We would like to begin the session. Thank you very much for coming to the analyst session of MINEBEA MITSUMI, the results of the first half of the year ending in March 2019. Despite your busy schedule, the participants from the company side are the Representative Director and CEO of the company, Yoshihisa Kainuma. Next to him is the Managing Executive Officer, Katsuhiko Yoshida. My name is Yahiro from IR department. I will have the privilege of serving as MC for this session. First, Yoshida will explain about the financial results, and then Kainuma will talk about the business update and management strategy. We will have Q&A, and we plan to finish this session at 8:30 P.M. Regarding the details of the financial statements, please refer to the supplementary information as well as the Tanshin flash report.
As for the press release about allocation of the surplus, retained surplus, and revision of the dividend payout, please refer to them as well. May I ask you to fill out the questionnaire form, because it will provide us good feedback in order for us to do this in a better way. This meeting will be uploaded to our internet, inclusive of a Q&A. This session will be recorded. May I also ask you to refrain from taking photos and sound recording. Mr. Yoshida, the floor is yours.
This is Yoshida. I would like to explain the consolidated financial results for the first half of the fiscal year ending March of 2019. Consolidated net sales for the first half of the fiscal year ending March 31st of 2019 totaled JPY 236,330 million, down 0.6% year-on-year, but up 10.9% quarter-on-quarter.
Operating income dropped 20.6% year-on-year, but increased 37.3% quarter-on-quarter to total JPY 19,624 million. Profit for the period attributable to the owners of the parent was down 15.6% year-on-year and up 46.7% quarter-on-quarter to total JPY 15,970 million. Both net sales and operating income were as expected with solid sales of ball bearings and motors and other products, despite timing issues and one-time costs in some businesses. Currency fluctuations brought net sales up an estimated JPY 3 billion quarter-on-quarter and down JPY 100 million year-on-year. It also brought operating income up by JPY 2.1 billion quarter-on-quarter, but no change year-on-year. We adopted IFRS instead of JGAAP from the current fiscal year. Moving on to the next slide. The bar graph on the left shows net sales, and the one on the right is operating income, along with a line chart for the operating margin.
The OP margin for the second quarter was 8.3%, down 2.3 percentage points year-on-year, but up 1.6 percentage points quarter-on-quarter. Please note that the figures of the fiscal year ended March of 2018 and before are based on JGAAP and are provided for your reference, so that you can look at the past figures. The same applies here hereafter. Next slide. Here shows the difference between forecasts as of August and actual results for net sales and operating income by business segment for the second quarter. While net sales for the mechanical components business segment were almost on par with the forecast. Sales for the electronic devices and components business segment were higher than forecasted, mainly thanks to electronic devices. On the downside, the MITSUMI business sales were lower than projected, mainly due to timing issue for smartphone-related parts.
Although operating income for the mechanical components was about the same as projected, operating income for the electronic devices and components business as well as MITSUMI business segments were lower than forecasted due to the changes in shipment timing of smartphone-related parts. The others and head office adjustments improved slightly. Also, please note that temporary expenses, approximately a negative JPY 1.0 billion from the Hokkaido Eastern Iburi earthquake, was included in the MITSUMI segment. Next slide. On the left is a graph indicating quarterly net sales trends, and on the right is a graph with a bar chart showing quarterly operating income trends, along with a line chart for operating margins. Net sales for the second quarter were up by JPY 900 million from the previous quarter to reach JPY 48.2 billion. Ball bearings sales increased 2% quarter-on-quarter to a total of JPY 31.1 billion.
The average monthly external shipment volume hit an all-time high of 206 million units, marking a year-on-year increase for the 24 quarters in a row. The monthly production volume for August hit a record high of 302 million units. Sales of rod ends and fasteners totaling JPY 9.1 billion were up 2% over the previous quarter. Sales of pivot assemblies increased 2% over the previous quarter to a total of JPY 8 billion. Pivot assemblies steadily contributed to our bottom line as we held on to 80%+ market share. Operating income for this quarter hit a record high of JPY 12.5 billion to put the operating margin at 26%. Operating income was up 7% quarter-on-quarter, while the operating margin was 1.2 percentage points higher than what it was last quarter.
