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Earnings Call Analysis
Q2-2025 Analysis
Nidec Corp
Nidec Corporation reported impressive financial results for the first half of fiscal year 2024, with net sales increasing by 11.8% to JPY 293.8 billion. This growth reflects a robust demand across multiple product segments, despite the challenges posed by external factors, including currency depreciation which affected profitability. Notably, the operating profit for this period rose by 4.9% to JPY 121 billion, marking a record high.
Breaking down the performance by segments, demand for small precision motors, particularly in the disk drive sector, showed a continued recovery. The water cooling module business emerged as a rapidly growing area, showcasing the company’s adaptability to market shifts. In the automotive sector, the joint venture Nidec Powertrain has faced challenges but is now on track for mass production, improving its profitability outlook despite a reduction in deposit demand.
Despite the increase in sales, operating profit before income tax fell by 30.9% to JPY 100.2 billion mainly due to depreciation losses. The company has incurred approximately JPY 373.5 billion in structural reform expenses aimed at enhancing efficiency and profit margins, particularly in the Appliance, Commercial, and Industrial product segments. Management emphasized their commitment to improving profitability through a better cost structure and robust product lineup.
Looking ahead, Nidec plans to achieve a balanced cash allocation towards growth investments and shareholder returns while controlling debt. The management reiterated their full-year guidance, expecting to sustain revenue growth and maintain profitability at comparable levels to the first half. The CEO indicated ambitious long-term goals, aiming for JPY 5 trillion in sales by fiscal 2030, reflecting a strategic vision for expansion.
Kishida highlighted the company’s focus on integrating diverse business aspects, particularly in the traction motor segment, where traction for electric vehicle components remains a priority. The company is dedicated to addressing customer needs effectively and innovating in areas such as software talent and system design to enhance operational synergy. Through both small and large M&A strategies, Nidec aims to enhance its competitive edge and secure sustainable growth.
In conclusion, Nidec's strong sales growth in the face of structured challenges highlights its resilience and capability for strategic adaptation. The company is poised for further gains by harnessing growth in high-demand areas while navigating prevailing market uncertainties. Investors should monitor the performance of the automotive and cooling segments as these areas will significantly drive future profitability and market positioning.
[Interpreted] And we'd like to start the presentation on Nidec Corporation's performance for the first half of fiscal year 2024. Thank you very much for your attendance today despite your busy schedule. First, I would like to give you an introduction of our attendees. First of all, Mr. Mitsuya Kishida, President and Chief Executive Officer; Mr. Akinobu Samura, Senior Vice President and Chief Financial Officer; and I am your moderator, Teruaki Urago, General Manager of the IR department.
In today's presentation, Mr. Samura, we will give you an overview of the company's earnings results for the first half of this fiscal year, and Mr. Kishida will explain the company's business strategy going forward. Then the floor, we will be open for a question-and-answer session. And we would like to finish this meeting at 11:30 a.m.
Now Mr. Samura, please.
Thank you. This is Samura, the company's CFO. I'd like to give you an update on the earnings results of the first half of this fiscal year.
First of all, our net sales were up 11.8% to JPY 293.8 billion, which is an 11.11%. This is a record high. On a quarterly basis, operating profit was up by 4.9% to JPY 121 billion, which is another record high on a quarterly basis. Operating profit ratio was JPY 9.4 billion. When it comes to operating profit, income before taxes and operating attributable to owners of the parent was both down. And operating profit before income tax was down by 30.9% to JPY 100.2 billion.
On a dollar basis, we had the depreciation of them by a little more than JPY 20 per dollar because of that, we have incurred a loss in our profitability. This is just a press basis, valuation basis. And now less, we have gained approximately JPY 10 out of the amount of loss we have had on an annual basis, as you can see on the right-hand side of Slide 3, and we have had the app, the revision, as you can see, and the revision remains unchanged. Next slide, please.
This is an overview by product group. First of all, top left, small price motor near line and other demands for the disk drive business continued to recover. And this call, we have an emergent rapidly growing demand for water cooling module business. And we have been able to debut various products in this area. And that's the type of shift we have been making in this business, and we have been able to increase both in sales and operating profit in this area.
Next section, automotive product, top right section. We have NPE, which is a joint venture with our staunches in Europe. We have had a JPY 10.1 billion worth of adjustment that we had to make considering that we have a Etractionmulti business, which has been in a positive territory, and NOP has now progressed with the mass production preparations because of that, the demand of deposit has shrunk. And we have been able to achieve this much, as you can see on the chart.
And Appliance, Commercial and Industrial product segment, and we have had the restructuring efforts, but JPY 2 billion worth of expenses has been incurred. And we have some seasonal elements here conditioning needs, and that has declined. All in all, we have a better product lineup. We have a better cost structure compared with the past. And we have a significant decrease in profitability.
Lastly, Machinery segment. On the bottom right section of the slide, we have had a struggling business situation in the market, but there is a sign of recovery there especially in terms of machining -- tooling machines -- machine tools. We have been trying to do optimization of the business. Because of that, we have been able to have this amount of sales as well as operating profit.
We have details of this information, including the structural reform as well as the loss and gain in operating profit based on the currency exchange rate, and you can see the comparison between now and fiscal year before. And we have had the cash exchange rate was up both in sales and operating profit. And we have the restructuring effort in appliance and Commercial and Industrial Products segment at JPY 373.5 billion has been incurred as the structural reform expenses. And we have had increases in sales and operating profit in small precision motors and automotive products.
All in other areas, there has been some loss in EDA sales operating profit. Next slide, this is quarter-on-quarter changes. We have had the reflection of a gain on step acquisition of NPe, minus JPY 0.9 billion. And we have the JPY 500 million increase in one of the segments, and we have the JPY 10.1 billion.
Our charting effort is included in this areas and virtually all of these areas have had increase in sales and in operating profit as this is the flow of cash flow situation, and we are trying to enhance the cash flow generating ability to maximize our corporate value. The trend to achieve a balanced cash allocation to growth investment, shareholder return and interest-bearing debt control. This is how we like to maximize our profitability as a company.
