MINEBEA MITSUMI Inc. (6479) Earnings Call Transcript & Summary

As the time has come, I would like to start this meeting. Thank you very much for attending Minebea Mitsumi's Business Results announcement for fiscal year ended March 31, 2024. Let me introduce the participants from our company. From your right, Representative Director, Chairman, CEO, Yoshihisa Kainuma; Director, President, Executive Officer, COO and CFO, Katsuhiko Yoshida; Office of the COO and CFO, Admin and Management and PR and IR Office and Chief, Yusuke Kataoka. Thank you very much. First, Yoshida will give a presentation about our financial results. And after that, Kainuma will talk about our management policy and business strategy. After that, we will have a Q&A session. We are planning to end the session by 7 p.m. In line with the environment policies of Minebea Mitsumi Group, we do not distribute presentation material by paper. Please download the material from the website utilizing the QR code, which is on the top right of our questionnaire sheet. And please respond to our questionnaire. Today, with this meeting, including in the Q&A session, this will be broadcasted live on the Internet. This meeting is recorded, so that it can be viewed on our website afterwards. Please understand this situation. And please refrain from taking photos or recording this meeting, aside from our company personnel. Without further ado, Mr. Yoshida, please, the floor is yours.

This is Yoshida. Today, I would like to explain the consolidated financial results for the fiscal year ended March 31, 2024. Consolidated net sales for the fiscal year ended March 31, 2024, totaled JPY 1,402,127 million, while operating income reached JPY 73,536 million. That is a decline by 24.6%. And profit for the period attributable to owners of the parent has declined by 26.1% to JPY 54,035 million. Net sales hit a record high and increased for 12 consecutive terms. Foreign currency exchange rates are estimated to have a year-over-year impact of the plus JPY 73.3 billion in net sales and plus JPY 8.8 billion in operating income. We may cite retrospective changes to last fiscal year and this fiscal year's financial statements due to the PPA for HONDA TSUSHIN KOGYO and Minebea Connect and Minebea AccessSolutions. Please note that for the full year and the quarterly results for the fiscal year March 2024 are revised. The figures on the following pages are using revised figures. Consolidated net sales for the fourth quarter of the fiscal year March 2024 was up 2.7% year-on-year and down 8.5% quarter-on-quarter of JPY 348,83 million. Operating income was down 35.3% year-on-year and down 17.7% quarter-on-quarter to total JPY 20,342 million. Profit for the period attributable to the owners of the parent decreased by 39.2% year-on-year, an increase by 20.5% quarter-on-quarter to total JPY 18,327 million. We estimate that foreign currency translations have a year-on-year impact of plus JPY 27.5 billion in net sales and plus JPY 4.4 billion in operating income. Quarter-on-quarter impact was minus JPY 3.2 billion in net sales and minus JPY 1.1 billion in operating income. This is the annual trend in net sales, operating income and operating margin. The bar graph on the left is net sales and the one on the right is operating income, along with a line chart for the operating margin. The operating margin for the fiscal year ended March 2024 was 5.2%. This was down 2.3 percentage points year-on-year. This is the quarterly trend in net sales, operating income and operating margin. The operating margin for the fourth quarter was 5.8%. This was down 3.5 percentage points year-on-year and down 0.7 percentage points quarter-on-quarter. On this slide, this is a difference between the forecast as of February and actual results for the net sales and operating income by business segment for the fourth quarter. The net sales of PT exceeded the forecast due to steady sales for automotive and aircraft applications, despite the slow recovery of the data center market. MLS sales exceeded expectations due to motors, mainly HDD motors and motors for automotive applications, but sales of electronic devices well short of the forecast. SE sales was above expectations, mainly in optical devices. AS was below expectations due to segment automobile production in China, Japan and other countries. Operating income for PT was generally in line with the forecast, partly due to the improvement in the mix of products. MLS exceeded the forecast, mainly for HDD motors and motors for automotive applications. SE exceeded the forecast, partly due to the effect of increased sales. AS was lower than expected due to lower sales. Next is the results by segment, starting with Precision Technologies segment. On the left is a graph indicating yearly net sales trends, and on the right is a graph with a bar chart showing yearly operating income trends along with a line chart for operating margins. From the fourth quarter of the fiscal year ending March 31, 2024, the subsegment name has been changed to precision mechanical component from pivot assemblies. Going forward, we will call this PMC. In the fiscal year ended March 2024, net sales were up [ 7.1% ] year-on-year to total JPY 21.14 billion. Sales of ball bearings increased 1.7% year-on-year to reach JPY 14.88 billion. The monthly average bearing sales volume totaled 240 million units. This is a decrease of 9.6% year-on-year. Looking at the sales by applications, we see that sales of products for automotive applications increased, while sales of those used for data centers and home electronics declined. Sales of rod-ends and fasteners were up 28.4% year-on-year to total JPY 45.2 billion. This is a record high level, recovering steadily from the effects of the COVID-19 with fiscal year March 2022 as a bottom. Sales of PMC increased 10% year-on-year to