Looking at the results by product, we see that the profits for ball bearings, rod ends, fasteners, and pivot assemblies all rose quarter-on-quarter. This is about electronic devices and components. Net sales fell 5% quarter-on-quarter to hit JPY 87.4 billion. Looking at the results by product, we see that sales of motors grew 4% quarter-on-quarter to reach JPY 49 billion, as sales remained strong primarily in the automobile market. Sales of electronic devices were down 19% from the previous quarter at JPY 27.9 billion. This was primarily due to the shift to a new model of LED backlight for major customers. Sensing device sales grew 2% quarter-on-quarter to hit JPY 9.3 billion. Operating income totaled JPY 4 billion, while the operating margin reached 4.6%. We saw a 2.1-fold quarter-on-quarter increase in operating income, while the operating margin climbed 2.5 percentage points.
Looking at the result by products, we see that all categories, including motors, electronic devices, and sensing devices, were higher operating income. Moving on to the next slide. Lastly, this is about the MITSUMI business segment. Net sales increased 36% quarter-on-quarter to hit JPY 100.6 billion. Sales in all products increased primarily in mechanical components. Operating income reached JPY 7.5 billion to put the operating margin at 7.4%. These figures reflect the one-off expenses in semiconductor business from the Hokkaido Eastern Iburi earthquake. The operating income rose 2.5-fold quarter-on-quarter, while the operating margin grew 3.3 percentage points. Moving on to the next slide. Next, this is the quarterly inventory trend. We see that as of the end of the second quarter, inventories amounted to JPY 176.8 billion. That figure is up JPY 7.7 billion from three months ago.
The increase was largely due to the increase of strategic parts inventories considering market conditions. Inventories should reach an optimal level in the third quarter and onward as demand peaks. Moving on to the next slide. This graph contains a bar chart showing trends in the net interest-bearing debt, which is total interest-bearing debt minus cash and cash equivalents, and a line chart for free cash flows. At the end of the second quarter, net interest-bearing debt totaling JPY 62.8 billion was up JPY 10.3 billion from what it was at the end of the previous year. Despite increasing capital expenditures this fiscal year, we expect free cash flow to increase as profits grow and inventory decreases, and net interest-bearing debt to decrease significantly at the end of the fiscal year. Please note that these figures do not include the impact from the TOB. Please go to the next slide.
This is a summary of the forecast for the fiscal year ending March 31st, 2019. In the second half, we expect mechanical components and motors to continue to grow steadily and smartphone components to make a contribution to earnings from the third quarter. However, future trends in the global economy are uncertain due to factors such as trade policies, exchange rate trends, and geopolitical risks in each country. Under these circumstances, we have revised the forecast of the profit of the period to the extent that we are currently able to forecast. The exchange rate assumption was changed to JPY 110 to the US dollar. Moving on to the next slide. This slide shows the forecast by each business segment. Please go to the next slide. Finally, I'd like to go over our sustainability topics.
We are actively addressing ESG, that is environmental, social, and governance issues, recognizing them as business opportunities as we aim for sustainable growth and respond to the various needs of society. Here are two recent topics I'd like to share with you. First, NMB-Minebea Thai, our Thai subsidiary, won the Thailand Labour Management Excellence Award 2018 for its two factories. These awards are a testament to our ongoing efforts to build better and safer workplaces across the globe.
Secondly, we are doubling our efforts to disclose ESG information. Specifically, we issued an integrated report in addition to a CSR report. We will continue to realize sustainable growth by contributing to solutions for social issues. That's all from my side.
Next, Mr. Kainuma, please.
This is Kainuma. Thank you for staying with us for many hours. From now on, I would like to talk about the business update and management strategy. As Yoshida explained, Chitose was affected by a disaster, and JPY 1 billion damage incurred. Backlight, in the first half, suffered losses. But the JPY 34 billion, more or less, the operating profit that was generated, that means that we have been strengthening our capabilities and machined components. JPY 50 billion operating profit was the target, and JPY 1 trillion and JPY 100 billion in March 2021. When I set this goal for the first time, this was JPY 50 billion. It was also the target I set, but it is likely to be achieved two years ahead of the time. Trump administration, the Chinese economy are slowing down, so on and so forth.