Through these activities, we would like to turn our businesses around. We have been able to have a record high amount of free cash flow in the end, and towards the end of last fiscal year. And this fiscal year, we have NPe, which is in a recovery track. And we have been trying to enhance our cash flow general ability.
There are some issues that are facing us, to JPY 28 billion, which is lower than last year's format. But throughout the fiscal year, we are aiming to achieve a balanced cash allocation on the balance sheet performance. Next slide, please.
This is my final slide. When it comes to capital expenditure, depreciation and R&D, we are doing our very best to optimize our performance in these areas. We are continuing our aggressive investments and that support the midterm growth. And that is all for my segment of the presentation. Thank you.
This is Kishida speaking. I would like to take over the role of explaining our performance in Q2, and there are some changes we have experienced. And I would like to give you some update on our strategy going forward.
When it comes to this first half of this fiscal year, we have had various issues, we have had discussions. We have supported with each other over the past 6 months. And in China, in Japan, Europe and in America, in North America, we have had various meetings with people of these regions. And we have a meeting in the last time. We have covered major 3 areas of growth and business and based on these topics, we have had real discussions about what to do going forward. We will be able to do more than we have done in the past so far.
Going forward, there are some voices of concern to us. However, under the new management, we are going to make steps, firmer steps one by one, clearing and solving those issues one by one in order to achieve our results in the end. When it comes to organizational changes, I would like to give an update on that as well today in this meeting.
In Nidec, so far, there are some things that are totally unprecedented that we are going to launch as action going forward. That's what we like to do. That's what we like to present to you today. Now I'd like to give you information on these topics one by one.
First of all, automotive business. Looking back, it was about a year ago in this meeting, I was here for the first time. At the time, I was able to give you a presentation on automotive business, especially on traction motor business. And it was this meeting -- in this meeting, it was about exactly a year ago that I was able to give you a presentation on the first half of this fiscal -- that year. I truly believe that it was made a very good decision at that time. It was very good, that was able to make the decision.
So about a year ago that we have had a joint venture with the GSE of China. We have another joint venture with a European partner with Stellantis. We are going to focus on these 2 joint ventures when it comes to automotive business. Other than that, we will focus our efforts on our component business. That's what I said at the meeting a year ago.
You're right, we have Digna, which is a joint venture with Guangzhou Automobile Corporation Group. We're going to turn our business around. That's one thing that I'd like to say. This business will be in a positive territory going forward. We will make sure never to let this business into the red ever going forward. That's the type of determination that we have.
In this third quarter, we have a third generation with Gen 3 product. We're going to have those business on the production line. And we're going to spread the use of these new products in Chinese market going forward. We have had a Gen 1 and a Gen 2 products in the past. We have had a series of troubles. And we have the trouble of starting up the production lines of these products compared with those circumstance cases. We are much extremely more smooth than we have been in the past.
We have had semicon manufacturers and other manufacturers with whom we are working. And there are other global companies cannot work like this. That type of equipment and system that we have as we launched these businesses. When it comes to NPE, done at the Baroda slide, this is our joint venture with Stellantis in Europe. Everything is going as planned when it comes to improvement of business.
When it comes to Q2, we were able to shrink the degree of deficit than expected. From this second quarter of this fiscal year, we would like to go into the positive territory when it comes to profitability of this business. When it comes to European OEMs, when it comes to EV market, Stellantis is in the league of winners, which many people have said so far and especially recently.
And among the European OEMs, there are some changes in EVs. There is huge waves coming toward them, and Stellantis forecast may go below than the original expectations, but we are growing to establish the system with Stellantis in form of discussion to make sure a profit under any circumstance. Therefore, despite the changes in sales volume, we would like to make sure to maintain our status in black.
If you take a look at the Section 2 on the left-hand side, you can see the component business. I'd like to give you an update on that, too. In this meeting, I would like to -- it's about a year since we have shifted our business strategy. In the automotive market, there are hardly any cases you could get orders in a year that we have had major inquiries within this year -- within the past year.
I cannot give you any names of the companies. However, I would like to give you -- keep you updated in this area of business as well. We have motor status, routers used in EVs. We are having a lot of inquiries from our possible candidates business partners. And we have started our business activities in this second half.
If you take a look at the right section of the slide, you have the existing traditional business, electronics, powertrain, charges, and these are the major areas, as you can see on the slide. In any of these groups, we are doing relatively good in any of these areas. But when it comes to Nidec Corporation, we have the portend a pass in a break of businesses. In these businesses, we have had a European OEM and we have Tier 1 customers mainly since and we have had a business with these companies, especially in Europe -- European companies.
Our customers are struggling because of that, we have had some losses in the business posturing and brakes. We have had -- we need to shift our business strategy. When it comes to European businesses, EV-related business, hybrid businesses are having this import actively imported and existing European manufacturers are struggling. We need to be able to understand what we can do to accelerate this business. That's one major issue that we have as we try to go to the next step in business. That is what I can say to you now today.
So this is the organizational transformation that's unprecedented, and I mentioned this at the outset of the meeting. In the European and U.S. business, we are going to embed the business from Japan as that will be achieved as of October 1, and we -- I would like to share with you that we have started this initiative.
For the Nidec parent automotive business, our operations our cutting edge being in Japan and China. Also, we have an excellent level of management and this top-tier management exists within the group. However, we see challenges in Europe and U.S. for their operations. So I personally recognize this challenge.
Roughly 2.5 years ago, I myself was in Europe to lead this business. So based on that experience, I would like to take on the challenges we face today and also over the medium to long term, I have been thinking what we should do from a loan perspective. So under such circumstances, this time, in order to drastically reform the operation and including talent management, we would like to have a local-to-local communication with the customers to manage the business locally.
So for a long time, our Asian team, which is very good in managing the operation in those market, the automotive business will be integrated to the ACM organization. Also we have made this Board decision to integrate the 2 businesses. And together with our local subsidiaries and the clients, we are now endeavoring on this task.
