Minebea Mitsumi Inc

TSE:6479

Earnings Call Analysis

MinebeaMitsumi Q2 Results and Cut Forecast

MinebeaMitsumi reported a record high in net sales for Q2 but saw a decline in operating income, down 19.8% year-on-year, to JPY 21.11 billion. Profit attributable to owners decreased by 20.3% year-on-year. Operating margin was 5.6%, decreased by 2.4 percentage points year-on-year but was up 3.5 points quarter-on-quarter. Foreign currency translations positively affected net sales and operating income. Net interest-bearing debt increased by JPY 33 billion from the prior fiscal year-end. Full year forecast for March 2024 has been lowered from JPY 1,450 billion to JPY 1,400 billion in net sales, and operating income projections were cut from JPY 95 billion to JPY 77 billion, primarily due to reduced sales forecasts in data centers, automotive applications, and electronics segments.

Increasing Sales Amidst Declining Profits

MinebeaMitsumi Inc. reported a robust increase in consolidated net sales, up by 15.1% year-over-year and an impressive 29.9% rise from the previous quarter, reaching a total of JPY 379.747 billion. However, operational efficiency took a hit as operating income retracted by 19.8% compared to the same period last year. This contraction in profitability is further mirrored in the profit for the period attributable to the owners of the parent, which decreased by 20.3% year-on-year.

Operating Margin Compression and Mixed Segment Performance

In the face of various market pressures, MinebeaMitsumi's operating margin narrowed down to 5.6%, which is a significant 2.4 percentage points drop year-on-year, although it did improve by 3.5 percentage points from the previous quarter. Different business segments exhibited varied performances; the PT segment maintained steady sales due to aircraft applications despite sluggish data center revenues, MLS experienced a downturn owing to slower data center and non-vehicle motor sales, SE surpassed expectations thanks to strength in mechanical components and optical devices, while AS came ahead of predictions, bolstered by a resurgence in automobile production.

Revised Downward Financial Forecasts Amidst Market Uncertainties

Looking ahead, the company has tempered its financial outlook with net sales forecast adjusted downward from JPY 1,450 billion to JPY 1,400 billion for the full fiscal year. The projected operating income has also been scaled back from JPY 95 billion to JPY 77 billion. Reasons for this revised guidance include a general slowdown in the data center market, affecting both the PT and MLS segments, and sluggish performance in SC sales, attributed to a deceleration in analog semiconductors, optical devices, and precision components. This recalibration of expectations reflects the organization's pragmatic approach to managing external variables and internal performance metrics.

Exchange Rate Assumptions and Impact on Financial Projections

Exchange rate volatility can uniquely impact multinational corporations like MinebeaMitsumi. The company currently assumes an exchange rate of JPY 140 to the US dollar for its projections. Currency fluctuations might have a dual effect on financial statements; they could either magnify revenues and income if the local currency weakens against the dollar or exert downward pressure when the reverse currency movement occurs. Investors should closely monitor these rate assumptions as they may influence financial outcomes and the company's competitive positioning in the global market.

Earnings Call Transcript 2024-Q2

[Operator]

So now it's time to start. Today, thank you very much for participating despite your busy schedule for the business results meeting for the second quarter of fiscal year ending March 31, 2024, of MinebeaMitsumi Inc. Let me introduce today's participants from our company. To your right; Representative Director, Chairman, CEO, Yoshihisa Kainuma, Director, President and Executive Officer, COO and CFO, Katsuhiko Yoshida, Officer COO and CFO, Management Administrator, [ POI ] Office General Manager, Hidenori Shimosako. I am the moderator today from [ Ankata or ] the PR and IR office. First of all, Yoshida, will talk about the financial results and after that, Kainuma will talk about the business outline and the management strategy. After that, we will go into the Q&A session. We are planning to end this meeting at 7:00 p.m. As has been notified before, from this time, based on the environmental policy of the MinebeaMitsumi Group, we are not distributing any presentation material. So please utilize the QR code that is on the top right of the questionnaire paper that you have. And also, please respond to a questionnaire as well. For today's meeting including Q&A session, this will be broadcasted live on the Internet. And at the same time we are recording this session so that it can be viewed afterwards on the website. So please understand. So please refrain by taking photos or recording the audio besides the people that are related to our company. President Yoshida please.

