Minebea Mitsumi Inc

TSE:6479

Earnings Call Transcript 2023-Q3

[Katsuhiko Yoshida, executive]

My name is Yoshida. I would like to explain the consolidated financial results for the Q3 of fiscal year ending in March 2023.

Consolidated net sales for the third quarter was up 22% year-on-year and up 12.5% quarter-on-quarter to total JPY 371.424 billion. Operating income was up 2.3% year-on-year and up 0.1% quarter-on-quarter to total JPY 26.432 billion. Profit for the period attributable to the owners of the parent was down 28.5% year-on-year and down 34.5% quarter-on-quarter to total JPY 13.148 billion.

We estimate the foreign currency translations, and we recorded the record high sales in terms of the quarterly results. We estimated -- we estimate that foreign currency translation have a quarter-on-quarter impact of plus JPY 15.3 billion in net sales and plus JPY 3.5 billion in operating income, year-on-year impact of plus JPY 57.2 billion in net sales and plus JPY 7.7 billion in operating income.

Next slide, please. This chart shows quarterly trend in net sales, operating income and operating margin. The operating margin for the third quarter was 7.1%, down 1.4 percentage point year-on-year and down 0.9 percentage point quarter-on-quarter. There was a negative impact on operating income from, more than expected, the fluctuations of exchange rate as we had ForEx forward contracts.

Our estimation of the foreign exchange effects are shown in the boxes for your reference as we did in the first and second quarters. The operating income figure for the third quarter includes a foreign exchange gain of JPY 1.9 billion and JPY 2.9 billion loss on the FX forward contract. Excluding the impact from the ForEx forward contract, operating income would have been JPY 29.3 billion.

Next slide, please. Here shows the difference between the forecast as of November and actual results for net sales and operating income by business segment for the third quarter. Net sales for the machined components business were generally on track with the forecast, thanks to soaring sales in the aircraft market, although bearing sales were lower than expected. The electronic devices and components business experienced lower-than-expected sales due mainly to the slowdown in HDD motor sales.

The MITSUMI business enjoyed higher-than-projected sales mainly for mechanical components. U-Shin sales were higher than projected, mainly for automobile applications. Operating income for the machined components business was lower than expected due to a slight decline in profitability resulting from production adjustments for bearing, the electronic device and components business. So operating income fell slightly below our forecast due to a drop in sales. Operating income for our MITSUMI business was almost on the par with our forecast. U-Shin's operating income was lower marginally than our forecast.

Next slide, please. This slide shows the quarterly trend of the machined components business. The left graph indicates quarterly net sales trend, and the right the charts, quarterly operating income trends, along with a line chart for operating margins. The third quarter net sales decreased 1.6% quarter-on-quarter to total JPY 50.5 billion. Sales of ball bearings decreased 4.1% quarter-on-quarter to total JPY 37.6 billion. The monthly external shipment volume was down 10.4% quarter-on-quarter for an average of 225 million units. This was due to a slowdown in the market, mainly for data centers.

Sales of rod-ends and fasteners totaling JPY 9.6 billion were up 16.5% over the previous quarter. Sales increased amidst a recovery of aircraft production. Sales of pivot assemblies decreased 14.3% quarter-on-quarter to total JPY 3.3 billion. Operating income for the quarter totaled JPY 11.5 billion, and the operating margin was 22.9%. On a quarter-on-quarter basis, operating income decreased 7.8%, while the operating margin dropped 1.5 percentage points.

Looking at the results by product, we see that the operating income for ball bearings and pivot assemblies decreased quarter-on-quarter, while operating income for rod-ends and fasteners was up compared with last quarter.

Next slide, please. Let's look at the electronic devices and components segment. Net sales decreased 7.5% quarter-on-quarter to total JPY 90.7 billion. Looking at the results by product, we see that the sales of motors decreased 8.3% quarter-on-quarter to reach JPY 65.4 billion. This was primarily due to a decrease in demand for HDD motors. Sales of electronic devices were down 7.8% from the previous quarter to total JPY 14.3 billion. This is due to decline a decline the sales of LED backlight models used our key customers. Sales sensing devices totaling JPY 9.9 billion were down 2.4% from the previous quarter. Operating income came to JPY 2 billion, and the operating margin was 2.2% on a quarter-on-quarter basis. Operating income decreased 37.8%, while the operating margin dropped 1.1 percentage points. The results include a loss of JPY 1.4 billion due to the special factor of foreign exchange effects noted earlier.