And going forward for the automotive product business within Nidec, it will continue to be a major pillar of the business. And that said, we have this opportunity in our pipeline. I have a strong conviction about that.
So taking a longer-term perspective, we decided to make this organizational change to achieve on the longer-term growth. So that's shown on the left-hand side of this slide.
And on the right-hand side, we are now embarking on the second phase of reform on the automotive business. Recently, the development of electronics, software and also the control system demand is significantly increasing for our automotive product business. On the other hand, for the clients, the autonomous driving and E-Axle development are things that they need to address. So by team or divisions, they have ECU and parts and systems, and they want to outsource that capability to a third party.
So taking on that opportunity, we would like to capture such demand. And we have 2 companies acquired through acquisition on Nidec Mobility and Nidec ideals. And comprehensively, they will be integrated. So we are now in discussion purchase opportunity and collaboration.
And within Nidec, our businesses you can see that at the bottom right, the business units are responsible for the automotive business. Listening to the feedback from the clients for the clients, single interface to offer solutions is something that they expect and we get inquiries for that. BYD, Tesla, Honda, Toyota, for the major OEMs as a group, we would like to establish the capability to address their needs.
Also as a first phase of that, mobility and less will be integrated. And we have started this initiative. So these are the updates on the organizational changes.
And regarding the water cooling module business, let me give you some updates. Regarding quick coupling, this is connecting part, which are under development, also we are manufacturing this. And for LCM, which is a plate that really touches the chip to cool and also CDU, which is the coolant distribution unit. So I would like to give you 3 updates on these products.
For quick coupling, in the previous IR meeting. I explain about the manufacturing in Ayutthaya in Thailand. And 3 months later, production in China and expansion of the capacity Philippines has been achieved. And in addition, we have been able to prepare for the future growing demand. And we want to secure quality 100%, so we have a proprietary line leak testing because if we do not see air leakage, there should not be water leakage. So thanks to the technology with our HDD business, we have established the inspection model in the testing model, and we will be utilizing this capability to capture the expanding business opportunity.
For LCM, for the current GPU, CPU, we have been able to address that. And for the next we are now developing the new LCM.
And for CDUs, the customers are demanding for a variety of requirements, and we are now developing to address that. Over the short term, I think you may be asking for the opportunities for this fiscal year in terms of numbers, and I understand that we are getting those questions many times. And for the new GPUs and new chipsets, they will be launched in the future.
And in order to address those new generations together with our clients, we are now well prepared for the next generation. And these are the activities that we have conducted throughout Q2, and I'd like to update you on that. When -- some may kick in from the latter part of Q3 or from Q4, but aiming for that target date, we are well prepared for those launches in the future.
And next, for the Appliance Commercial Industrial Products Group, this has become a very big profit contributor and we want to grow the more in business as a growth driver next year. I have 3 things to update. This is just a tip of the iceberg, but from the left, it's India, in the middle is Europe and on the right is what we're doing in North America for growth.
So starting from the left in India. This is driving our strategy in India. And this is -- our hopefully second factory in the Kanataka state, which is the southwestern part of India. And we will complete the building of the second factory before the end of this year, and it was start operation from next year. The MOEN and midsized motor products will be produced in this new factory.
And as we have announced, in India, the big commercial vehicle manufacturer, Ashok Leyland is our partner. We have signed a partnership agreement and we have been doing the traction for the commercial vehicles, but we will now have a partnership with the local OEM, which will be augmented.
So what we have been doing with the passenger cars in China. So this is totally different from what we have been doing in China where we do not strike any partnership. But in India, we are taking this different strategy to strike and leverage on the strong partnership to grow our business. And on this, the Hublistican factory will be driving those initiatives.
In the middle, this is a conversion business, the BESS business in France. And we already are short of our own capacity. So we are ramping up our capacity. And from FY '25, it will start to have a full contribution. This is a factory based in St. Etienne and it will be in the southeast part of France, and this new factory will be up here running.
And for the water current module, which is related to our data center business in North America. The data center demand is just exploding as the alternator of the emergency power generation is increasing. And ultimately speaking, we have a high market share in the space. Also we will be fully prepared for this opportunity.
So in U.S., we have the Lexington factory. And in Mexico, we have the factory in Reynosa and the capacities have been ramped up. And on the sensor machine tools business updates, we have been making announcements for a series of new product launches. But today, I would also like to share our concepts behind those new product launches.
On the key thing about the machine tools business, it's synergy. So for the first time, we have a high precision gear technology, our machine tools business and Takisawa have made a joint development. And these new products are ready to be launched into the market.
On the right-hand side, digital twin and simulation and also fully capitalizing on the AI technology, which was unprecedented in the machine tool industry. So this cutting-edge technology are embedded in our product. And we are working on the machine tools. That's very unique to our company. And this business for many years was the leading of the cutting-edge market for this business, Japan and Europe. But now China is trying to catch up very quickly.
Also for this business domain with certain discipline. Well, we would like to capture this opportunity, and we will be developing a business in China, and we are working on the production side in China as well. And also for the machinery business, recently, we made an announcement to expand the press-related business, and we have acquired a Canadian company called Linear Transfer Automation.
To date, for the press business, it was -- we had small-sized, medium-sized and large size, and we were offering a comprehensive product, but we have been able to prepare for the preprocess part of the line, and we are now ready to offer the post process part of this whole flow by acquiring Linear Transfer Automation.
So those are the updates from different businesses in Q2. And going forward, I would like to quickly give you a review on the mid- to long-term interaction. Also at the Q1 results, I mentioned about the 3 core technologies and the 5 business pillars. So I would like to offer you some progress on these points.
This is what we have today, 5 business pillars footprint of existing businesses in order for us to be able to achieve our target for the fiscal year 2025. We have 5 different groups, as you can see on this slide. We have people assigned to each of these activities. You can see the pillar already relating to which types of businesses, et cetera. We have had a group discussions on these areas, and we are going to enhance the depth as well as horizontal range of each of these businesses. That's what we have done up until today.