[Katsuhiko Yoshida, executive]

So this is Yoshida speaking. Today, I would first like to explain the consolidated financial results for the second quarter of the fiscal year ending March 31, 2024. Consolidated net sales for the second quarter of fiscal year ending March 31, 2024, was up 15.1% year-over-year and up 29.9% quarter-on-quarter to total JPY 379.747 billion. Operating income was down 19.8% year-on-year and 3.5x quarter-on-quarter to total JPY 21.11 billion. Profit for the period attributable to the owners of the parent was down 20.3% year-on-year and 4.4x quarter-on-quarter to total JPY 15.958 billion. Net sales hit a quarterly record high. We estimate that foreign currency translations have a year-on-year impact of plus JPY 16.4 billion in net sales and plus JPY 15.7 billion in operating income. Quarter-on-quarter impact was plus JPY 2.6 billion net sales and plus JPY 1.8 billion in operating income. We made slight retrospective changes to last fiscal year's and this year's first quarter financial statements due to the PPA for HONDA TSUSHIN KOGYO. Please note that the figures on the following pages are revised figures. Please go to the next slide. This is a summary result for the first half. Net sales hit the first half record highs as well. this is what the quarterly trend in net sales, operating income and operating margin. The operating margin for the second quarter was 5.6%. This was 2.4 percentage points down year-on-year and up 3.5 percentage points quarter-on-quarter. We show the difference between the forecast as of August and actual results for net sales and operating income by business segment for the second quarter. As for the net sales of PT, although sales of data centers remain sluggish, they were broadly in line with expectations due to solid growth in aircraft applications. MLS sales were down expectations -- below expectations due to slowdowns in data center and nonvehicle motors. SE exceeded expectations mainly in mechanical components and optical devices. AS sales exceeded expectations due to the recovery in automobile production. Operating income for PT was lower than expected due to a deterioration product mix resulting from a slowdown in data center applications. MOS was a result of mix depending on the product, but mainly due to the strong sales of motors for automotive applications, it exceeded expectations. SE exceeded expectations partly for mechanical components. AS was below expectations due to factors such as some price corrections. So this is for the results of the [ segment ] and starting with the position technologies. On the left, it's a graph indicating quarterly net sales trends and on the right is a graph with the bar chart of quarterly operating income trends along with a line [indiscernible] for operating margins. Second quarter net sales increased 7.4% quarter-on-quarter to total JPY 51.4 billion. Sales [indiscernible] bearings increased 8.2% quarter-on-quarter to total JPY 37.1 billion. The monthly external shipment volume was up 7.1% quarter-on-quarter for an average of 200 million units. So this is due to automotive related sales was recovering into the [ contest ] growth, it grew. And for the data center, although it was weak, we are seeing the bottoming out trends. Sales of rod-end and fasteners totaling JPY 10.1 billion were up 4.4% over the previous quarter. Sales of pivot assembly up 7.3% quarter-on-quarter to total JPY 4.2 billion. Operating income for the quarter totaled JPY 9 billion, and the operating margin was 17.6%. On a quarter-on-quarter basis, operating income increased 10.1%, while the operating margin improved 0.5 percentage points. Looking at the results by product quarter-on-quarter, operating income for ball bearings and pivot assemblies increased. Now let's look at the MLS segment quarterly trend. Net sales increased 5.6% quarter-on-quarter to total JPY 87.8 billion. Looking at the results by product, we see that the sales of motors increased 4.1% quarter-on-quarter to reach JPY 69.1 billion. This is mainly due to the solid sales, particularly that of motors for automotive applications. Sales of electronic devices were up 3.7% from the previous quarter to total JPY 13.1 billion. Sales of sensing devices are totaling JPY 9.5 billion were up 18.1% from the previous quarter. Operating income came to JPY 3.6 billion, and the operating margin was 3.9%. On a quarter-on-quarter basis, operating income has doubled. The operating margin increased 1.8 percentage point. Let's look at the performance for the semiconductor business -- semiconductor and electronics business segment and net sales increased 92.2% quarter-on-quarter to total JPY 157.1 billion. This was mainly due to higher sales from optical devices, mechanical components and semiconductors. Operating income totaled JPY 12.6 billion, while the operating margin was 8%. Operating income increased 25.1x and the operating margin increased 7.4 percentage points quarter-on-quarter. This increase was mainly due to higher profit brought by increased sales of optical devices, mechanical components and semiconductors. Finally, let's look at the AS segment. Net sales increased 5.3% quarter-on-quarter to total JPY 77.6 billion. This was mainly due to a better sales to automotive OEMs as their production rates recovered following the resolution of the semiconductor shortage. While our operating profit totaled JPY 1.2 billion, the operating margin was 1.5%. Operating margin increased 2.2 percentage points quarter-on-quarter.The bar graph here shows a trend in profit attributable to the owners of the parent, why the line graph chart changes in the profit for the period per share. The profit for the period was JPY 16 billion. Earnings per share was JPY 39.2. Next is the quality inventory trend. At the end of the first quarter, inventory totaled JPY 302.8 billion, which is JPY 500 million down than what it was 3 months ago. This graph contains a bar chart showing a trend in net interest-bearing debt, which is total interest bearing debt minus cash and cash equivalents and the line chart indicating free cash flow. At the end of the first half, net interest-bearing debt totaling JPY 234.7 billion was up JPY 33 billion from what it was at the end of the previous fiscal year. Regarding the net interest-bearing debt forecast for the end of the fiscal year, we expect our cash position to improve due to higher cash-generating capacity. The full year forecast for March 2024 has been revised down from JPY 1,450 billion to JPY 1,400 billion in net sales and from JPY 95 billion to JPY 77 billion in operating income. Sales forecast for PT and MLS have been revised down due to a slowdown in the market for data centers and other applications. SC sales were also revised down in light of slowdowns in analog semiconductors, optical devices and precision components. Operating income for PT and MLS were revised down in line with lower sales, while SE was revised down in line with lower sales in optical devices and analog semiconductors. AS forecast remains unchanged. The exchange rate assumption is JPY 140 to a dollar -- US dollar. This slide shows the forecast by business segment. This chart shows the difference between the revised forecast and the original forecast. This concludes my presentation.