Next page, please. Just the performance with the MITSUMI business segment. We have included MinebeaConnect formerly Sumiko Tec in this scope of consolidation since November 1, 2022.

Net sales increased 33% quarter-on-quarter at JPY 182.7 billion. This was due to increased revenues accompanied by seasonality of electronic devices and mechanical components and others. Operating income totaled JPY 17.3 billion, while the operating margin was 9.5% quarter-on-quarter. Operating income increased 10.7%, and operating margin dropped by 1.9 percentage points. Note that this figure includes JPY 1.7 billion of negative goodwill of MinebeaConnect, formerly Sumiko Tec. Excluding this, operating income would be JPY 15.6 billion, stable quarter-on-quarter, and operating margin 8.6% or down 2.8 percentage points. This was primarily due to the changes in product mix.

Next slide. Look at the U-Shin business segment. Net sales were up 7.9% quarter-on-quarter at JPY 46.3 billion. This is due to the recovery of production by car manufacturers gradually, although the situation vary from region-to-region and customer-to-customer. Operating income totaled JPY 0.3 billion, and the operating margin, 0.6% quarter-on-quarter. Operating income fell 59.7%. Operating margin dropped 0.9 percentage points.

Next slide. The bar graph shows the trends in profit attributable to owners of the parent, and the line graph chart shows changes in the profit for the period per share. The profit for the period was JPY 13.1 billion. Earnings per share was JPY 31.9.

Next slide, the quarterly inventory trend. At the end of Q3, inventory totaled JPY 275.9 billion, an increase of JPY 3.1 billion over 3 months ago.

Next slide. The bar chart shows trends in net interest-bearing debt, which is total interest-bearing debt minus cash and cash equivalents. The line chart represents free cash flows. At the end of Q3, net interest-bearing debt totaled JPY 211.8 billion, up JPY 124.9 billion from the end of the previous fiscal year.

Next slide. We have made revisions to the full year forecast. Net sales were revised upward from JPY 1,250 billion to JPY 1,300 billion, and operating income was revised downward from JPY 115 billion to JPY 100 billion. The operating income forecast includes onetime revenues such as negative goodwill associated with M&A and restructuring cost.

Net sales, operating income and profit for the period are all expected to reach record highs in the current fiscal year. The exchange rate is assumed to be JPY 125 to the U.S. dollar.

Next slide. This is the forecast by business segment. Sales and profits for Minebea AccessSolutions, formerly Honda Lock, and the scope of consolidation since January 27 of this year are included in the U-Shin business segment for the second half of this fiscal year.

This concludes my presentation.

Mr. Kainuma, the floor is yours.

[Yoshihisa Kainuma, executive]

Good evening. This is Kainuma. Page 14, please. Q3, November -- or October and November, we had solid results, basically in line with the plan or slightly below the plan. However, in December, things plummeted all of a sudden. That is a fact. And bearing motors, particularly HDD, that sustain our business plus backlight, semiconductors, game consoles, OIS, those things slowed down more significantly than the expectations. Well, some of them slowed down just a little bit, but these revenue or sources slowed down across the board. And the companies that we supply, we -- our products, too, even if one segment goes down, others can offset the decline. However, the aircraft segment alone could not offset the decline in other segments. But HDD full capacity -- compared with full capacity record high production, it's now a quarter, 1/4 of it. And January, February and March, we expect that it will hit the bottom and start to pick up. And therefore, the worst time is already behind us.

And according to the information we have, the inventory adjustment at our customers are now over. And how many stocks of HDD our customers have is not clear. But once they are consumed, I think we will get back to the normal level of business. In December, such, not only sudden changes on our customer part that we sell and the exchange rate moved very violently in 1 month from JPY 134 to $1 and to JPY 120-something and parts and components that we procured or at JPY 150 to JPY 130. So what we prepared when the yen was strong is now a price technically be different. So one-off profit, in other words, the positive event and negative events were mixed. That is what we have been experiencing. So it's totally my responsibility. And we reserved ForEx about -- and probably the impact will be about JPY 9 billion. But proceed of sale of the head office building will be about JPY 13 billion. So we are trying to offset the impact of one event with proceed of another event. And January to March, particularly January, the lockdown in China ended, and then Chinese New Year. Therefore, utilization dropped significantly. So that is the reason why we came up with the forecast for this term.

