Nidec Corp
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Earnings Call Transcript

Earnings Call Transcript
2023-Q3

from 0
Y
Yoichi Orikasa
analyst

Dear all, thank you very much for joining Nidec's conference call. I'm Yoichi Orikasa, General Manager, Kyoto Branch of Mitsubishi UFJ Morgan Stanley Securities. As we kick off the conference, I'd like to ask you to make sure all the materials are ready in front of you. If not, please download the files on Nidec's home page right now. Please note, this call is being recorded, and the conference materials will be posted on Nidec's home page for the coming week for investors and analysts who are not able to join today's call.

Now I would like to introduce today's attendee for Nidec Corporation. Mr. Akinobu Samura, Senior Vice President and Chief Financial Officer. First, Mr. Samura will make a presentation. After his presentation, we will move on to a Q&A session, and Mr. Samura will answer your questions.

Mr. Samura now presents Nidec's Q3 fiscal year 2022 results, future outlook and management strategy. Mr. Samura, please go ahead.

A
Akinobu Samura
executive

Okay. Good day, everyone, and welcome to today's conference call. My name is Akinobu Samura, Chief Finance Officer of Nidec. I will be your main speaker today and answer your questions with the help of Mr. [ Hironari Noguchi ] as an interpreter.

Please see Slide 3 for the financial year '22, 9 months results. As shown on Slide 4 the 9 months net sales stood at a record high of JPY 1,699.7 billion at 20.8% higher year-on-year. The 9 months operating profit decreased 6.8% year-on-year to JPY 124.4 billion. However, the 9 months profit before income taxes and profit attributable to owners of the parent increased 9.7% year-on-year to JPY 141.9 billion, 4.8% year-on-year to JPY 104.1 billion, respectively. Both stood at a record high.

We are implementing WPR-X drastic reform of profitability to tackle the recent deteriorations of market environments with aims to reduce the fixed cost significantly and to make V-shaped recovery in financial year '23. Based on Q3 results and the Q4 demand outlook, we have made revisions to financial year '22 annual forecast.

On Slide 6 and 7, you have step charts showing the net sales and operating profit year-on-year and quarter-on-quarter, respectively. By product groups, which exchange rate effect, eliminations and structural reform expenses.

As you see the upper chart of Slide 7, the quarterly sales of all segments, except for electronic and optical components and other declined due to recent deteriorations of market environments. The overall operating profit on the lower chart declined due to the decreased OP in small precision motors, automotive, and appliance, commercial and industries or ACI, as well as structural reform expenses.

Now please see Slide 8. We have started WPR-X, it's a drastic reform profitability amid adverse market conditions in the second half of financial year '22. As explained on Slide 9, WPR-X is a drastic reform of profitability to tackle economic downturn caused by re-expansion of COVID-19 in China and economic shrink in Europe through prolonged Russian invasion of Ukraine, as well as polarization caused by technological innovation. With the idea of technology creates cost competitiveness in mind, we are going to accelerate the development of products that can overwhelm competitors with our technologies, and to implement structural reform to reduce fixed cost as through automation, with our technologies and streamlining operations.

Please see Slide 14. The number of EV models adopting Nidec's E-Axle has increased by 3 to 14 models compared with the previous quarter. The annual sales of EVs with our E-Axle grew 175% year-on-year in calendar year '22, and the latest December sales hit a record high.

Please see Slide 15. The E-Axle market in China is to enter growth stage on a full scale. The number of market entrants, including OEMs, who self-manufacturers motors is increasing. An increase in the number of competitors in such a growth stage is within our expectation at the time of strategy creation. As our strategies for this growing market, firstly, we ensure a speedy implementation of large-scale capital expenditure before the demands arrived at our countermeasures for market expansion, secondary, in order to expand our customer base and geographical market areas. We will be targeting 5 major customers in China 2 existing and 3 new customers and acquiring new orders from European and U.S. OEMs.

Please to Slide 16. Global sales volume of our E-Axle is expected to continue to increase at a pace that exceeds the growth rate of the battery-electric vehicle, our BEV market, and we are targeting to sell 4 million units of E-Axle in financial year '25, which consists of Nidec PSA e-motors, a joint venture with Stellantis and customers in China and other areas.

Please see Slide 17. We are preparing for V-shaped recovery in financial year '23 by posting large structural reform expenses in the second half of financial year '22.