As you can see here, MinebeaMitsumi's diversity in this critical time, we have been able to effectively cope with those things. I will come back to this point later on. This time around, our initial projections remain virtually the same. As you already know, there are many uncertainties. Initially, we took a very conservative view in formulating the plan. We changed the forex. JPY 110 to the US dollar, we should be able to achieve the target. Machined components. Last month, the automotive achieved 60 million pieces, which is 11% growth year-over-year. Next year, 11%-12% growth is anticipated. In the background of that, the water, oil, and air, all those pumps will be electrified. Automotive, as electrification progresses, the more durable ball bearings will be necessary.
There is this peak anticipated in the demand, and only MinebeaMitsumi has the production capacity to meet that demand. Price hike effect, for example, last month, we have been able to raise JPY 2 on average. The cooling fans, 5G ADAS, and base stations, the infrastructure preparation will progress going forward, and therefore, even more cooling fans will be needed that will operate 24/7. Very durable ball bearings will be required. Therefore, we anticipate a 10% annual growth in this area as well. Now, highly efficient vacuum cleaners is seeing boom. A certain known Japanese manufacturer's vacuum cleaner, and the like. The Chinese customers are wanting high-rotation bearings. 20% increase. Ball bearings, overall, I have no concerns at all. Production and sales, we seem to have a little more production than the sales.
Air freight, which cost JPY 100 million, is coming down, and we would like to reduce that to JPY 20 million per month. We would also like to optimize inventory level as well. Ball bearings, we tend to focus on, but what is having high performance is rod end and fastener business. As I may have explained to you several times already, the Mitsumi techniques are applied to ball bearings and 3,500 or 35 million pieces and 15 million. The rod end, last month, Karuizawa had a record high shipment. The impact of that on rod end is being very positive, and fastener has had a complete turnaround. Last year, we anticipated JPY 800 million of swing, but a bigger swing than that can be expected from fastener business. CNA and Mach Aero are growing steadily.
U.S. rod ends are growing very steadily because of a booming economy. Now is the time for renewing long-term contracts, and therefore, prices have been raised. This trend is to stay for some time because the prices will be raised, and they will stay that way. About JPY 55 billion per month, per year, and 10% additional increase is anticipated next year. Next is backlights. There was a timing issue, and analysts are writing detailed reports about the smartphone industry. I would like you to refer to those reports for more details. Now the smartphones are slowing down. This year's model, compared with last year's model, the main models, this year's model has fewer parts. The profit that can be generated by smartphones, we didn't anticipate that much.
Impact this time around is, even if the smartphone business doesn't progress as planned, the impact will be limited. Automotive motors, the motor business is JPY 200 billion. Automotive is the most promising one, the JPY 34.7 billion, JPY 743.3 billion, JPY 48.1 billion, JPY 53.5 billion from 2016-2019. Actuators, we are having many inquiries. 2021, the European regulations, the emission regulation, the PM motors, the BLDC brushless, those motors are growing steadily. Mitsumi, turning to Mitsumi business, optical devices had a timing issue as well. Chinese smartphones are having better specifications. We are recording lots of revenue in that area. Impact on profit and loss, we took a conservative view. Therefore, probably, we can offset the impact. What is most powerful in Mitsumi business is the semiconductors, particularly analog semiconductors.
The Japanese pepper grain may be small, but it does sting your tongue. It's focusing on a limited area of high-end smartphones. 75% of the global market has Mitsumi's analog semiconductors. Mechanical components, according to the analysts, they are writing reports about game consoles and so on and so forth. The revenue is likely to be in line with the plan. Risks. We are very resistant to risks now. Trump administration issues. China plus one by U.S. companies is starting. So far, the cheap ones, we gave cheap ones. The business of cheap ones to Chinese players in the U.S., 20 million pieces were sold in the U.S., but now it's down to 8 million, and they are replaced by Chinese players. 25% tariff will be imposed, and we are now seeing inquiries from them for those products.
Not just the bearings, but in other product areas, we have recommended a Cambodian plant many times, but they were not interested. This time, they are becoming interested. If the current trend continues, probably an increase in number of customers will be wanting to use a Cambodian plant. This is an opportunity, not a risk. This is the TOB towards the business integration with U-Shin. I made a presentation to this with you already, so I do not want to repeat it, but I have five synergies that we have listed here. JPY 300 billion coming from the automotive business, we have that in the view. From the JPY 130 billion MinebeaMitsumi automotive business, that's the current level. On top of that, we had JPY 150 billion coming from U-Shin, that's JPY 280 billion in total.