And structural reforms we have been pushing forward, and the measures for the next year we would like to implement by the end of this fiscal year.

Page 15, please. So JPY 100 billion operating profit has become difficult. However, JPY 100 billion target, as I said previously, the impact of one event is now offset by the impact of another event. And therefore, we will be achieving this target. And next year, if it were not for these events, we shall be able to easily exceed JPY 100 billion because we already have a business structure in place.

Page 16, please. This shows the next year's -- the profit sources. If things are normalized, we will be exceeding JPY 100 billion profit. And a rough breakdown are the bearings or the machined components, JPY 50 billion to JPY 55 billion. We already have a structure to enable it in place. And the motors, if HDD comes back, once again, we can have more than JPY 20 billion profit. Semiconductors, JPY 25 billion is a solid number and OIS and access products, including Honda Lock. Adding up all these minus head office expenses, we shall be able to easily exceed JPY 100 billion.

So the cyclical economic slowdown is what we are seeing in my view, but it's not that some technologies are diminishing or disappearing rather than such a serious thing. It's about how we look at the global economy. Semiconductors impacts. Take, for example, the smartphones. Because the total supply is limited, they tend to be used for higher value parts. And low-end products are running low in supply. So once semiconductor recovers, the potential demand will be stimulated, is our projection.

Please look at Slide 17. This has already been communicated to you. Finally, the super bearing is going to go into the mass production phase. The sampling shipments have been made to our customers, and their reaction is very positive is what I hear.

The power value would be reduced by approximately 4% to 5%. You might think that this is a very small reduction, but on the part of the customers, they really appreciate this. Especially they appreciate the rotational torque reduction by about 40%. So this means that the motor efficiency is going to improve dramatically. Therefore, by the end of this fiscal year, meaning by the end of March, we are to start the mass production. And in the second half of this fiscal year, 15 million of 830 fan motor and 608 for motors, we expect the super bearings to cover, supply, provide those amounts. We have already applied for the patents. And should this remarkable effects be realized, this would translate into differentiation, and our bearing business will be pushed up further, and the prices will be set rather higher, reflecting these unique features.

The data centers currently are concerned about the heat. They are looking for solutions to the heat issue. So improvement in motor efficiency means that, of course, this would directly relate to CO2 emissions reductions, meaning this has great potential.

Slide 18. Although the impact of antitrust law regulations was severe than we had expected, but we were able to include a former Honda Lock as a part of our group as of January 27. We expect synergies between AccessSolutions, formerly Honda Lock and U-Shin. And we expect growth as a result of synergies. How these synergies and growth could be realized and should be realized are shown on the slide.

As for product synergies, door latches, spindle drive unit, heater controls or CSD, the spindle drive unit, which is the rear hatch new mechanism, heater controls and overhead controls. These 4 product areas are provided by U-Shin, but Minebea AccessSolutions don't have those products currently. Whereas for door mirrors, wheel sensors and kick sensors, AccessSolutions provide those, while U-Shin doesn't.

For kick sensors, the customers were acquired immediately. They were really waiting for the start of the supply from Minebea AccessSolutions, and they are ready to purchase right away. So in that sense, the cross sales of the 2 entities are to be promoted going forward. That would be the crucial point.

Regarding the production capacity synergies, yes, we are going to have more bases. And we're going to have multiple locations or bases in the similar regions. But it so happens that for the 4 regions shown on the top, they are -- they will be complementing each other. U-Shin in China, in Zhongshan, still have idle space capacity within the premises, whereas AccessSolutions don't have that spare capacity. As for Thailand, the AccessSolutions facilities are getting older. And so for further expansion, they needed to increase their capacity, but U-Shin has spare space. As for Mexico, conversely, AccessSolutions have the available space, while U-Shin was seeing the full capacity. So going forward, with cross sales between the 2 entities, and also, there are areas where the existing customers are asking for further supply. We would not hesitate in using the available space available capacity.