[Operator]

Next, Chairman, Kainuma, please.

[Yoshihisa Kainuma, executive]

So from my side, I would like to talk about the management policy and business strategy. So this would be on Page 19. So in terms of the content of the slide, I hope that you can read through it. So what I want to communicate to you, there are 3 topics -- major topics I want to communicate, first of all, and I would like to talk in detail afterwards, but the analog semiconductors, we have conducted M&A. Another point is that Access Solutions, so the JPY 10 billion of profit is visible for this fiscal year for Access Solutions. So we will go into the long tunnel. So the first half has been in this type of condition, but automobile industry has started to recover and we have been focusing on the profit improvement initiatives, and this has been effective. So through this, in the second half only JPY 10 billion is going to be generated. The third point is that in the Philippines there are 24,000 people for their conduct operation, and we've been able to achieve carbon neutrality. Well, actually, from February next year this renewable energy is going to be used and we're going to [ have ] to 100% renewable energy. Another point is that the market has basically -- we started to see the indicators that it has hit the bottom and I hope that I'll be able to elaborate on that point. Next slide, please. So this is the -- we have made over recent for the outlook for the operating income. To be frank, personally I thought that JPY 80 billion will be able to achieve JPY 80 billion due to the currency exchange situation. But -- so I have been pressured that you shouldn't do a [ demeriting ] for the 2 times in a row. This -- we should have a very solid outlook. So then became -- I decided that it will be JPY 77 billion. So it's a quite conservative outlook in that sense. As you know, the previous year, basically, we have been able to end in line with expectations. In May, even if it's a 6 months out in the future, it's very difficult to make a prediction but basically, we were always been in line with the forecast. But things were in line but what was out of our prediction was that we thought that the second half, we thought that things will start to recover but what I meant was this was not in our prediction is that it was -- the recovery was not in line with our expectations. So we came to the conclusion that we have to make a downward revision. So JPY 105 billion of the operating profit, we have been generating that amount. But as I said in the explanation, there were extraordinary factors. We sold the headquarter building so that we had a gain for that. So we had the negative goodwill on the Honda lock. So actually, JPY 87 billion was a real operating income. I talked about that. So from that perspective, even if it's below JPY 8 billion and end at JPY 77 billion, that's about a 11% reduction of the operating income if we end the year at JPY 77 billion. So when the economy is bad, we will have to do business based on assumption that the economy was weak. And for the ball bearings, I went over to the site and about 20 million per month we improved the productivity by 20 million per month. But for the second round of the productivity improvement project is in place, and last week, I had kicked off this project. So we have been putting this in place. And because of -- if we have these initiatives, when things turn around, I think this will contribute to pushing up the profit. Next slide, please. So this is the highlight that I want to communicate. This is the acquisition of Hitachi Power and conduct device, so this -- actually the deal was closed. In 2017, when we integrated MITSUMI, -- so we had an offsite meeting -- at the management head of site meeting for 2x. So we were saying that we have to sell the analog semiconductor business. But basically, there was a very good presentation, and we started to be focused on analog semiconductors. And we discussed that we wanted to actually acquire this type of company in the future. So this will be the last target for the first round of initiatives. So there are 4 actually, targets and one we weren't able to get. But back in 2017 what we had in mind the last piece was the power device business. So in that sense, we were quite lucky. I think this basically was kind of serendipity. So I think that's the only way to put it. So it was -- took a lot of time to complete this deal but thankfully, we are now able to announce about this deal. So it's a para semiconductor industry. So basically we focus on industry and electric railway for the heavy industry makers like Hitachi, Toshiba, Mitsubishi. Globally, they had a very high level of competitiveness but this EV in the U.S. and Europe is attracting the focus. In Para semiconductors actually is lagging behind -- is said to be lagging behind these Western makers. So for our group company from before, with the -- we have been integrated part of the said semiconductor business and for the electric railway business we have been consigned the production of that and we are still producing that. We have a very strong relationship. And in the Hokkaido former MITSUMI and office on the site used to be Hitachi Hokkaisemiconductor. But this was transferred to Renesas. And MITSUMI, from Renesas, for the former Hitachi Hokkaisemiconductor, they acquired that and then made -- they came under the Mitsumi Group company. So if you go back Hitachi Power device and our former Hitachi Hokkaisemiconductor were like siblings. So they belong to the same [ statute ] group, and they use the same facility, the