This is going to grow, meaning that this JPY 300 billion, we will be able to easily surpass this JPY 300 billion for the automotive business. This will be the update on the new product trio, the SALIOT, because a lot of good inquiries coming and a lot of bulk orders, 100, 200 units at one time. Next fiscal year after that, I think we can put a lot of expectations on this SALIOT. I can give you an example of where it is used. There are a lot of places that are using SALIOT, but we can't be able to disclose. In your presentation material, we have those brochures, and there's a lot of development using SALIOT going forward. Including the quality of the light, the customer's feedback, we get very good feedback from the customers.
The bed sensor systems, Ricoh from August, has started to sell the bed sensor systems. Currently, we're struggling right now for this product. In terms of the product appeal, maybe it is lacking a bit. We have to put in some improvements and then go forward on this business. Smart city, mainly in Cambodia, we have 5,000 orders came, and then we have 15,000, so over 65,000. This is all pay-as-you-go system. Various types of connectivities is development because various things will be connected. Maybe this will take a little bit of more time to develop further. This JPY 1 trillion, JPY 100 billion, hitting these targets ahead of schedule. I think I have already shown you this before. JPY 85 billion is 2019 March period is what we're going to forecasting.
In 2020 March, this is how we want to achieve our targets in this manner. In the previous presentation, there has been a question about this. In terms of our M&A strategy, I have no intention of not focusing on M&A strategy because we take a lot of time to seek for these opportunities and try to tap into these opportunities. Because we have to consider the account of our partner, and there's a lot of competition for M&A. To be able for us to achieve these, this will be very difficult. If a company has a synergy with our company, we'll focus on those type of companies. Next fiscal year, JPY 1 trillion, JPY 100 billion will be the targets that I'm determined to achieve.
We are going to increase the dividend, we increased it by JPY 1 for the interim and year-end. JPY 67 billion of the net income is our forecast. This will be a record high level for us. Compared to the previous year, there has been less extraordinary loss compared to the previous year, that has been a help. Steadily, in terms of the effective tax rate, we have been able to contain that. That's the reason why we have decided to increase the dividend by JPY 2. This JPY 1 trillion, JPY 100 billion, to be able to achieve the target for this fiscal year, we'll take whatever means that is possible to hit these targets. That's all from me. Thank you so much.
We would like to move on to a Q&A session. Only institutional investors are allowed to ask questions. Please state your name and affiliation before asking questions. If you have any questions, please raise your hand. In the fifth row, in the middle section.
Takayama from Goldman Sachs. Thank you once again. Fully, the Electronics and MITSUMI. Electronics and MITSUMI. Electronics, JPY 10 billion sales. North America and smartphone, the business seems to be faced with a tough time. What is the plan to overcome that in order to actualize the upside? MITSUMI, the plan is maintained, but after including Hokkaido earthquake, is it included? Could you elaborate on that point?
I would like to report to you about that. The smartphones or LED backlight, last year, wasn't really started. But now we are having a better visibility right now, and the changes that you have mentioned have been incorporated.
Regarding MITSUMI, JPY 1 billion in Q2, that number is included in the impact of the earthquake. In addition, there may be additional impact in Q3. Whether we can overcome that impact or not, we are thinking right now. The overall revenue is growing, therefore, it's not because of one single factor, but overall revenue growth. LED backlight.
Original forecast was too conservative, are you saying that?
Yes, you can understand that like that.
My second question is the ball bearings. In the past, Mr. Kainuma said that it leveled off on a plateau. Revenue seemed to have dropped slightly in Q3, how deep is this? A 10% increase is possible next year, you mentioned. Is it in your sight already, what is the curve you are anticipating?
Back then, I participated in a conference call for the first time. Probably the way I explained was not really appropriate. Probably people thought I said that things were at a leveled off, that's not what I meant. I thought that if things would slow down or start to level off, it will make it easier for us, that was misunderstood. Bitcoin was slowing down. The momentum towards the investment, the China, the motivation was cooling down. Probably those factors did affect our business. However, electrification of automobiles will progress for sure. The servers installations will take place without any doubt. Whether or not things will slow down, I don't know. Order received last month, 48 million pieces last month, 1.5 months worth of orders. We have very solid bookings. Overall, I'm not that concerned.