Take a look at the curves of business expansion. We have a linear expansion in some businesses, and we have the businesses to be expected to grow larger in the second half of the growth period. There are some differences like that. We have a better life area in which we have been doing the business for a long time, and we have long focused on mobility innovation.
These curves in these areas are rather straight, as you can see when it comes to AI supporting areas, we need more discussions. We need to have more businesses in this area. We have a lot of things in this area. This is something we would like to share with you today in this meeting in order for us to be able to enhance our business even further.
There are some major points that I'd like to make in the -- based on these businesses. Group synergies are what we are trying to achieve when it comes to these businesses. Over the past 50 years, as you may have already know very well. We have a very strong leadership and which we have been able to grow individual businesses. That is my understanding.
And going forward, we need to accelerate even further the pace of our growth. In order to do that, we have 3 different technological areas, and we have 5 different business pillars that you can see on the slide here. We need to establish and generate the group synergies to share technological capabilities with each other within the Nidec Group. That's the major point that we need to carry going forward.
In order to generate the group synergies, as I have been saying, we need to have this consolidation with ACIM business unit. And we have some consolidations taking place in other areas of our group. And we have had some areas outside AMC. There are some moments like that. And that's what I'd like to update to you today.
First of all, when it comes to first data life area, on a global basis, we are having a very high market share, free compressor conditioner large-scale motors. We have ACIM business unit here. And we have home-compliance air conditioning motor. We have Nidec detector cooperation. We're going to have a very good synergies between these 2 different business organizations within our group.
In the Americas, we have air conditioning system. They are different there compared with the rest of the world. In the American and North American and other American houses, they have a business unit, a huge business unit in the underground or the beneath the floor of each house, basement of each house but we have been able -- we have not been able to generate the synergies because of these differences. However, due to the current needs for efficiency, there are some needs for -- in the Americas for different types of air conditioning unit.
We -- because of that, we have been able to utilize our ACIM's product, which has different types of merits compared with the air conditioning units used in the basements of North American families. We need to get the support from ACIM's, we like to utilize a sales route to help need Techno mode to sell more of their products even more.
Going forward, when it comes to automotive business, we have the ECU business. There is a need growing in this area, ECUs. Traction motor uses inverters. It's a huge computer chip devices. And we have a control units, these are called ECUs. Individually OEM manufacturers are giving us orders and inquiries to Tier 1 and Tier 2 companies, including Nidec. There are quite a few needs for us to be able to develop everything about ECUs, and we utilize Nidec mobility analysis design capabilities to acquire various businesses ECU brake businesses.
Nidec Corporation may have had some problems in the past in these areas. However, when it comes to ECU businesses, by having this business added to our product portfolio, we would like to generate the synergies to generate more business opportunities.
And lastly, I would like to talk about AI-related area. This is about the business in which we expected growth in the second half of the growth period. This is probably the fast -- the largest expense that we have in this area. It's not just the what they're calling a modular business. We have chiller business, or cooling fan and cooling equipment itself. And on a group-wide basis, we would like to enter into these business areas.
We like to cover thermal management, everything in the spins and moves, power generation, among so many others. We would like to utilize all of these opportunities for our future growth. Going forward, we will continue to work in these areas, and I will make sure to keep you updated on a quarterly basis on occasions like this one.
Nidec will make sure to achieve a lot, and we have embarked on -- we are after a very new start under the new management. We will continue to be -- stay united going forward and going through a large different waves, different tasks, problems issues. And on a quarterly basis, we would like to continue to make achievement under various circumstances.
Please help us draw our blueprint for the brighter future. That is -- that concludes my presentation. Thank you very much for your attention. Thank you.
Thank you very much. Now we would like to go into a question-and-answer session.
If you have any questions, please make sure to use a microphone from one of our staff members here. Before -- and first, we'd like to enter 10 questions from securities analysts followed by people in the mass media. Please understand this rules first. Thank you. Analysts, if you have any questions, please let me know. Thank you. The person on the front row, please.
This is Takayama, Goldman Sachs. I'd like to give you 3 questions here. First of all, 1 of the key is that the group synergy to be generated you have gone through organizational changes in various areas in your group. That's one thing impressed me. That's 1 thing that impressed me. And in 1 year, 2 years and several years going forward. And in this fiscal year or in this quarter, you make sure -- are you sure that you'll be able to make profit? Do you think that you will be able to have -- generate profit based on the new management? Do you have any -- do you see any internal changes occurring for the better and your leadership, Mr. Kishida. What is happening to these figures that we are seeing? That's my first question.
Thanks very much for your question. In regards to Q1 and Q2, we are in Q2 as well. We are going to achieve the sales of JPY 60 billion. Of course, we are not sure what's going to happen to us. There are some uncertainties. There are quite a few of them, countless number of them.
Under the circumstance, we are having a conversation and discussions internally to what we can do, what we should do going forward. So far, we have had been focused on immediate situations right in front of us. This situation has not been completely changed when it comes to just being focused on the immediate circumstance, but we are trying to become more future oriented.
First, we need to understand -- try to see what type of end result we like to achieve to stand this fiscal year. That's the type of conversation we are having in a form of discussion in the group, Nidec Group. Of course, when it comes -- it's very difficult for you to be able to achieve your short-term targets as well as long-term and midterm targets.
Currently, you are generating profit in some areas. I believe you are trying to make a quick responses to changes and you are making smaller communications and dialogues than before. Is that reasons for your current profitability?
And there's 1 group SPMS business, ASM business, you need to have made significant contributions to the current level of profitability. We have traction, which is the deficit Radon organization. And we have 1 ApoC-making progress in the area to when it comes to ACM, I have had a very extensive discussions, dialogues and that part of that passion is shown in this area.