On a global market, we will be able to provide the similar quality products. So in Europe and U.S. and Vietnam and Indonesia, we are one of the few companies that can provide and supply on a global basis no matter where the customers want the supplies to be made. We have that supply system established.

As for semiconductors in the second half of next fiscal year, we expect a recovery. And for the time being, the customers do show that projection. So we want to be ready before the recovery takes place, leveraging our synergy. Every effort will be made. And as for the motorcycle market, which we had not looked at so far, it so happens that Honda has the largest market share globally for motorcycles. And 2 various facilities at Honda has in different parts of the world, we are providing -- we are supplying necessary parts. And what we tell us is that a former Honda Lock sales, when they were carrying this business card with Honda name on it, they were not accepted, but there are many manufacturers of motorcycles, not just Japanese ones globally. And MinebeaMitsumi brand or Minebea AccessSolutions will be the brand that will be used, which provides better access, which could translate into better profit.

So in order to achieve the greatest possible synergies, if we do so, our JPY 20 billion is an easy bet. U-Shin incidentally is promoting various structural reforms. And this synergy with Honda Lock, once it's accelerated, the AccessSolutions products can earn JPY 20 billion operating profit.

Page 19, please. My biggest concern is the share price. Share price just wouldn't go up, and it's like 10x the multiples. And our share is undervalued, to say the least. And inclusive of the message to the market up to JPY 10 billion and 4.5 million shares from February 6, we will begin the share buyback. We have made a resolution.

Page 20, I have no additional comments, and please read it. This concludes my comments. Thank you very much.

[Operator]

Next, we would like to have a Q&A. The first question is from Mr. Takayama of Goldman Sachs.

[Daiki Takayama, analyst]

Can you hear me?

[Operator]

Yes, I can.

[Daiki Takayama, analyst]

I have 3 questions. In the second half, I mean, newly included one-off events, the structural cost is included. And in what quarter, how much is included and the negative goodwill? Sumiko Tec portion has already been -- has come out, but what about the Honda Lock? Is it included or not? And the actual impact on the consolidated sales and profit, if you could explain to me, please.

[Yoshihisa Kainuma, executive]

First, the positive impact. As you pointed out, the negative goodwill. And as I have been explaining to you, the sale of Mita head office building, so JPY 35 billion, a positive impact, which is included. And then JPY 20 billion structural reform, cost is included, 80% of which is for streamlining production equipment. And in some cases, we may have impairment losses. And the rest is related to withdrawing from Russia and implementing environmental measures in the U.S., roughly JPY 20 billion from those items included. And the Honda Lock or Minebea AccessSolutions are abbreviated as MAS, how much MAS portion is included? In sales, JPY 22 billion. And as the company was integrated on January 27, so for February and March, for 2 months, JPY 22 billion, and operating profit of JPY 2.5 billion.

[Daiki Takayama, analyst]

I see. If I may confirm, the proceed of sale of head office was included in the interim number. Therefore, the only addition is the Honda Lock consolidated numbers. And next year, the plan for Honda Lock was JPY 100 billion and 5%. And do you stand by the same forecast?

[Katsuhiko Yoshida, executive]

First, so 35 minus 13, JPY 22 billion. Maybe it will be slightly higher and then structural reform, so it will be slightly on the positive side. And the Honda Lock next fiscal year's forecast, we need to scrutinize this a bit more. But as Kainuma explained, there are various synergistic effects expected. And also various initiatives will be carried out.

And what -- apart from what set of numbers Honda Lock will be able to achieve, 5% seems to be a conservative outlook. So how much upside we can realize, it's something we need to scrutinize going forward.

[Daiki Takayama, analyst]

I see. My second question is, so what is your thought on the recovery going forward, the bearings and semiconductors, at what timing? How do you think these will recover? In the past, I think -- or last time, you said that semiconductors recover rather quickly, although they are affected very quickly as well.

[Yoshihisa Kainuma, executive]

Semiconductors. Right now, there is a shortage -- big shortage of semiconductors. Our customers are not able to make enough of them. All OEMs are going through this situation. What we hear right now is they are making design changes. For example, in the past, on the semiconductor A was applicable to a certain product. But by making a design change, they are trying to make semiconductor B and C also usable for the same product. And then in June and beyond, July and August, probably, it will begin to improve the supply, which I think can be reliable information. So next year or at the beginning of the second half of next fiscal year, things will recover, maybe not all of a sudden. Everything may not recover at once. But in October or September, in such a time frame, things will start recovering.