Page 18, it says that the earning capability is being enhanced. The profit margin will improve. Yes, it is already improving. Ball bearings, it's seeing improvement in profit margin. Rod-end and Fastener is in the same situation, the profit margin is improving.
Any other questions? Let's just take the next question. Akizuki from Nomura Securities.
I have some questions to ask. In terms of ball bearings, I would like to ask a question there. This is a more short-term question. First quarter results, when the material that was JPY 250 million and JPY 212 million for the external sales, and JPY 26 million, there has been a shortfall for the two months. You look at July to September, there has been some inventory adjustment and there may be some change in the customer's behavior. As Mr. Kainuma has said, towards the European car manufacturers, there is going to be an increase. In terms of seasonality, there's going to be a kind of a reversed trend.
Towards the second half, can you please clarify what's going to go down and what's going to go up?
In terms of what's going to go down, we do not know from our business. JPY 3 million, JPY 4 million, we talk about that level. JPY 300 million is the denominator. This is the margin of error. It's down by JPY 30 million. That's a big thing. But we are not nervous at all for that level of fluctuation. But because currently, we have that capacity in place, and in terms of the cooling fans and automotive applications, that will be the drivers for this business. And we will want to prepare for that business, and we will hold inventory targeting those businesses.
Thank you. The second question is that for the MITSUMI business, I want to ask a question. In terms of the sales outlook, you have reduced this by JPY 110 million, and the profit, you haven't changed your outlook. Would you explain why you have made that kind of revision?
The reason why we made this JPY 10 million downward revision, if you look at the balance between the first quarter and the second quarter results and the projection, there has been a minor adjustment. It is not a major issue here. Whether mechanical components, smartphone-related products, they will be changing, various changes in the market environment. This will be, again, a marginal level of adjustment. The overall trend, we think that we'll be able to achieve these figures that we have announced.
My third question is, again, the same line as I've been saying. The backlight business. You have not changed your view from the initial announcement. You will not be able to achieve your target. But the reason you didn't change your outlook, because you have the assumption of the pricing? At the beginning of the year, Mr. Kainuma, you said, because you have to say the situation is tough, you won't be able to raise the prices. You were very conservative in your assumption of the prices. The pricing was better than you have anticipated, meaning that in the beginning of the year, you were a bit conservative in your outlook. I want you to try to explain about that.
In terms of pricing, we are able to sell products.
I think basically that goes without saying. But as I said, from the last year's models, I think the profit structure is completely different compared to last year's models and this year's models. In terms of the value of the profit, well, compared to. Let me reword it. Against the assumptions that we were thinking from last year in terms of profit, this new smartphone's profitability, or say, or the profit-generating power, I think is completely different from last year to this year. In terms of impact on the performance, it will be mitigated. We have been conservative in our outlook. But for instance, we have said that JPY 50 billion for the outlook for the mechanical components. But right now, it's tracking at JPY 55 billion. Initially, we're saying that we'll be able to achieve this level.
That is what we have thought that we'll be able to achieve. Including the negative factors and including some positive impacts from our other businesses, mainly, I think our profit we'll be able to achieve at this level. In terms of the currency situation, maybe we won't have much room to have a profit there. That's the reason why we said JPY 110, and then said that we're not change the initial outlook. Of course, the LED backlight business initially, well, I think the market consensus was that it will sell a lot. Secretly, I was looking forward to that kind of thing happening. Maybe that was a kind of a dream.
[Non-English content] Any other questions? The person in the second row from the front.
Thank you for your explanation. This is Goto from Mizuho Securities. I have three questions. First, the assumption for Forex. JPY 110 to a dollar, and the renminbi assumption has been changed as well. This will have a positive impact, but still, profit projection remains the same. Smartphone-related risks and the game consoles and such uncertainties have been included in the numbers as I understand. Am I right? That is my first question.
First of all, we cannot comment on the situation of a certain customer, and therefore, I cannot comment on the currency situation related to a certain customer. However, your understanding is more or less correct.
My second question is, the Q2 actuals, electronic devices and MITSUMI, you said the timing issues. Is that because of the changes in the production timing on the customer's part, or were there internal factors?
It's basically the customer's circumstances.