We have had some struggles in the automotive business, and this struggle will probably continue in the second half of this fiscal year. We need to try to offset or overcome this difficulty. And I have made a request to do more to ACIM. That's one thing that I can say to you but tell you probably an additional effort to be made. Under this new circumstance, we like to be united -- stay united going through those difficulties. That's the type of discussions we are having on a group-wide basis.
My second question is as well. On a midterm basis, you have some numbers that you are working on as far as I understand. I don't think these figures are finalized yet for the next 3 years, for example, what is your target sales operating profit target? What type of drivers that you have? Please tell me within your capability to be able to tell us.
I understand your -- what you're trying to say in your question there. I'd like to try a different perspective here. This is what I think. In the history of Nidec, it has taken about 40 years to get to the sales of JPY 1 trillion and has taken additional 80 years to achieve the JPY 2 trillion sales target. And I believe 6 additional years well what we need to take to achieve our second target of JPY 3 trillion. 6 years to certainly. And 5 years more, and we will be in 2030 fiscal year. So this target of JPY 7 trillion is truly a huge target for us.
In 2030, we should be able to get to JPY 5 trillion by increasing our sales by JPY 1 trillion each fiscal year. We need to make firmer steps one by one, day by day. That's something that I can tell you today.
It's my -- maybe difficult for you to answer the question, but when it comes to organizational changes in sales as well as operating profitability, are something that we can expect to see grow higher and higher. Is that the correct understanding?
First of all, we would like to achieve a JPY 10 trillion that will be just a turning point, just a milestone for us. When regards to myself, the largest point in my mission is that we need to make a global organization mechanism system that's what we -- what I need to make as the leader of this organization.
Without such a system, you won't be able to achieve a sales target of JPY 3 trillion or JPY 4 trillion or JPY 5 trillion. What we need to do is to establish the mechanism system that can secure profitability with high profitability products, and that can secure a high level of growth.
And with M&A and other measures, we would like to make further step even further. That's the type of strength that we would like to secure for our service. That's what's important for us for the next 2 to 3 years.
My last question is a bit specific for the water cooling system. I think you get this question a lot but let me ask as well. From Q3, I think the launch is going to become more evident. I think it's a little bit delayed. But if you look at Q4, what is the revenue size and also for exascale, I think you're expecting there have been to double to JPY 80 billion, but is the view remain unchanged?
As for the next in Gen GPU, there was some delay. So there were a lot of forecasts and expectations. And even today, there are divided views and opinions. But as a manufacturer, what we need to do is that we make our preparation and progress toward our original plan. So in that sense, vis-a-vis our original plan, we don't see much of a downside. Going forward, there could be a bigger deviation from the original expectation, but quality or expansion of the channels, by doing so, we would not want to fall into a trap.
So that's what we try to emphasize, and this is how importantly we see this business. So in Q4, as the GPU mix of full launch from next year onward, I think the growth curve is going to become more significant and Samura, do you have anything to add?
No.
Also any other questions, please? Also, the person there, please.
My name is Goto from Mizuho Securities. I have 2 questions. Always the new management team, it's been 6 months. And you see I think you have searched the potential for group synergies. And as you have analyzed the capabilities inside the group, what do you see as the opportunity? What do you think is the room for future growth and opportunities? Can you share what you have identified? And I think you have given us the vertical and horizontal access and your business operation. But what kind of synergy can we expect to see? So that's my first question.
And my second question is for the EV traction motor, you have made progress in margin improvement. And I think that's a good change. And as the next step for the next phase of growth, what are your plans? And what's the time line for that? Are you going to their finished products or components or who are going to be your clients? As to the extent as possible, can you share your direction for that business?
Yes. So as you pointed out, in creating the synergies, we have completed the inventory assessment, so to speak, to identify the opportunity. So I have been leading that initiative. And as a next step, or what we should focus on is the automotive product business. And I think you can see that from what we are doing.
Globally, there is a shortage of software talent. And I think this is going to be increasingly evident. To compensate for that shortfall, I think there is a big opportunity for further growth. What I mean by that is for system design and also ECUs, that's the spaces that we're looking at.
If you think about that within the other motor business, the control is always required. So from April onward, we established the Technological Strategy Committee and a global software engineer assessment has been conducted. And as a group, we have considered which area to reinforce, which area to use third-party capabilities.
Also for system designs, we -- with the system designs, we are going to develop new business opportunities. So that's the first key point. For many years, we have been looking at the vertical axis. So we're not -- I'm not being excessively optimistic that a lot of synergy can be generated.
But for those softwares where the need is imminent, by fully leveraging on that, I think the interbusiness collaboration will be effective for different businesses. And I want to prove that. As the first step, the good example is the integration of the mobility and lysis to augment their collaboration.
And the second question regarding the traction motor business. On the traction motor business and of itself, as I said, is done through JV with Stellantis and also a GSE component. Other than that, we will focus on the traction component business. As I started to allude earlier for the traction parts business, from large clients, we have received a couple of inquiries, but we would like to make sure that we cater to those requests.
As Nidec, I think we may have started -- we should have started on those opportunities. That's one opinion. But with Nidec, there is a traction motor product for the commercial vehicles, which is partly addressed by MOEN. And also the other group companies are judging this as well. Also by combining those capabilities, we are trying to figure out what we can do.
And another point that I would like to share regarding the traction business is that because we were too focused on China, so what is the unique traction technologies that's available just from Nidec is something that we did not explore enough. So as Nidec, not in the context of manufacturing the traction motor by ourselves, but we have to dedicate ourselves to fully explore the opportunity for the transmission business as Nidec. So we are now in Gen 3 but we are already starting to talk about the future generations, and that task has already been addressed.
So next question, please. On the person at the far left.
My name is Akizuki from Nomura Securities. I have 2 questions. First, for the appliances and commercial and industrial products, Actuate very successful in developing the overseas business. But in terms of the organic business, how much operating profit margin are you trying to achieve with the existing business? And if possible, I think it's about 12.5% today. But what is going to be the driver for margin enhancement? So that's my first question.
Yes, on that point, I'd like to have Mr. Samura answer part of that question, and I will follow later.