same equipment, but they were producing different products. So in terms of the human exchange with a lot of human exchange, and that has been ongoing. So even now, Mitsumi semiconductors are -- serves as the -- have a fabulous contract with Hitachi Semiconductor and we offer supply, our semiconductors. So in terms of the technological support, we receive it from Hitachi. So we have a very close relationship. So in that sense, and because we have this very strong relationship, well, actually, that is the historical background. So with the acceleration of the EV industry and the charging infrastructure and the secondary battery dissemination is going to proceed. And of course, we have renewable energy and we have to look for in the industrial area, we have this huge electricity market, and that is the expectations. So through this integration of these 2 companies, with this consolidation, we want to accelerate this consolidation, and specifically, the power transistor area, IGBT and the point is SSE, et cetera, this is going to grow. And the top 10, the old Japan company group has been born. So if we include the Hitachi power device in the current sales is over JPY 10 billion. I think we have been to, been able to build this business that was good and synergy can be leveraged. So in the niche area because we -- our core business is not semiconductor. And of course, we will put full efforts but we don't want to bet on a whole company destiny. So we'll focus on the niche area and then take high margins. So that is our intention. So I think this is the direction that we are looking for in terms of our business. So in terms of the acquisition price, basically, it is in line with the size of the company but it's undisclosed. Let's go to the next slide. Synergy, as I said, so this is an excellent company which will be able to supplement our semiconductor business. So because of the strong relationship we have been able to do this. So as a fab, we have been manufacturing and integration is already solid. That is one thing. And also IGBT and SIC engineers we already have, so MITSUMI 150, ABLIC got 100 and Hitachi power -- Hitachi power semiconductor device 150. In total, 400 engineers specializing in analog semiconductors are working for us now. And the biggest synergy come from the back end process. The back-end process includes packaging. We are doing this, but they have a more sophisticated technology in packaging. What is also important is when we shift towards SIC and IGBT, what we do not have -- what is lacking is the module technology. We cannot make modules. But thanks to this integration, as Synergy, we will be able to capitalize on it. I'm a lay person in this area and I may not fully understand, but it has a special design called side gate. So in IGBT usually, a tranche is used, but Side Gate it's a unique technology to this company, which is used to make IGBT. So 25% to 30% compared with other integrated circuit, it has a better performance. That is one of the characteristics in Shiga Prefecture we are now trying to start up this business. Earlier, I talked about the niche technology. So our transportation and power grid are the strongest. So our automotive is not at the heart of this business which I think is fine because we are not thinking about supplying a huge volume of products to such a big industry. As long as we can capitalize on synergy from this integration, our purpose is fulfilled. Next page, please. So 8 spears MITSUMI semiconductor and ABLIC, how we will be allocating responsibilities. So semiconductor 8 spares of strategy, lithium battery 50, the top is MITSUMI and the lower half is covered by ABLIC. And sales were about JPY 40 billion in the previous year. And this year, it's going to be JPY 46 billion. Of each, we are making about JPY 2 billion. So that needs to be deducted but we will see a net increase in this business. By capitalizing on synergy we would like to achieve JPY 200 billion sales in the near future. So please do the calculation in your head. So if it is 20%, JPY 40 billion and 30%, JPY 60 billion. So we will be able to see a completely different kind of a future because of this. So antitrust clearance that we need to get, but after that, the second of 8 spears, this semiconductor business will be positioned. So the machine -- the products such as bearing will be the first spear, then the second one is this semiconductor. So please, I mean, you do have something to look forward to. So the second key message for you is access products which has been the concern for you. So the recovery in automotive business and the various improvement activities are now bearing fruit and this year, it's going to exceed the JPY 10 billion. But Yushin and Honda Lock or Minebea Access Solutions and mass are not the only one that are contributing to the sales. Mitsumi's the automotive business is also brought over the sales, Synergy and other things like antenna, Shack painting or coating can also be done. So 3 businesses combined can generate JPY 10 billion. So Mitsumi used to be loss-making but now the bright future is foreseeable. So combining all these JPY 20 billion, we should be able to aim at next year. The Q1 had JPY 500 million losses and Q2, JPY 1.2 billion profit. However, in Europe, we are raising prices. And until the audit -- the various statements were not finished on time, but actually, JPY 2.1 billion profit has been generated and as a matter of the fact that this month we should be able to generate that much profit. Fortunately, new orders are coming in, as I said, lots of new orders that we are