declined due to the soft demand supply situation. I think basically, you I'm aware of that. If that is the case for our price or our semi conducts we do not product, we do not do business with that product. So the average price is still at a high level. And we basically have not reduced the prices. And so in terms of the OIC, there is some price concerns, but the market share is very high. And so in terms of price, we have not reduced the prices.

So we have been able to firmly control the price. In terms of the utilization basically, it's under full capacity. But there's some overhang that we want to do for some of the facilities because we have been operating under for capacity for a long period of time. So including that perspective. So in some areas, we have by our own intention reducing utilization. But for instance, the IGBT area, where the customers' requirement is very strong for those type of products, so basically the utilization rate hasn't changed. So there's no situation that utilization has gone down substantially at this point.

[Unknown Analyst]

Understood, so my second question about the machine components. So you talked about the volume of bearings for the second quarter, the third quarter, it's going to go down. The internal sales have gone down. For the missing components, second half operating profit outlook is committed to the second quarter. It seems to be quite high. So how should I think about that? The production is going to be maintained? Or for instance, is it because of the aircraft business recovery? Or is it coming from the foreign exchange?

[Katsuhiko Yoshida, executive]

So the second, first half to second half improvement of the machine compliant business, can you refer to the reason behind this -- in terms of the utilization rate, we are discussing what to do about it right now. But basically, we are not going to -- we're going to maintain whole capacity. As I said, basically, this is what we have always been saying because they are -- we have safety inventories not being acquired. And for the second quarter, the production has been exceeding the sales, but the inventory level, considering the -- from the -- considering -- and we don't know what the external environment is going to be in the next fiscal year, for instance, for the other motive, if there's an ex model coming into the autobus the new content is going to be used. So if you consider that, the demand is going to grow. So I think basically building up the appropriate level of inventories is very important. So that's our thoughts about utilization.

Another point is that your question about ForEx, as you have pointed out. So we sell in dollars. And for instance, we're producing Thai in Bartke the impact of hedging won't come here unlike Motor, so we'll be able to have a benefit from the ForEx. And the third point is true for the aircraft business that as you have pointed out, and so JPY 1 billion profit for the single year is what Kainuma has said about the aircraft business. And of course, -- this is more or less lifted up from the weaker yen. It is -- it does include that. But that said, the aircraft business is -- we have very strong inquiries coming specifically from the European aircraft maker, their production upward is rising. So the aircraft-related business, so within barbering BB bearings is included. And so that business is increasing as well. So JPY 51 billion number. So I think that is an achievable target for us if you consider the situation.

[Operator]

[Operator Instructions] This concludes our Q&A session. Once again, I would like to ask you to fill out the questionnaire survey which is shown on the screen. Thank you once again for joining us today.