Yes, for the appliance, commercial and industrial products, we already have achieved 12.5% OPM. But having said that, if we look closely by subsegments, well, it's a mixed picture because some are very close to just breakeven and others are generating close to 19% to 20% operating margin. So to be specific, for ACIM, global appliances and also U.S. motors and C&I, those 3 subsegments are under ACIM.
And right now, we are conducting the restructuring for C&I and profitability is still tough for C&I. However, for U.S. motors, in the near future, we regain raise 20% operating margin. Also within our business portfolio, we want to grow the highly profitable business. And for the businesses, which is struggling with profitability, many of those businesses are still operated or managed under the base at the time of the acquisition, also by consolidating and making the operation efficient, we would like to enhance the margin.
Yes. Thank you very much for your question. This is Kishida speaking again. And I think what you pointed out is key. Looking at the subcategories, there are areas where we see future challenges. But for those businesses, we have taken measures in the first half for ACIMs especially for Europe, we have conducted structural reform. So for those businesses, we believe the impact will start to kick in from the second half.
And as I presented earlier, for the ACIM, it's a mixed picture. For the consumer, there are consumer appliances but then there are products that can be used for data centers like the HVAC system for data centers. So within this huge portfolio, we are identifying, which area we should concentrate on because for this category, we believe a 20% of PM is not a dream. And as an organization, this is managed by MOEN but we have BESS, the battery energy solution business and mainly driven by Europe, we are making progress and steps for the BESS business. And I personally want to focus and studying on what our competitive strength here so that we can globalize this business. So that's another area that I would like to focus on personally.
So I think minimum 15%, I guess, would be your target, SAP but the bidder emerge?
Yes.
And for BESS, today, Tesla has released their results. The margin is very high, so it's attracting a lot of attention. But I think you have the #1 market share in Europe. And for your business, you already have a high market share and by expanding geographically. This will help to enhance the growth margin. Is that correct?
Yes. Even today, for the European business here, BESS is making a strong profit contribution. Also doing a consumer business kind of BESS and also that's best specific to particular applications, I think they are 2 approaches for the BESS business.
And Tesla, not the product that's installed on the highways, but for power stations, they have these different projects, which are generating good margins. So that's my take on their results. So this is like 1 industrial item that we can utilize for different countries, different markets and the power market, electricity market is different from market to market but I believe this is a business that we would like to steadily grow so that it can have a big profit contribution.
My second question is, you mentioned about the 5 businesses of the pillars -- 5 pillars of the businesses, and my question is around that. In the past, looking like your history you have grown substantially through a series of M&A activities. And you started with a small motor -- small-sized motors and then midsized motors. Your big M&A transactions are mainly on the motors. I think you've done transactions in the midsized motors and are shifting to the large size.
Also I think your M&As were driven by the Motor business. But if you look out into the future for your M&A strategy, within these 5 business pillars, are you going to focus on like a big M&A transactions? Or are you going to do more of a midsized M&A strategy to close the gap of these 5 businesses? Or are you interested in the big size M&A transactions to leverage on your global operation? What is your challenge on M&A?
We like to have various opportunities, including large scale M&A. And we have a mission given by -- Mr. Nakamura mission is having various different types of strategies for those future M&As. We like to have a combination of both small and large-scale M&As. In order for us to become an authentic in a truly global company, we need to have both types of M&As, large and small.
We have the 3 different business -- areas of business, and we have different technological areas, including what we have and what we don't have. We have started defining all of those areas. We have some things that we do not have and in order to start -- instead of starting from scratch, we like to have purchased existing businesses as part of our 5 different business pillars that you can see on the Slide 18.
We like to add new elements. That's one thing that is -- I think is very important in order for us to have these 5 different business pillars actually in place. That's something that I've been studying on a daily basis.
Any other questions from anyone? Person on the right, please.
I'm Hirata, WBS Securities. I'd like to ask you 2 questions. My first question is as far as when it comes to EV drive business, drive motor business. Kishida, you have mentioned to turn into term business around in quarter 3. And on an annual basis, 49,000 units, I believe, this forecast, how is it going to change? If you go below the target, even though you said that the chances are very low, but what's going to happen if you actually go below the target? Do you feel that to the target in otherwise.
And if you can achieve your target and go into the black, you will continue to have this component of the business. But when it comes to component EV module business, you're going to incur development cost even further, what type of margin would you like to achieve? And as you incur a lot of development cost, how would you like to drive this business?
Thanks very much for your question. First of all, I'd like to give you the answer to the first, I would like to give you a question. This is give an answer to the question.
This is Urago speaking. This is the number of 1,900 units, and based on the external circumstances, 355,000 units net about 70% of the original target. That's our latest forecast.
And Stellantis giving us a different forecast day by day. It's changing frequently. And I'm a member of the Stellantis' Broad of directors have been receiving was information. And this situation is rather fragile at this moment. we have European EV business is -- freenet's very fragile fluctuating frequently. This is something that I had expected to happen when it comes to European EV business. at the start of this fiscal year, and the situation differs from their model to another.
They have the capacity for 901 million units. We have made an investment, and we will never invest even -- we will not invest even no further than that. We like to achieve the system as well as yield based on the current target, which is our short-term strategy, and that's what we are expecting to achieve for the next fiscal year and onward, we are going to have negotiations on the number of units, several thousand units, that type of discussions that we are having currently.
But even though we failed to achieve the target, I don't think the next year's target will be lower than this year's target. Next year's target will be more than next year's -- actual production will be more than that. But at the same time, when it comes to this current situation, it is not that the Stellantis will stop increasing the target or the actual production of their cast. There are some routes of procurement and starters, routers and other components, what we are going to make based on these routes that they have.
When it comes to operating profit ratio or margin, traction motor business itself as well as traction motor business in China, we are having -- trying to achieve a certain level of profitability. When it comes to NPE, we have had -- we do not have any intention of having an extremely low profitability level when it comes to this joint venture, NPE.