receiving. So we are expanding this business in line with the plan and various components technologies, some products will be put on to this because of the orders to handle, will have sensors and antennas. So various things will become materialized. And now the world is being shaped as we anticipated. So we would like to keep progressing based upon the strategy.Next page, please. So this is about the, 'What if?' hypothesis, but these numbers are realistic. When economy recovers the bearings aircraft, the build rate has not increased, supply chain disruptions are occurring and the build rate has not increased as much as our customers thought they would. And bearings for data centers and other applications are expected to grow. And then the machine products should reach at this point. And Spindle Motors low performing, but the Helium drivers are growing gradually and nonautomotive motors are sluggish. But when they recover, this number should be realistic. And at times a JPY 2 billion and JPY 10 billion can be achieved. And semiconductors, power device profit that will be put on, plus Ashiga plant will turn profitable. Then this much band can be achieved. So JPY 120 billion ability we should have. And therefore, now we are at a very crucial timing, but when the economy recovers we are prepared to grow very quickly. So foundation has already been solidified. Next slide, please. So maybe you'll say that it's too early, but I have always been saying that since I entered this company this ball bearing when the economy is bad, this will -- when it recovers it will go up the first. And when the economy is decelerating, this will go down the last. So I have been told that way and have been working in this company 30-plus years and actually, most of the cases, that is the trend. That's what I think. So that is the reason why I repeatedly talk about this. If you look at this chart, the first quarter, JPY 187 million. So this is external sales that is and JPY 200 million, JPY 217 million, JPY 229 million, so this is already more or less fixed. You can see that -- I think -- I don't know whether you can say this is bottoming out, but I think we have hit the bottom. That is what I think. And actually, automobiles, the record high level and air conditioners is doing well, office machines is going back but the fan related products are not coming back. Well, for instance, -- so it went down to JPY 35 million in March, it used to be JPY 80 million. But in January, it's JPY 60 million. We have already got figures of close to JPY 60 million. So it means that the market inventory has started to go down. So that's -- I think it's real. So for instance, with the logistics company with like Thailand, I had a meal with them. It used to be the case of, there was a lot of space in the cargo but the price has started to recover. And with the anticipated price and anticipated day, you will not be able to load the anticipated cargo, so it's becoming tighter. And hard disks, so the market inventory -- the consumption of the market inventory it seems to have gone forward a bit and talked about the Helium drive -- and we said that it's going to grow going forward. But is it going to grow strongly? No. But gradually, it's going to go up. I think basically, I was starting to see a trend that gradually this trend is going to go up. So this is because across the board, the inventory adjustment has ended but it depends on how the actual demand is out there. So is it going to be a kind of gradual recovery or is it going to be a V-shape recovery? I think the real demand would determine this. So I think we have to observe the market very closely going forward. But that said, that is what we're seeing currently. And I am taking a more positive view about this right now. Going to the next slide. So in the Philippines, -- so look at this, please. This is the Philippines, Mitsumi's [indiscernible] plant. So you can see that how many solar panels that we have installed, and we have negotiated with the government and we have been able to get a lot of privileges. And in terms of the PPA, Philippines, you can do that in the Philippines, and we went to a PPA. 100% carbon [indiscernible] is going to be achieved or is achieved. So this -- the U.S. [indiscernible] companies are very sensitive about the environmental issues. So from our point of view, we want to be ahead of the crowd to achieve 100% carbon neutrality. And I think we'll be able to talk more in the near future. But Thailand and Cambodia, which I am focusing the most, I want to go carbon neutral in these markets. So from our point of view this ESG is a very important topic for us. So we had this QC and in the center we have E, and we are going to move forward with our strategy. So these are the ESG topics. I hope that you will take a look about this. And next is just about the dividends. So stable dividends will be a target of JPY 20 per share is what we are planning. The year-end, if things go this way, we think we'll be able to -- maybe we're going to pay JPY 20, but at this point, it's undecided. The JPY 10 billion share buybacks, last month we've ended that program. So about 4 million shares, we are at JPY 9.6 billion, we bought it back. And I think you could just make a calculation, you can find out how much the price it was. So in terms of the total 44.7% is a total return ratio. So when things are not doing well, but I hope that, well, we will return it to the shareholders because we do have a view about the future and I hope that you will continue to invest in our company. So that's all from me. Thank you very much.