On the other hand, bearings, there are 2 major impacts. There are 2 major reasons why bearings are being sluggish. One is automobiles. Automobile volume -- production volume is rather high, but it's lower than our expectation. And actual production is lower than our expectation, which means that there is an upside, which sort of disappeared right now.

So for automobile, it's not that it's plummeted, but it's been flattish. It's more or less flat. But the demand that we heard was much higher, but it's much lower now because of the semiconductors that I mentioned earlier. So if semiconductors supply normalizes, I think the bearings number will increase. So as for the timing, when the semiconductors supply increases, then the bearings sales or the number will improve in September or October.

And data center, the absolute number dropped significantly. And one factor is headcount reduction of GAFA and the Chinese economy slowing down. So the figure dropped dramatically. And the same applies to HDD, and our customers are the foreign capital companies. And they have implemented drastic production adjustment. But as I said previously, the investment -- excuse me, inventory adjustment on the customers' part are more or less finished.

And the remaining question is how much stocks remain in supply chain, and maybe I shouldn't say we were forced to do it. But because of a strong request by customers for BCP, we were asked to make many more products in May, June and July. Back then, there was a shortage of semiconductors, and they were afraid the same thing would happen for HDD as well. And because of that, our customers ended up having excessive inventory. And as to when such stocks will be consumed, at this point in time, I cannot say. But probably in January, the order placement from customers hit the bottom. And in January, we received 1.5x bigger orders. And in January, February and March, we should see gradually increasing numbers. And probably, in the next fiscal year, May, June, July, it will normalize.

So digitalization in itself, I mean, it's not about the technology, but automotive, autonomous driving and things like that have just started, and volume will be growing significantly going forward. So semiconductors, whether they can -- I mean whether the production of semiconductors can keep up with the demand, there is a question mark, but there is a strong demand.

[Daiki Takayama, analyst]

I see. And lastly, Mr. Kainuma, you said that next fiscal year, it will go far above JPY 100 billion. But can you explain once again about the split of that number?

[Yoshihisa Kainuma, executive]

Just to give you an image, the bearings and aircraft, in other words, machined components. Machined components segment, JPY 50 billion to JPY 55 billion. And this year's forecast was JPY 52 billion or so or JPY 51 billion maybe. And I think it's been clear that it will not reach that level. And the aircraft recovered. And if bearings recover, then we should be able to exceed this level quite easily. And motors, because of the HDD situation, spindle motor profit margin has dropped dramatically. To be quite honest with you, in December, we had some losses. But once it recovers, the motors as a whole would exceed JPY 20 billion.

There are other precise miniature motors and semiconductors JPY 25 billion is a very conservative number. I don't think we have put together a clear forecast for this fiscal year, but I think you can read between the lines for semiconductor. So JPY 25 billion is not stretched goal, plus OIS and Access minus head office expenses and no ForEx impact.

[Operator]

We'll move to the next questioner from Morgan Stanley MUFG Securities, Sato-san, please.

[Shoji Sato, analyst]

Sato from Morgan Stanley MUFG Securities. I have 3 questions. First, your major product areas. HDD bottomed out in December you said. But ball bearings and backlight motors and game consoles and semiconductors and OIS, looking at this main products, in terms of your shipment or production, when did they hit the bottom respectively? And what will be the expected recovery? What will be the order of the recovery -- expected recovery timing?

[Katsuhiko Yoshida, executive]

First, on HDD, as Kainuma explained earlier, bottomed out in December. Since January, we are seeing a rather speedy recovery or that is our expectation. For others, motors, the automotive and others, if we separate those 2, for automotive motors, as we have been explaining, content growth is there. And still, it's growing very strongly. For other types of motors, in the fourth quarter, we expect to hit the bottom. That is our perception of the situation.

As for ball bearings, Q4 figures, we expect to be the bottom more specifically. January was the Chinese New Year. So January, bottom, and start to see the recovery in February.

As for semiconductors, already, we have seen the bottom in terms of P/V ratio. We are already seeing a V-shaped recovery. So that is in terms of orders.