Please see Slide 18. A paradigm shift from ICE or internal combustion engine because EVs is rapidly accelerating in 2 wheels and small cars as well. We are focusing on the 2 largest markets of India and China in both electronic 2-wheeled vehicles and small EVs. We are planning to mass production in financial year '22 for 11 projects, including 6 related to electronic 2-wheeled vehicles and 5 related to small EVs. We have added in wheel motors for electronic motorcycles in India. And with regard to production, we have converted the [ former ] HDD factory in the province of Zhejiang, China to that of micro mobility, and we are planning to double the floor -- double the floor area of Indian factory.

Please see Slide 19. In the Small Precision Motors segment, we are implementing business portfolio transformation amid HDD motor market structural change.

Please see Slide 20. In ACI, we are executing structural reform in overseas businesses and looking to enter a new phase of growth by gaining market share outside Europe that is shaken by the conflict. We are going to accelerate the topline growth through 3 new strategy in the fields of generators, battery generator storage system, battery charger for EVs, et cetera. And for the air conditioner market, we are going to expand the business globally mainly for industrial use. Assuming a higher raw material cost continues for the time being, like in the auto businesses, we are going to accelerate the improvement of profit structure as through passing that on to selling price and reducing the manufacturing costs.

Please see Slide 21. Despite the weaknesses in appliance and the commercial areas due to loss of demand driven by COVID-19 and the negative impact of prolonged Russian invasion of Ukraine on the European market, we are going to continue our efforts to improve profitability.

Please see Slide 22. In other product groups, the operating profit ratio since financial year '21 is keeping high level of over 15%.

Please see Slide 23. Nidec's machine business group, which consists of Nidec-Shimpo, Nidec machine tool and the Nidec OKK is going to expand and improve product portfolio through steady organic growth and M&A and realize high growth of the machinery businesses. Firstly in the machine tool business, we are priming M&As to expand product line-ups of machine tools and explore overseas markets. And supporting overseas sales expansion of Nidec Machine Tool and Nidec OKK by acquiring PAMA in Italy, which has a strong sales network in highly growing markets such as China, et cetera.

Secondly, in the press machine business, orders for machine for manufacturing cans and EV-related parts such as motor core, battery, et cetera are increasing. We are going to strengthen production and sales through a collaboration among our major brands. [indiscernible] and reducer business, we are launching Komagane business facilities in Japan, with an aim to increase supply capacity of high-precision reducers and planetary reducers for the domestic market, and aiming to gain market share of reducers for 6-axis robots.

Please see Slide 24. We have purchased the shares of Italian machine tool manufacturer PAMA and it's 9 affiliates and executed a transfer agreement on the stock acquisition. PAMA is one of the most well-known companies in the machine tool industry for the wide range of product line-ups and high-level technological capabilities with large machine -- large machine tools, particularly horizontal boring-milling machines. The company is also known for solid sales and service networks in Europe and other places such as China, the U.S. and India.

Growing competition of acquisition of PAMA -- growing compression of the acquisition of PAMA through reciprocal usage of management resources between PAMA and our 2 machine tool companies Nidec machine tool and Nidec OKK, we are able to process synergies in all areas of sales, manufacturing and product development. After completing the stock acquisition, we are going to actively provide PAMA with resources and make necessary investments in PAMA to accelerate the growth of Nidec's machine tool businesses.

Please see Slide 25. We are tackling to build a strong corporate governance system and growing the establishment of sustainability committee that we announced in the previous quarter. We established a Nomination Committee last November as an advisory body to the Board of Directors. With the establishment of the Nomination Committee, fairness, transparency and objectivity are ensured in the deciding on the election policy, as standards and the candidates of our directors and executive officers with appropriate engagement and advice from our external directors. We will continue to improve our corporate governance system, even further going forward. And lastly, on behalf of the entire management team, we would like to thank our customers, partners, suppliers for their support and commitment as well as our shareholders.

At this time, we would like to open up the call for questions.

Y
Yoichi Orikasa
analyst

[Operator Instructions] Our first question today is from Mr. Ito of ARGA investment.

T
Takashi Ito
analyst

So I have 2 questions. Regarding your big restructuring charges, I just want to first understand, is this primarily because of demand -- macro demand or it's also -- or maybe it's more because of pricing. So I think in previous quarters, Nidec has said that you expect higher raw material costs to be passed onto customers with a time lag. I don't really see this positive impact into current numbers. So are you getting a lot of difficulty in passing on pricing and that is one of the reasons why you are embarking on the restructuring program? That's my first question.

And so my second question is just for a more detailed breakdown of your restructuring costs. I think I read somewhere that it's about JPY 70 billion for the full year. So if you could confirm the number, how much is in Q4 and for which particular products these charges are going to be for?