[Operator]

Next, we would like to have a Q&A session. And we would like to limit the questions to institutional investors and analysts, please say your affiliation before asking a question. Please raise your hand if you have a question and please wait until the microphone is handed to you. So the person in the front row.

[Daiki Takayama, analyst]

Takayama from Goldman Sachs. I have 2 questions. One, about the Hitachi power semiconductor device-related synergy. I would like to ask you. There are a few possibilities. Hitachi power semiconductor device I mean, the front process that Hitachi is using may contribute to increasing utilization rate. Or packaging and Moto technologies, if you acquired that from Hitachi, how exactly it will benefit to increasing sales? So Hitachi power semiconductor device. And how the production can be pushed up and how it will work on new modules?

[Katsuhiko Yoshida, executive]

Yes, the Hitachi power semiconductor device, the business. With regards to the front process, it's fabless. So the Hitachi has been outsourcing manufacturing not only to us but to other players as well. So their production capacity is more or less full. And therefore, basically, we are not thinking about generating synergy by utilizing their production capacity. But rather in Shiga prefecture, we purchased from Omron and we expanded to create a bigger space and now machines are being installed. And there, the Hitachi Power semiconductor devices, main products, production lines will be prepared Fitch will form the mainstay of the expanded sales. And what are the benefits back-end the process? We are doing some in Philippines and [ Alec ] is dealing with a back-end process in Akita. And the back-end processes can be profitable, but the ratio is about 20%. I mean we are only handling 20% of it in-house. So we would like to proceed with vertical integration. And they have a packaging dedicated plant in Yamanashi Prefecture using technology there, I am hoping to do it in Cambodia using clean energy. This is only a concept at this point. And therefore, I cannot be committed, but by vertically integrating, we would like to capture the profit that is now flowing now to other players. And then I see it's not sold in the chip alone, but it's sold in the form of modules. So module technology, and this company has the [ module ] technology. It wouldn't make much sense. And I have been talking about acquiring this technology for some time. And they are actually making it. And therefore, we can now supply our products in the form of modules. So please understand it that way. Let me confirm. So module is indispensable say. But is it for automobiles? Yes, automobiles and the electric railway as well. And also, what is being produced in the [ place ] manner? Are you going to produce it in [ Shiga ]? No. Place will remain. But right now, there is no leeway in production capacity to increase the production and contractors cannot accept requests because their capacities are almost full. But we are building a plant in Shiga, we can increase our production and in the days of [ Omrons ], we already had this concept. So we had a plan, and it's not a quick shift type of plan, moving things from left to right, but the things are progressing in line with the plan. Understood. And the second question is about access solutions. From Q2 to Q3, this huge increase in profit. Can you elaborate on? So the price increase may be one factor and automotive and antenna, there may be several factors behind us, but why profit is likely to increase this much. Probably you may think it's unbelievable. But actually, these things are happening. So breakeven point, once it exceeds a breakeven point, then we still have to pay for the material costs, but the rest will be all profit. And our late end problem for companies that are mass producing the goods. When it becomes below breakeven point, then the profit becomes -- it becomes very difficult to generate a profit. But breakeven point is decided based upon the negotiation with the clients. And therefore, when it exceeds the breakeven point, profit can grow significantly, and we also reduced the headcount in Europe by 300 in order to carry out the structural reform. And the third point is, other than the structural reform, price increase, we communicated to the client and convince the clients and adjusted the prices. So these 3 combined, -- we are generating these results. Why it is exceeding a breakeven point? That is because of the newly acquired business that are starting up. In the past, we had huge confusion, but we possibly fixed the problems. That is how we do things. That is our style. And now the production is on the good truck. So now I publicly say this. So Access alone has 32 factories globally, which includes good ones and not so good ones. We are allocating a lot of resources in order to fix them. That is how we do things. And we did it for MITSUMI and others. But this time around, there are so many factories scattered around globally. So it has taken much more time. I mean, language barrier and cultural differences we faced, but now we are seeing profits. And if the production volume does not decrease, we should be able to achieve the number.

[Yoshihisa Kainuma, executive]

So this is a confirmation. So you have 32 plants, and you have been improving productivity of these plants. But the margin on profit of this product, I didn't think they were so high. So the Honda lock, using -- is it at the breakeven point is high? Well, these are dedicated lines, all of them dedicate lines. And when the model volume goes down, the utilization goes down. So we have the people allocated using the just-in-time format. And what is tough for us is that we don't have any foreign exchange gains because we were excited with the customers. And we sell in yen into business and the customers, they get a lot of profit because of the exchange rate, but we don't get that benefit. So we have to have the volume come back or else will not be able to secure the profit. So that's the structure. Of course, we want to say that you're getting this level of profit through the exchange rate. We want that share, but they won't give us so I think that's unavoidable.

[Operator]

Any other questions? So on the front near to the corridor, please. Sato from Morgan Stanley Securities.

[Yoshihisa Kainuma, executive]