And as for sales and profit, Q4 is expected to be the bottom.

Backlight and game consoles, applications slowed down in Q4. And since we are in the off-peak season, so conservatively, we are making the projections in our forecast. And that is reflected in our guidance.

[Shoji Sato, analyst]

I see. Regarding ball bearings, in October, November, December, what were the monthly changes? And what are the expectations for Q4?

[Katsuhiko Yoshida, executive]

October external sales: 239 million, 228 million and 270 million; January, 195 million; February, 200 million; March 219 million, all millions of units. Internal sales: October, 39 million, 39 million, 33 million, 35 million, 37 million, 35 million are the assumptions.

As for Q3, was January the bottom? Starting from October, 304 million, 296 million, 264 million; January, around 240 million; February, March, we are refining the figures -- projections now. But as we have been saying, the solid steel without any air void, the optimal inventory level is being calculated. So while satisfying that demand, we don't want excessive operation. So we want to operate on a more of a conservative manner. So we are currently refining the production volume.

[Shoji Sato, analyst]

My third question. As for MITSUMI business performance, looking at major products, semiconductors, game and connectors, from Q2 to Q3, how did they develop? And as for Q4, profit would decline dramatically for cameras [ configure ] and the gaming device or consoles. Am I correct?

[Unknown Executive]

Q2 to Q3, cameras and game consoles increase in sales and profit. Especially for game consoles, a big upside or a big jump in sales in Q3. For connectors, the growth was on par with the market growth and Sumiko Tec and Honda Lock consolidations included results in growth there.

For Q4, game consoles and smartphones related, optical devices, both expected to drop somewhat. Inclusive of that factor for MITSUMI business, JPY 50 billion is the full year forecast, about JPY 2.9 billion for Q4. So we believe the results will land at that level.

[Shoji Sato, analyst]

For semiconductors, Q2 to Q3, what were the changes? And what's your projection for Q4?

[Unknown Executive]

For semiconductors, Q2 to Q3, decline in sales, decline and profit. But in Q3, high profitability was maintained. The profit margin was maintained over double digit. For Q4 -- from Q3 to Q4, some decline in sales is projected. And operating margin is projected somewhat conservatively. And that is behind the guidance that we announced.

[Operator]

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

[Fumihide Goto, analyst]

This is Goto from Mizuho. Can you hear me?

[Unknown Executive]

Yes, I can.

[Fumihide Goto, analyst]

I only have one question about the numbers. The full year operating profit, the comparison between the original forecast at this time. So JPY 115 billion and the sale of head office, JPY 13 billion and JPY 102 billion was the result. And maybe comparing against the JPY 115 billion. So vis-a-vis that number, the plus/minus, positive and negative factors.

[Yoshihisa Kainuma, executive]

And responding to Takayama-san's question, I think you have covered some of the information. So vis-a-vis JPY 100 billion; and Q3, JPY 26.4 billion; and Q4, including special factors, JPY 32.9 billion. And as I said previously, the goodwill working in favor, JPY 20 billion plus, and the structural reform, JPY 20 billion. And net of those factors is this number. So organic part, the downside is slightly over JPY 10 billion in Q4, the guidance as of November. So that amount is the downside to that previous guidance.

[Fumihide Goto, analyst]

So JPY 115 billion has dropped to JPY 100 billion, and that is the organic part. Am I right in assuming it that way?

[Yoshihisa Kainuma, executive]

Yes.

And Q3 operating profit is -- was about JPY 34 billion, and the downside of JPY 8 billion. So JPY 15 billion plus JPY 8 billion, it's like half and half, Q3 and Q4. Yes, in Q3, it was like JPY 7 billion. So Q4 actual capability is -- yes, I think I got it. So if you are talking about the actual capability, the -- there is this FX for the contract.

This is included in the full year number. And likewise, JPY 2 billion forward contract is included. If it were not for that, the downside, excluding such special factors, it will be almost JPY 100 billion, like JPY 96 billion or JPY 95 billion. So next year onward, based upon the continuous business base, the Q4, the actual ability, maybe I just need to do some math. But Q4 sales, sales are likely to recover. But utilization will be controlled or reduced like spindle motor and HDD-related. Sales will recover, but utilization will be kept low in order to normalize inventory level, and we are thinking to do the same for bearings. So Q4, in terms of the sales, there may be some potential losses from lower utilization.