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] First of all, I'd like to say that there is no direct relationship between price charging and restructuring costs.

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] And when it comes to restructuring cost, this 70% of this entire management -- and the restructuring cost accounts for 70% of the entire downward revision, which is worth JPY 100 billion.

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] There are 2 factors for that.

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] And one of them is automotive related to mainly in Europe and other places.

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] In the European automotive businesses, we have encountered with the quality defect issues and other issues our business operations.

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] And these issues have to be solved in the course of communications among the top executives and the others on a daily basis.

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] And our corporate culture as well as our growth model is based on this type of communications that -- and this communication has enabled us to establish a very good relationship of trust between our service and our customers.

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] However, over the past few years, this type of communications between top management executives has been what we have been lacking or missing.

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] Due to this lack of communications among top executives, relatively small problem has developed into a larger problems and issues in some cases.

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] And one of the examples of such a case is the quality issues that has been developed into a compensation issue.

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] And another issue is also related to our communications with our customers. As the production volume changes or fluctuates, sometimes we have seen in the excessive amount of equipment that is not in [indiscernible].

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] And these are the issues that are mostly with the automotive businesses in Europe and other places.

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] One another major issue is the deterioration of the market environment.

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] And this circumstance, we are going to -- this year marks our 50th anniversary since our company's foundation.

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] Therefore, to commemorate this 50th anniversary in this year of fiscal year 2023, we would like to make a V-shaped recovery after successfully and significantly reducing our fixed costs.

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] And this is the main primary purpose of this WPR-X, which is the initiative that I have explained in my presentation at the beginning of this speech. And this WPR-X is the initiative for us to significantly reduce our fixed and other costs.

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] And during this process, we are going to -- we are going to face a consolidation, and we're going to incur restructuring costs and we are going to reduce the amount of so-called slow-moving inventory. And these are all part of our ongoing re-structural reform.

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] Therefore, in commemorating our 50th anniversary as a company and in order for us to be able to have a very good secure and healthy growth for the next 50 years, we like to go on -- and go through this restructuring, excuse me, at this reform or structural reform, so that we can establish a very healthy -- extremely healthy financial structure, and we can go ahead in -- as a healthy company.

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] Those are my answers to your 2 questions.

K
Kazunori Ito
analyst

Okay. Can I just confirm that the pricing increase to customer is going according to plan? And also, can I just confirm that when you talk about the quality issues with the European automotive business, this is related to maybe electronic power steering or the braking systems.

And sorry, one last confirmation is when you do -- when you mentioned the restructuring, does this also include head count reduction?

U
Unknown Executive

[Foreign Language].

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] When it comes to the first point that you would like to confirm with us, which is the price charging, we are still having this huge amount of -- we are still experiencing the effects of this huge amount of price charging. Price charging is smaller compared with the price increase on a year-on-year basis, which is the -- in the amount, which is approximately JPY 20 billion or so. That's one thing that I'd like to say.

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] When it comes to quality-related issues, I will like to refrain from [indiscernible] specifics, but approximately 50% of the entire amount has been solved in the Q2 and Q3 and the remaining 50% is still remaining in Q4.

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] When it comes to the third point that you would like to confirm whether -- which is the possible headcount reduction as part of the restructuring and the streamlining, of course, under the one Nidec policy, we would like to utilize our equipment as well as people on a group-wide basis, but some headcount reduction is part of our restructuring plan.

Y
Yoichi Orikasa
analyst

And the next question is from Mr. John Ho of Janchor.

J
John Ho
analyst

I wanted to ask you about the E-Axle business. Maybe you can describe for us the changes in the forecast for this year and next year that you have made from the last quarter that drove that change and how we assess the prospects going forward on the E-Axle business?

U
Unknown Executive

[Foreign Language].

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] When it comes to the E-Axle business, our prediction is that we are going to reach a critical point in the year 2025. And our forecast at that time is 4 million units to sell, and this forecast remains unchanged. It's all the same.

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] But when it comes to fiscal years of 2022 and 2023, due to the spread of COVID-19 and other reasons, it is true that the market is shrinking.

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] And as I understand, when it comes to fiscal 2023, some people predict that there will be a slowdown in Chinese market.

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] According to what I have heard from our people working in the local places, it is also true that one of the -- every -- one out of every 3 cars are EVs already.

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] Therefore, even though the rapid growth rate of 2x or 3x a year is not going to be maintained anymore, but it is -- I believe there is no doubt that the growth will continue.

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] One important point for us is to make a quick transition or replacement or quick transition from Gen 1 to Gen 2.