For the former MITSUMI semiconductor and electronics, I would like to ask a question about that. In the second quarter, on a quarter basis, the operating income has increased dramatically. But year-over-year, the sales has increased, but profit has gone down. So what is the reason behind this? If possible, can you explain by product? That's my first question. So there are 3 factors here. First, for the semiconductor profitability, all that said, is on the higher double-digit level. We have been able to generate that but year-over-year, the profitability has gone down. That's number one. The second reason is that at OIS, the optical device product. The new model has started, but when we ramped up, the price has gone down slightly. And year-over-year, we have not been able to secure enough profit. That's the current situation. That's the happened in the second quarter. Another reason is that in terms of the game business, -- it has been the same year-over-year. And because of these reasons in terms of profitability compared to the second quarter last year, it has decreased. With the semiconductors and electronics second half outlook. So from the first half, the profit compared to the first half, you're thinking that the profit is going to grow substantially. So if you divide it between the third quarter and the fourth quarter or from the second quarter to the third quarter, fourth quarter -- fourth quarter, what do you think would be the change? And maybe it's too early to say, but for next fiscal year, the semiconductor interest -- you talked about you're expecting the profit to grow in the semiconductor business. But in the other products, as in total, what type of change are you expecting? First of all, so the SE sales third quarter, fourth quarter breakdown. Third quarter, JPY 153 billion, JPY 18.2 billion. In terms of profit, third quarter, JPY 15 billion fourth quarter, JPY 8.9 billion, so JPY 37 billion will be the full year outlook. On the third quarter -- the second quarter to the third quarter, North American smartphone production -- peak of the production is -- will be in this period. So that's the difference. The peak -- the -- where the peak is, is different from last year. So that is the reason why compared to the second quarter, the third quarter or the profitability or the actual profit value will be different. Is that a major reason? In terms of the semiconductors, as you know, it is not really a full recovery. So the BB is around 1. So I think, generally speaking, the overall market is going to go down but for our company we think that in terms of orders or sales, we are -- I think we'll be able to secure a flat order or sales, that's for the semiconductor business. For next fiscal year, the assumption -- we have to look at what -- how the market is going to look like. We don't have a solid view about the market and so we'll be able to say. But in any case, this inventory correction is going forward. If that is the case, -- we think that the market will recover. But when? At what level and what's going -- and we specifically -- we are not in a position to talk specifically about the market condition for next fiscal year. So this is -- I talk about numbers for the ball bearings. So the July to September, October to December, so the production and the internal and external sales, can you talk about the volume ? So then July -- from July in millions, production, 248, 246, 246, from October to December, 246, we have 260, 253. That's the outlook. In terms of external sales, July 195, 196 for August, September 210, so 200 average for the second quarter from October onwards. 220, in November 220, December 211. On average is 217. So as kind of I said in the explanation, we talked about the ball bearings external sales trend. For the fourth quarter average, about JPY 229 billion is our estimation. For this number, we have to investigate more closely. Internal sales, July 41, 40, 35 and from October 35, 38 and 38. So this is Pivot assemblies recovery is not seen. So in terms of internal sales, it's at a very low level. From January onwards, our assumption is that maybe over 50% is what we are anticipating. Thank you very much.So if that is the case, internal production adjustments and inventory adjustment were finished in September. And now the production is progressing in line with the actual demand. Am I right in understanding it that way? Well, customer by customer, the peak demand and the so forth is different. But now the external sales should be matched with the production. Any other questions? The person in the front near the corridor. Akizuki from Nomura. Let me confirm some numbers, please. There is machining consignment forecast for Q2 and Q3 and also, the ball bearing external sales July number... did you say 205? 195, I see. And consignment? Consignment. Q2? 282, 140, 86 million. I see. So sales, sales are expected to decrease from Q2 to Q3 because of reduction in consignment, I mean from Mitsumi part but actuator will increase and the product mix will improve. That is right. So if I may, I would like to ask you about sales decline in Q4. Regarding Mitsumi, the sales Q-on-Q likely to decline quite significantly, but the profit will decline only JPY 6 billion or so for MITSUMI. But why is it the case? First, optical devices, production will decline. But we will be able to ensure a certain level of production volume and semiconductors. Q3, Q4, there will be some improvement we are assuming. And also Machine products, like consignment, they will decline. So from a profit margin point of view, the product with a better profit margin will increase and not so profitable products will decrease. So in terms of the product mix, the situation will improve. My second question is this power semiconductor business that you have acquired. So frankly, I think you bought an excellent business like railway business, a very sticky business and module business excellent, the business you have acquired. But IGBT that you have been talking about, we're targeting at the EV, I think, but power semiconductors, what markets are you going to target? And if I may confirm the numbers again. So sales will be 40 and 45, that level. But what is the current profit margin at this point in time? Or what the profit margin shall we keep in our mind? So if I have given you an impression that we are targeting at the EV, probably I didn't explain it right. But I do not think I have said that we will be doing IGBT for EV. But it doesn't mean we will not sell to EV at all. We will sell some and these products are quite hot right now and as long as we can generate profit and differentiate then then we will supply products to the niche markets in EV. So 8 inches. So Shiga in total, I think it will be 3,000 or 30 million, it's not so large. But the area is 25% smaller and therefore, so many [ wafers ] can be taken from one piece. In other words, the unit cost is smaller and we can secure our profit. In that sense, EV, we can also supply to EV applications, but EV is not the ultimate goal for us. And what was the other question? Profit margin, profit margin.Mitsumi. It will be lower than Mitsumi and ABLIC. Therefore, I think you can imagine when we acquire a company we have this financial role like EBIT 10 times. So the target markets. What are the target markets after the integration? There are various assumptions railway, of course and also, we have power [indiscernible] -- power supply, high-voltage, high-current, high resistance and high-speed communication or high frequency and high-speed communication. And our own proprietary IGBT or using SIC, we would like to make -- finish the products by a vertical integration or the combined and integrated policy by integrating all those products in different products. I mean, bearing, we were using ourselves and selling to outside customers and we made huge volume and we were not able to consume all of them. And therefore, we were selling bearings to outside customers, but SIC and the like, the products that have the performance to capitalize on our technological capability, we would like to use them in a combined and integrated manner like chargers and robots, everything. Everything is electrified and everything requires a quick charging, which means that the voltage gets higher and we supply adapters or power supply. In a short period of time the high-current and high-voltage time is saved. So in case of motors, it's bearings. So that type of usage we are thinking about. So cross tech or tech board. 1.5 years ago, I produced a so-called tech board and we should leave technical matters to the specialists, I thought. And Tech board -- based upon the tech board we are seeing many new products, and we will be using them in the manner I explained. So new needs, new demands to a huge power market, we will be supplying what we can supply. Thank you very much. Any other questions? So first, let's take the question for the person sitting closer to the corridor. Thank you very much for your explanation. This is Hirata from UBS Securities. So I would like to ask one question about analog semiconductors and about optical devices and other question. First, about the analog semiconductors. You said that from the first quarter to the second quarter, you said that you have seen an improvement, from the third quarter onwards it will be flattish or maybe going up on the fourth quarter but by application. So for instance, the Chinese smartphones maybe are improving. That's my assumption but by application, what are the trends that you are assuming in the second half? In terms of profit, the second half will be in line with the profit level of the second quarter? For the Chinese smartphones in the second quarter there has been a strong growth. But for the full year, with the -- we are not assuming that the total demand is going to grow, meaning that the third quarter and fourth quarter, we are taking a conservative approach. And the customers have been saying that the they are not having assumptions that the overall production volume is going to grow. So the second quarter will be the peak and the third quarter, fourth quarter will be a conservative outlook.For the automotive area it is very robust and for the medical area there's a lot of niche areas. So that those applications will be offsetting the seasonality of smartphones, specifically, for the drop of the Chinese smartphones they will offset that. And for North American smartphones, basically, it's a normal seasonality. It's going to the peak right now. So all in all, overall, I think it's a kind of flattish trend with everything in balance. Thank you.