[Operator]

We'll move on to the next questioner from SBI Securities, Izumi-san, please.

[Yoshiharu Izumi, analyst]

I hope you can hear me.

[Unknown Executive]

Yes, we can. Please start your question.

[Yoshiharu Izumi, analyst]

I have 2 questions. First, about the structural reform expenses. By segments, are they evenly distributed? If so, can you give us a breakdown? And that's JPY 20 billion in total. And the effect of this JPY 20 billion expenses, what effects are you expecting next fiscal year? That's my first question.

[Unknown Executive]

This JPY 20 billion, the specifics have yet to be defined and refined. So we can't say how much would be allocated to what segment. And similarly, regarding the expected effect and benefit, of course, we are assuming a certain profit increasing effect. But we cannot explicitly share with you the size of the benefit that we are projecting.

[Yoshiharu Izumi, analyst]

So it's in depreciation or elimination that JPY 20 billion tentatively.

[Unknown Executive]

Yes, that is correct.

And Honda Lock-related negative goodwill, eventually, it will be included in U-Shin segment. But for the sake of better clarity in our accounting, it is currently included in the common -- the corporate and elimination.

[Yoshiharu Izumi, analyst]

I see. My second question relates to semiconductor. Could you elaborate on this situation? Market overall is still, other than memory, [ tight supply ] continues. But I think some are doing better than others. So as far as your semiconductor business is concerned, what is the current situation?

[Unknown Executive]

IGBT and medical, for those areas, full -- close to full operation. And customer demand is very strong. That remains unchanged. But for battery production and smartphone-related, for those applications, the production decline is taking place. So there are differences from one application to another.

[Yoshiharu Izumi, analyst]

So what is the net situation in the second half? More negatives, larger negatives than you're expectation?

[Unknown Executive]

Are you asking about semiconductor?

[Yoshiharu Izumi, analyst]

Yes, I'm asking about semiconductors.

[Unknown Executive]

Compared to the previous forecasts, slightly more conservative projection for semiconductors is our current projection.

[Operator]

[Operator Instructions] UBS Securities, Mr. Hirata.

[Shingo Hirata, analyst]

This is Hirata from UBS Securities. Can you hear me?

[Unknown Executive]

Yes, we can.

[Shingo Hirata, analyst]

I have 2 questions. The first one is about the actuator business. Next fiscal year and the year after, what are your thoughts? Due to the technological changes, the new business opportunities may have been created. So next year and the year after, what are your projections for the sales and the new business opportunities, whether you can capture them or not?

[Unknown Executive]

Well, I'm sorry, but it has to do with our customers' road map. And therefore, we cannot explicitly talk about that. However, same as before, our production capacity preparation is progressing steadily. And therefore, we believe that we can keep growing in that area.

With regards to that, if I may add, this is something we have already announced in Philippines. We are building the second plant, the Naga plant and visited the plant last week. And this plant will be able to absorb the future increase in production. I think I shared with you photos, so you can have an image. So we will be receiving orders, and we are preparing for that.

[Shingo Hirata, analyst]

Lastly, the semiconductors BB ratio, you said that it's bottoming out. But pricing -- well -- and I think you said last time that the prices are not declining. Is it changing now? And utilization third quarter and fourth quarter and towards April to June next year, what is the direction?

[Unknown Executive]

So the prices, so are you asking whether there is a downside pressure on pricing? Because of the market conditions, then my answer would be, no, we are not cutting prices. But due to the product mix, the battery and OIC are shrinking, IGBT and medical, the unit prices are high. And therefore, in terms of the product mix, I think it's improving.

And in terms of the market, there are many niche markets that we serve. And in many different ways, we are asking our customers to correct the price range. So the trend remains the same. And the production capacity and utilization, full capacity -- I mean in Q2, we were producing at the full capacity. But now, I mean, the plant was up and running around the clock. And now it's lower than that, but we are reviewing the outsourcing -- outsourced the volume. And therefore, the utilization will not drop significantly.

[Operator]

With this, we conclude Q&A session. And with this, we end today's earnings call. Thank you very much for your participation.