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] Now when it comes Gen 2 products, it is -- it utilizes quite a few new technologies, and we had to take a little more time than expected in checking the performances of Gen 2 products. Therefore, this is why we had to postpone the debut timing of Gen 2 products from Q3 to Q4.

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] Therefore, when it comes to fiscal year 2022, the rate of the Gen 2 product is going to be lower than initially expected. However, when it comes to fiscal year 2023, our forecast remains unchanged. In other words, on average, 3 out of every 4 vehicles will be using Gen 2 products.

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] And therefore, as we have been saying from a long time ago, our plan is to generate profit for our traction motor business in fiscal 2023. This plan itself also remains unchanged.

J
John Ho
analyst

Right. Can I just follow up to ask a few questions? The growth rate, as you said, for EV penetration is slowing. And many OEMs, particularly in China are really not making money. And recently, the OEMs like Tesla and others are cutting prices. Does that put some pressure on negotiation of our Gen 2 prices? Can you give us some color on how pricing negotiation is going with our customers?

U
Unknown Executive

[Foreign Language].

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] Now when it comes to the price reduction, as the quantity increases is something we have already been thinking about as part of our strategy.

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] And as Mr. Nagamori, our Chairman, has been saying long term, then the average price of the cars will be 1/5 of what it is now. And what we need to understand is that we need to be able to increase the volume and try to reduce the price. And we need to wait -- we need to be ahead of other people, and we wait for the arrival of the demand to come to us. That's our strategy.

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] Therefore, Tesla's ongoing price reduction is part of this movement in my opinion.

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] And therefore, when -- in comparison with the Gen 1, Gen 2's cost is 35% less. And when it comes to Gen 3, its cost is 50% less than Gen 1. That's the type of product development strategy that we have in place.

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] Therefore, as the volume increases, there will be a growing number of companies to enter the business and cost competition will become harsher and harsher, and that's the type of thing that happens in many different markets, in my opinion.

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] If you take a look at the Slide 15 of our presentation material, detailed information is provided there.

J
John Ho
analyst

And maybe one last one on the E-Axle question. Is it true that some of our customers are in-sourcing or second sourcing from other suppliers? How do we think about that?

U
Unknown Executive

[Foreign Language].

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] And of course, some customers are making these axles in-house and for some other customers, we provide them with motors or even other components. There are quite a few different types of cases.

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] What we are focused on achieving the most is to secure a good amount of quantity of our products because that's most beneficial cost wise.

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] Therefore, our strategy is to deliver a large amount of E-Axle units. But not only that, we will continue to deliver to our customers other components or individual components. That's how we like to -- that we are trying to -- that's how we try to secure a large amount of products.

J
John Ho
analyst

So if I can ask one question about the restructuring initiatives. My understanding is Nidec always has cost reduction and operational efficiency plan. How is WPR-X different to our ongoing reduction plans? Can you tell us why aren't we doing it already? Why do we have to start something new now? And how much of the restructuring cost will -- is just writing off assets that we already paid for versus a requirement for cash investment for restructuring?

U
Unknown Executive

[Foreign Language].

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] When it comes to WPR-X, it is not really the same from -- same as the WPR-X initiatives that we have held started in the past. Currently, we are in the midst of huge large-scale technological change.

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] In other words, currently, we are in the midst of a huge technological change in, for example, the ICE, internal combustion engine is all replaced by EVs. And AI, artificial intelligence is replacing a human when it comes to labor. That's the type of technological change that we are currently experiencing.

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] Therefore, instead of trying to reduce the cost all across the board in the entire unit, we like to focus on certain businesses that we would like to focus on. And this is how we like to establish a competitive advantage over other companies.

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] Therefore the conventional WPR-X activities are aimed or intended to reduce procurement cost and increase production efficiencies. Currently, the current WPR-X activities initiative is to change our products themselves.

Y
Yoichi Orikasa
analyst

Our next question is from Ramsai Neelam of State Street.

R
Ramsai Neelam
analyst

So I have a couple of questions. So firstly, on E-Axle guidance. So we have reduced guidance from 550,000 units to for 420,000 units roughly. So 24% decline in the units as well as if we compare on a quarter-on-quarter basis is almost 70% decline from Q3. So can you explain why there is a downgrade in the guidance?

U
Unknown Executive

[Foreign Language].

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] The primary reason for the reduction is the reduced demand from our customers due to COVID-19 and other elements.

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] And another reason is that we have to delay the debut timing of Gen 2 because we need to take time to inspect and check the performance of technical -- technological performance of Gen 2 products.