Understood. My last question is about the ball bearings. In the equity market, the people think that it will peak out, and how much downside will be there is the concern. What is the ratio of the products that are likely to go down? Having listened to your explanation, probably we don't need to be concerned that much, but if you can quantify the potential downside.
Large bearings and small bearings, people tend to mix them up, but they are totally different. When industrial machines business became sluggish, the bearings shipments didn't decrease because of some applications. Some applications use a huge volume of bearings, which could replace the decline in other areas.
Of course, if the economy deteriorates significantly, it will be another story. As long as the current situation continues, there should be no major declines.
[Non-English content] Yes, the gentleman in the fifth row.
Watanabe from SMBC Nikko Securities. I have two questions. For the ball bearing inventory, is it to normalize that? Conducting, if you look at the gap of the production and order, it talks that you want to reduce the air freight cost to JPY 20 million, if that is adequate. How long would you think you'd take that?
Well, it depends on where you're going to hold the inventory, because you have to observe the market carefully to make that decision. According to our experience, including the high inventory level, let's say maximum three months, maybe it was too high. If the market economy is good, then you'll be able to go down immediately. Since I have started working in this company, I have no experience of disposing of ball bearings in the inventory. Currently, we produce 300 million units per month. If we sell 300 million per month, so it's three months, it'll be 900 million. Maybe that we're holding too much inventory. For two months' worth, maybe we can hold it as inventory. Specifically for automotive and fan motors. Well, the fan motors demand and the productivity improvement reached a peak coincidentally, it was the same timing.
We were able to supply. If we didn't have any inventory, we'll be able to supply, or if we didn't do productivity improvement, we'll be able to give the supply. Because I think basically it would have led to a tight situation in the server market. Our strength is that even if there's a downside, we'll be able to be prepared and respond to that. That has been a source of our competitiveness, specifically for ball bearing, that will be a very important factor in this business. I have always instructed so to the people in charge of ball bearings. If it's a two months' worth of inventory, it means that this one year, there's only about 10 million gap. Even at maximum, maybe it'll take a year to take care of this inventory.
Thank you. The second question is that the bottom line is that as long as there's no massive slowdown, you don't have to have worry.
Yes, correct.
My second question is that in terms of your China plus one strategy, please elaborate. I think your overall concept, including products outside of non-ball bearing. What type of approach are the customers requiring?
I think the most understandable situation is that the U.S. companies, when they are doing the assembly in China, these U.S. companies, basically their products will be imposed of this tariff that we're talking about.
The midterm elections has ended today, what type of foreign policy is going to be in place?
I don't know whether it's going to change or not. If this trend continues, they have to change the location where they produce.
Those type of customers, that is the type of customers that we're talking about. For ball bearings, I don't know whether some people are saying that they produce in Mexico and then ship it out of there. I do not think that if there's a 25% tariff, all of that will come to MinebeaMitsumi. I don't think that all of the ball bearings they will want to buy from us, even with the 25% of tariff. Actually, we have requests to submit these RFQs. From our point of situation is that we will observe the situation, and thankfully, we have some excess capacity when we operate. That is one of our characteristics in Cambodia, that we still have a lot of capacity. If that is the case, we'll be shifting our production there.
I think it'll take about another six months for me to talk more specifically. I think the customers have started to study the situation. They have just started to look at the situation. Thank you.
[Non-English content] Next is the person in the fourth row.
Uchino from Mitsubishi Securities. Thank you for this opportunity. I have two questions. The first one is somewhat related to the previous question. It is about tariff, the U.S. tariff, and MITSUMI business in Q2 and Q3, because of startup of production. Was there any time difference in shipping, shipment? Are you going to review the production site?
MITSUMI business is wide-ranging. MITSUMI's assemblies, there are some products for which the customers have suggested relocation or transfer. It depends on the customer enthusiasm. Level of enthusiasm is different. I cannot speak for all of them. It is rather difficult for me to give you a more specific information. I hope I answered your question. Regarding Q2 and Q3, some of them are quite bulky and voluminous. No particular movement with regards to those products.
Understood. Thank you. My second question is about backlights. I understand this year's trend, and about the demand forecast for next year, if you have any updates.
I don't know if it is appropriate for me to talk about this, but please take this as my personal view. It won't go away. It will not go away. It turns out right every year.