We will make sure to secure a certain level of profitability, just like any other component of businesses that we have in our group, and that's my forecast for the future business.
My second question is when it comes to ACIM business unit, you're trying to consolidate part of the MX business. Do you have any time slot time forecast timing, schedule forecast, cost forecast?
And as of today, as of October 1, this new consolidation process has started. We are having this 1-year plan in place. And we have this 6-month period, and we have a next 6-month period next fiscal year. And we are going to have the complete consolidation phase or timing to be set at October 1 of next fiscal year. We're going to take action based on an agreement with the executives of ACIM business. And there are quite a few to ACIM as well as MOEN executives.
There are quite a few talented personnel in personnel in these business units. I'm having the agreement with Mr. Bart Tantan, who's the leader of the ACIM business unit. He has an ambition. He has the power to be -- and we have some talented and this talented person is Mr. Tonsan. And we are trying to negotiate with him. We are negotiating with him to try to have the personal talents at the top of this current ACIM business unit.
Are you expecting any huge amount of cost to be incurred?
Well, there is a structural reform taking place in any business organization. There are quite a few large-scale structural reforms that have taken place in our ACIM business unit. Going forward, we are going to generate the profit as we try to plan to have another type -- another structural form. Samura, do you have anything to add?ll
This is Samura speaking. We have Europe and we have the Americas, where there are some operation related issues in our -- with our ACIM business. And if you take a look at the regions by region, we have some dispersion of our businesses in these areas and regions. We need to take actions to consolidate. Structural reform may be necessary.
Another structural reform may be necessary going forward, of course. That's something we need to specify as an issue in our discussions going forward. At any rate, we need to turn our business around. We need to change the business for the better. And this type of consolidation is 1 of those actions that we need to do to improve our business. And we would like to make sure to keep this type of changes rolling keep on keeping on rolling.
The person in the middle, please.
I'm Sato, Morgan Stanley Securities. Thank you very much for explanation. I'd like to check 2 figures with you. State router and other EV components. How large or small the business are there compared with the entire group's business? And how are you going to expect the growth of this component business going forward? Is it correct to understand that you have already secured a certain level of profitability when it comes to this component businesses?
Now when it comes to router business for this fiscal year. The number is not so large, rather small, but we have some businesses taking place during this fourth quarter in the businesses. Other than the -- outside the joint venture business, we're going to have start the router businesses to take place. it usually takes a year before the SOP, start of production. So it will be after the first half of the next fiscal year that we will be able to reach the stage SOP.
What would you expect the size of this business 3 years from now?
It will be a large business in 3 years from -- that's what I'd like to see happen. When it comes to current MX existing or traditional businesses, we have studied this business around 2/3 or so. It has taken about 10 years to grow this business to the current size. We do not want to spend so much time. We like to achieve a 4-digit number eventually. In terms of profitability in mobility innovation access that we have as part of that access, we like to achieve a big with this business. We do not ever intend to make any blueprint to disappoint anyone here.
My second question is as follows. This is rather short-term strategy related to question. When it comes to water cooling business, 2/3 unders units is, I believe, with production forecast. But when it comes to Q2 shipment in Q3 and going forward. How -- what is your products and capacity and expected size of shipment?
Urago, please answer the question.
And this is Urago, the Head of the IR department. JPY 6.6 billion, and that's our sales and JPY 5 billion is our latest sales record. We have a next-generation GPUs knees growing. It's not really clear yet actually. For the past week to 1.5 weeks, we do not have any communication with you because this was a silence period -- silent period, but now information is becoming clearer as of December, we're going to have a surprise according to our current forecast, based on what our customers told us. And we have November before December. In second and first -- first and second quarters, we have figures leveling up. We're going to have one step further. And during the January through March, we're going to have an increase in demand.
And what customers have told us is that the -- and just -- not just in '24 or in '25 fiscal year, the level will be in parallel with the January through March period this fiscal year. That's the type of expectations that we have, and we're going to be prepared fully for that type of demand increase.
This is another very short-term-based related question. You talked about the sales of JPY 40 billion, and that's what you said you expected. And what is your current expectations of sales? And what is your change -- how this number is going to change, do you think, for the next fiscal year?
Samura, please answer the question.
As you know, NBG is something that we are experiencing a delay there. And the actual number didn't go up as as we expected this quarter -- second quarter. And the curve will -- growth cap will be about the same -- will remain unchanged. We'll be -- if you -- it is the same cargo will be drawn in 1 quarter later.
Secondly, we have been focused on CDU business. Other than that, we have LCM, quick coupling businesses and many other businesses. And these businesses are going to secure a certain level of sales as well. Please take that into consideration as well.
At the end of this fiscal year, I believe we will not experience so much decline. We are thinking -- seeing far ahead into the future. There may be some delay by a week or 2, that's not only a huge part of my logic or part of my -- our discussions. Once these products are in the market, the word will change.
How about the customers? You have existing customers. Are you focused on these existing customers when it comes to product and capacities, how are the capacities are changing?
Also for the customers, as we have been telling you, we are located the demand coming from the existing clients. On a related note, the capacity is something that we are consulting with the clients. How we are trying to be out of the curve to make sure that we have enough capacity to cater to the customers' demand. This is about CDU, but for other components like quick coupling and other parts. For those inquiries, well, we are making progress so that we can supply to more customers.
So I think we would like to switch to get the questions from the media, please. The person in the middle row.
My name is Nita from Nikkei. This fiscal year or in the first half, revenue were both record highs, and the weaker yen I think pushed up the revenue by JPY 70.9 billion that I think it did seem like you struggled a little bit, but the automotive product business, some components you mentioned about that, but for the auto business, in the Infrastructure business that you are focusing on data centers and such. What is the trend in the market? And there's election in different countries. And I think there is a lot of visibility, but your presence will be impacted by the currency. But what is your outlook going forward?
Yes. So this time, we said that we will reiterate the full year outlook. In Q1, vis-a-vis the plan, the vision was plus JPY 15 billion. And what we -- and we revised up by JPY 10 billion. And for Q2, it was higher by JPY 6 billion, but we did not change the full year guidance.