[Operator]

So in terms of profitability, the second, if you compare it to the second quarter, third quarter, fourth quarter, you'll be able to maintain or improve? Yes. So in terms of the semiconductors the foreign exchange will be following -- so if you consider -- take that into consideration we think we'll be able to secure the profit level in line with the second quarter. And my second question is about the semiconductor, SE optical devices. So you talked about the second quarter basically was over your expectations, that's my understanding. In fourth quarter, it won't drop that much. What is the reason why you're making those assumptions? Is it about your share? Can you explain what is the backdrop of this type of [indiscernible]?

[Yoshihisa Kainuma, executive]

Well, sorry, we cannot talk about share. I do not think that we are in the position to talk about our share. North American smartphone production in itself is -- there's a lot of new models ramping up, and we are in line with that. And with the fourth quarter because we do not know how much the production is going to be. So there's a lot of uncertainty in terms of the outlook. But as of now, the forecast level that was in there from the beginning is -- we are using that as an assumption with the outlook.

[Katsuhiko Yoshida, executive]

So in the first row near the corridor. Woo from Mizuho Securities. I have 2 questions. One, the ball bearing quarterly number graph, I have a question about -- so after bottoming out, it's going to grow and what applications will grow in particular, if you could explain? And the data center cooling fan, the cooling method seems to be changing. So is it going to come back to the previous level? What is your gut feeling? And if possible, please share with us when you think it will exceed the past peak. So when data center business is likely to recover, I have no idea. So that is my true feeling. As Kainuma explained previously, the bearings for farm motors are coming back. But weather demand is recovering or the customers' production rate, whether it's recovering. It's not so clear, but the supply chain as a whole, was adjusting inventories, but now it seems to be more or less finished. And therefore, things are picking up recently. But how things will proceed going forward? It's not so clear at this point. And also...And your next question. It's not clear either, but liquid cooling, the farm motor still requires a coolant and therefore, bearing will still be needed. And it's not that all servers will adopt a liquid cooling method. So -- this new way of cooling is not a threat for the entire market, but it's only partial. And the mechanisms to cool, the coolant, I think we can still secure some bearings business or bearings demand. We would like to study more about this, but things remain unclear at this point. And bearings are recovering for automotive applications. As was explained, the production rate of automobiles are recovering and the content ratio is improving. And therefore, record highs have been renewed. And this trend shall drive future growth and business is recovering as such. There's one more question. About connectors, you did not explain today. So what is the current status, if you could update us on that? Semiconductors and access solutions, it's expanding because of mergers and acquisitions. And as for the next step, probably similar move may be necessary for connectors, what do you think? Connectors being integrated and the organization has been put together and sales are visiting potential customers with samples. So 3 companies are jointly working on this for MITSUMI, Honda, [ sushi Minibea Connect ], -- these 3 companies are jointly working on this. And the division of role and how to carry out the sales activities are being decided and sales activities have started -- so probably it's going to be in the future that we will be able to see the results, but things are progressing smoothly. So if any changes we see, I will share with you. But MITSUMI connectors are now generating the profit. So it's profitable, very profitable, and fortunately, it will reach double digit in that sense. I thought that the other players will lead Mitsumi, but is the other around MITSUMI is leading this business. Any other questions? So it seems that there are no questions, we'd like to end the session. Thank you very much for your participation.