The tone remains the same.
Yes, that is right.
Understood. Thank you.
If you have any questions, please raise your hand. Yes, we have one person.
I am Hirata from UBS Securities. Thank you for your presentation. My first question is that in the backlight electronic devices, you said that there has been some timing differences. In terms of your productivity and yield in the second quarter, how was the situation? Towards the third quarter, what are the outlooks for these areas? If you look at some reports, the backlight is a short of supply. Some media is reporting about that. Can I confirm about that?
Well, I cannot go into detail, but in terms of yield, there is no issue about yield.
MITSUMI's smartphone related business, no issue at all?
Yes, no issue.
My second question is that, so the full year plan for the backlight, so you have upgraded the sales by JPY 10 billion. For the second quarter results, in terms of the sales, it has been over your expectations. The full year plan, increasing that by JPY 10 billion. Meaning that, have you changed your view about the product mix against your initial forecast? Or is it just only the change of prices or more sales of the older model and less sales of the new models? Would you please clarify on that mix?
For the second quarter, the sales was more than we have anticipated for that area. Initially, we were too conservative in our outlook for the second quarter, so the actual results were better than the conservative outlook. For the second quarter end, we have some contribution coming from the new products. That has been one of the factors to the initial guidance from our side, has been too conservative.
In terms of the product mix that you have referred to? I think there are various variations that you can consider, but basically in terms of the product mix that we have anticipated at the initial guidance, we have not changed that dramatically from what we said initially.
My last question, this is rather technical. In terms of the elimination, the first quarter, first half is JPY 6.5 billion. The second quarter, we had this U-Shin acquisitions , and we have some costs allocated for that. It means that JPY 11 billion elimination, if you just subtract that from the second half. Is there anything that you have in view, but is it a risk with the buffer for the smartphones or the game console business?
In the second half, as Mr. Kainuma has been explaining from before, we are going to be proactive in M&A activity.
That will be the assumption, and that is the reason why we are budgeting various expenses. That assumption meaning that this is the usage, not only M&A, that we are looking at. The second half, some environmental related countermeasures, this will be some extraordinary costs that will come up. That will be included in the intercompany elimination for the second half.
If possible, when you're talking about the environment-related countermeasures, what level of cost are you referring to?
In each of the locations, it's not only one location that I'm talking about. The related regulatory authorities, we are discussing various things. We're just in the midst of these discussions, so I cannot mention specifically where and how much. Just to avoid misunderstanding, in terms of magnitude, it's not that large. Just to give you some idea of how large this is.
It's not that big of a magnitude.
[Non-English content]
The person in the front row.
Sato from Morgan Stanley. Thank you very much. I have two questions. The first one is, ball bearings production capacity. At this point in time, it is 300 million pieces per month, but up to 315 million pieces, you can increase production. When is it likely to be? Beyond 315 million pieces, when do you plan to increase production beyond that level?
315 million, that is ongoing. As I said the other time, in order to suppress our investment, the next 100 or 50 million pieces, we have improved the productivity, and we would like to introduce machines at lower prices. The machines that will be installed in the middle of next year onwards. 315 million pieces will become possible from the end of next year till early the beginning of two years later. Beyond that timeframe, I have no ideas yet. Up to 335 million pieces can be produced by the existing plant. 335 million pieces, we can use the current production site. If that is not enough, then we will have to build a new factory. At this point in time, we are not seeing any signs for that.
Thank you very much. My second question is, Mitsumi business, particularly camera actuators in Q2, the new products' actual results. Mitsumi's overall sales will go down in the second half, but starting in Q3, camera actuator sales are likely to increase going forward. What kinds of actual results are you seeing at this point?
First of all, the camera actuators, the situation is, as you pointed out, in Q3, towards Q3, it will increase. We are now working on trying to respond to that. We are enhancing our capabilities. As Kainuma explained, in addition to the North American customers, the Chinese customers we are talking with, we would like to make sure to respond to them. North American, several North American customers, I should say.
Understood Q3 and Q4 seasonalities. What is your view on seasonality?
There are various changes anticipated, but at this point in time, Q3 will be the peak, and in Q4, things will slow down. That is our assumption behind our guidance. Any other questions?
If you have any question, please raise your hand. There are no other questions. We would like to end the business results meeting. Thank you very much for participating today.