Going forward, there are a lot of uncertainties. And as the management team, we share that outlook. Also at this point, just because we had a strong first half, we did not want to revise the full year outlook. So looking at Q3, Q4 and also next fiscal year, we want to make sure that we deliver our commitment.
And for the EMC business and infrastructure business, what's the investment trend in the market? Do you expect the investment to rise going forward?
In terms of the economic sentiment, you mean?
Well, I think economy is a mixed picture depending on the region.
The 5 business pillars that I mentioned earlier will not be impacted by the economic cycle. Also -- these are the businesses where we can make a steady progress in the business agnostic of the economic cycle. So for our industrial business and the AMC business, even if there are changes in EV or hybrid market, there always will be cars in this world. But in the meantime, we can focus on the other businesses to compensate for the shortfall in 1 business.
Also with these 5 businesses, we believe that we have a robust business portfolio where we can aim for steady growth overall.
My other question is the integration of the AC MOEN automotive business, I think, is your first step. And you have many group companies. What are your plans future consolidation? And what is the time line for that?
Yes. One correction, we are not integrating ACIM and MOEN. We are integrating ACIM and index existing O2 business. So ACIM and MOEN are different businesses, and they have different people as possible for each of the businesses. And what you see on the right-hand side is the automotive-related business. We have the 3 group companies, two of them will be integrated. We want to maximize the group synergy. And for that, one way to achieve that. If that is to integrate the business units of the organization, we will go ahead and do that. But we are not saying that we will continue to actively integrate and consolidate 2 group companies or business units.
Any other questions? Okay. So the person over here. The lady, please.
My name is Tamohira from Niger. Regarding the integration of ACIM and existing auto business, your existing auto business in Europe and U.S., what are the challenges for the business in Europe and U.S.? And how can ACIM help to resolve those challenges?
Yes, thank you for that question. For the existing auto business, I was actually in that business myself. And we did not have a local management who were in position for a long time. That was the biggest challenge for the Americas. We had the Mexican factory, which was a challenge for many years, and the leadership has been changed from time to time. So that was our history.
When I was in Europe, few management people because of different reasons left the organization. But many of the talented people have been invited back. That's what we were doing in the last 2 years. So we thought we have the European management team and also we have the U.S. local management team. So fundamentally, ACIM had that capability.
So we wanted to reintroduce that management philosophy. If we look at Nidec as a whole, for many years, we did have some philosophy of local management, which penetrated in the organization. But because of the history of the automotive business, which started in Japan and globalized later, because of that, we had to change the management structure and local-to-local management and also we wanted to capitalize on the great talent held within ACIM. So that's where we're starting to change the challenges for the existing auto business.
My other question is on machine tools. I think you're aiming to become the #1 market share in China. So what is the actual financial value of that? And what is the percentage of the share? And how do you expect to see the contribution for that?
Yes, I would like to have Samura-san answer that question.
Yes. First, looking at the market in China for machine tools, there's Japan, Germany, and those are the strong markets. And relative to that, the China market is quickly catching up. Also for high-speed quality and other quality in Japan and European countries are still having the lead.
But for some of the more standardized requirement, the local products are now going into the market. So one of our appeal is that there are machines that are made in Japan and we are positioned as the mid- to high-end product. But the Chinese players are also moving upward in the market segment. And for that, as the market expands, we continue to maintain a leading position. And that's why we established the sub Pingo factory.
Did that answer your question?
Yes.
Any other questions? Let's have the person in the back.
My name is Naoto from Nikkan Shimbun. I have 2 questions. Regarding the integration of lysis and Mobility, in the presentation, you mentioned collaboration. But are you going to integrate them as an organization and make it into one? How are you going to unify the two? Are you going to integrate the IT systems? I think they have different production capacity but how are you going to organize that? What you were manufacturing previously at Elysis? Are you going to manufacture that in mobility going forward?
Yes. In this presentation, it's a little bit vague in expression, but with this announcement and going forward, officially, we will be communicating this to our clients. So that said, internally, mobility and Elysis will be integrated. That's what we are saying, and we have set a schedule for that.
As you know, for the automotive business, with the clients, we need to be able to share data online, and there are a few thousand SKUs underneath that. So we sought the customer's consent, we cannot say we are going to do this and that by one. So that's why the expression is quite vague. So working together with the customers, we have started to make steps to integrate the business as the core message about this presentation.
So how about the production of -- mutual production of the products?
Well, in Thailand, we are doing a similar like substrate mounting. And depending on the production sites, I think there will be different opportunities. Where we see benefit with the integration, we would also like to consolidate the production sites.
On a related note, I think Elysis, it was formerly Honda Els. So they have a lot of business with Honda. But right now, after your acquisition, is the non-Honda business increasing in terms of proportion?
Yes. For LSS, we -- of course, Honda is a key important customer. That has been the case and that will continue to be going forward with our expectations. But LSS has a diverse array of businesses, which are not Honda. And that's also true for mobility. Also, we will be aligned with the customers' interest to solve the choking points of the customers. So that's the intention of our integration. So we want to make sure that we pursue that. In order to cater to the request of the customers, we would like to integrate your technology, and that's the primary intention of the integration.
I see. My second question is for the Gen 3 or after Gen 3, you said that you are already working on the new project. Well, so with Gen 3, you have 7 A1, which is higher margin. But going forward, what is the direction, especially in China, I think they're talking about 10 in 1. But as a direction, what is your strategy?
When it comes to China, we have a GSA group. It all depends on how they're going to make a decision. In the 7 1 7 1 in 10, it could be anything else. When it comes to development in electronics products and semiconductor product development, they have -- we have our own partners in China. We are making great synergies with these companies in China. And based and it depends on various circumstances, we will be able to do business -- continue with our business. Thank you.
Now we'd like to finish today's conference and earnings report by Nidec Corporation. Thank you very much, everyone, for your attendance today. Thank you very much.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]