R
Ramsai Neelam
analyst

Okay. And other question, so sorry to stress on this on the restructuring question regarding the quality issues. So is it related to EV-related business or traditional automotive business that we have?

U
Unknown Executive

[Foreign Language].

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] This restructuring is related to traditional auto businesses.

R
Ramsai Neelam
analyst

Okay. And lastly, on the traction motor business or E-Axle business, it seems like Q3 had recorded close to JPY 10 billion losses. It is accelerated from the previous quarter. So can you give some color on why the losses are ballooning in Q3?

U
Unknown Executive

[Foreign Language].

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] Of course, I believe you're talking about this difference between Q2 and Q3. And the reason for this loss is not our customers, including GAC are in a very struggling situation at this moment. Therefore, selling price is making some increasing again, that's one of the reasons.

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] And another reason is that when it comes to heavily profitable models, we tend not to deliver such models that led us to produce less of those motors. That's another reason.

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] And another reason is that the operation ratio of the factories during the month of December, for example.

Y
Yoichi Orikasa
analyst

Next question is from Brad Snyder of Egerton Capital.

B
Brad Snyder
analyst

I have a few questions. I guess, first, just wanted to know what was the operating margin for the HDD segment in the December quarter?

U
Unknown Executive

[Foreign Language].

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] The HDD business, the quantity dropped significantly. It's usually 30% when it comes to margin, but due to this significant loss, now this percentage is down to 20%.

B
Brad Snyder
analyst

20%. Okay. And I think just to follow up the earlier question I don't think I heard the answer correctly. But what of the JPY 70 billion restructuring charge, how much of that amount is for inventory and other asset write-offs?

U
Unknown Executive

[Foreign Language].

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] And calculation read is as follows. When we have a slow moving inventory for which we had to spend JPY 10 billion and we have a stagnant account receivables. And all-in-all, it's approximately JPY 20 billion in total.

B
Brad Snyder
analyst

Okay. So JPY 20 million for receivables and JPY 10 million for inventory or JPY 10 of each?

U
Unknown Executive

[Foreign Language].

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] Yes. the later is correct. I know that was JPY 10 billion for slow-moving inventory, another JPY 10 billion for stagnant accounts receivables. So it's JPY 20 billion in total.

B
Brad Snyder
analyst

And then just the Machinery segment. I was just wondering in there, like for the sales in Q3, how much of the sales was from the acquisitions from OKK and the Mitsubishi? I think it was about JPY [ 9 billion ] in Q2.

U
Unknown Executive

[Foreign Language].

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] For this quarter from October to December, it is approximately JPY 9 billion for these 2 companies.

B
Brad Snyder
analyst

That's great. Just one last question for me. I guess I was surprised by the comments around the Gen 2 performance testing. I guess, we've been hearing about Gen 2 for several quarters now. And I was kind of surprised that you delayed the launch by a quarter because of the testing. I would have thought that was in your plans and forecasts that it would require testing. So I guess, what happened with the testing that you weren't expecting?

U
Unknown Executive

[Foreign Language].

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] When it comes to the production of Gen 2, it started from the end of September. That was as initially planned.

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] But as I've said before, Gen 2 includes various new technologies.

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] Therefore, some customers are extra sensitive and extra cautious, and they requested us to test extra cautiously when it comes to these new technologies.

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] Therefore these requests differ from our customers, but when it comes to our primary most important customers, which is GAC, they gave us a request to be extra careful about checking this performance at a very, very final moment. And this -- because of this request, we had to delay the start of our mass production of Gen 2 products.

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] These issues have almost all been solved already and has been already decided that the mass production will start in the month of February.

Y
Yoichi Orikasa
analyst

As we have run out of time, the next will be the final -- today's final question. Mr. Ito, again, please.

T
Takashi Ito
analyst

Just want to confirm again. So for your restructuring costs of JPY 70 billion, so we know that at least JPY 20 billion is noncash because it's related to inventories and receivables. But can you tell us how much in total would be cash and noncash?

U
Unknown Executive

[Foreign Language].

A
Akinobu Samura
executive

[Foreign Language].

U
Unknown Executive

[interpreted] Of course, the examination of these numbers are still ongoing. But overall, 15% of the entire amount is cash related and remaining 85% is noncash related.

Y
Yoichi Orikasa
analyst

Now we'd like to conclude the conference call. I'd like to appreciate for your participation. If you have any further questions, please do not hesitate to contact Nidec Corporation or your sales representatives at UFJ Morgan Stanley Securities. Thank you again for joining the conference call, and now you may disconnect.

[Portions of this transcript that are marked [interpreted] were spoken by an interpreter present on the live call].