total JPY 17.5 billion. Operating income for the fiscal year March 2024 totaled JPY 38 billion, putting the operating margin at 18%. We saw the operating income decreased 11.4%, and the operating margin declined 3.8 percentage points year-on-year. Looking at the year-on-year results by product, operating income for rod-ends and fasteners rose, while operating income for ball bearings declined in PMC as well. For fiscal year ending March 2025, sales of ball bearings, automotive will continue to be strong, and demand for data centers is expected to recover from the second half and sales will increase. In our aircraft-related business, including rod-ends and fasteners, we expect aircraft production rates to exceed pre-COVID levels in the second half of the year, and we expect to achieve record results. For PMC, we also expect recovery of demand in this fiscal year following the third quarter of 2024. Next is the slide, the year quarterly trends. Fourth quarter net sales increased 7.7% quarter-on-quarter to total JPY 58.1 billion. Sales of ball bearings increased 2.9% quarter-on-quarter to total JPY 39.2 billion. The monthly external shipment volume was down 4.1% quarter-on-quarter for an average of 210 million units. This was due to the slowdown in the market, mainly for data centers, although the market recovery and content growth trend for automotive remained unchanged. Sales of rod-ends and fasteners totaling JPY 13.9 billion were up 21.1% over the previous quarter. Sales of PMC increased 14.9% quarter-on-quarter to total JPY 5 billion. Operating income for the quarter totaled JPY 11 billion and operating margin was 18.9%. On a quarter-on-quarter basis, operating income increased 12.2% and operating margin rose 0.7 percentage points. Looking at the results by product quarter-on-quarter, we see the operating income for ball bearings, rod-end and fasteners and PMC increased. Now let's look at the motor, lighting and sensing segment. Sales increased 0.8% quarter-on-quarter to total JPY 369.4 billion. Looking at the results by product, we see the sales of motors increased 2.7% quarter-on-quarter to reach JPY 280.2 billion. This is mainly due to solid sales, particularly of motors for automotive applications. Sales of electronic devices were down 4.4% from the previous quarter to total JPY 49.3 billion. Sales of sensing device totaling JPY 35.7 billion were down 4.7% from the previous quarter. Operating income was JPY 11.9 billion, with an operating margin of 3.2%. Compared to the previous fiscal year, operating income was 12.9x higher, and operating margin increased 2.9 percentage points. In the fiscal year ending March 31, 2025, we expect an increase in both sales and operating income due to steady sales of motors for automotive applications, a recovery trend in motors for HDDs and improved product mix. For electronic devices, we expect a decrease in sales and increase in profit. For sensing devices, we expect an increase in sales and decrease in profit. This slide shows the quarterly trends. Net sales increased 5.6% quarter on quarter to JPY 97 billion. Looking at the results by product, sales of motors increased 8.1% quarter-on-quarter to reach JPY 75.2 billion. This is mainly due to strong sales of motors for automotive applications and an increase in motors for HDDs. Sales of electronic devices were down 13.6% from the previous quarter to JPY 10.9 billion. Sales of sensing devices were up 3% from the previous quarter to JPY 9.2 billion. Operating income came to JPY 3.6 billion, and the operating margin was 3.7%. On a quarter-on quarter basis, operating income increased 27%. Operating margin dropped 0.6 percentage points. Let's look at the performance for semiconductors and electronics segment in the fiscal year ended March 2024. Net sales decreased 6.7% year-on-year to total JPY 494.7 billion. This is due to lower sales in semiconductors and mechanical components, despite higher sales in optical devices. Operating income came to JPY 35.5 billion and the operating margin was 7.2%. These figures represent a 14.9% year-on-year decrease in operating income, 0.7 percentage points year-on-year decrease in the operating margin. In the fiscal year ending March 2025, includes the results of Minebea Power Semiconductor Devices, former Hitachi Power Semiconductor Devices, which became a consolidated subsidiary as of May 2, 2024. This slide shows a quarterly trend. Net sales decreased 25.3% quarter-on-quarter to total JPY 109.5 billion. This was due to decreased revenue caused by seasonality of optical devices and mechanical components, et cetera. Operating income total JPY 9.5 billion. While the op margin was 8.7%, operating income decreased 25.5%, and the op margin remained flat quarter-on-quarter. Finally, let's look at access solutions segment. Net sales increased 65.4% year on year to total JPY 322.1 billion in the fiscal year ended March 2024. This is due to a recovery in sales to the automotive industry and in vehicle devices, in addition to the performance of Minebea AccessSolutions, which became our consolidated subsidiary as of January 27, 2023. Operating income came to JPY 10.6 billion, and the op margin was 3.3%. These figures represent a 45.2% year-on-year decrease in operating income and 6.6 percentage points year-on-year decrease in the operating margin. In the fiscal year ending March 2025, we expect an increase in sales and operating income due to impact of market recovery and business integration. This slide shows quarterly trends of access solutions. Net sales decreased 5.5% quarter-on-quarter to total JPY 83 billion. This was mainly due to temporary adjustments in automobile production in China, Japan and others. Operating income came to JPY 2.3 billion, and the op margin was 2.7%. Operating income decreased 64.5%, and the op margin for 4.6 percentage points quarter-on-quarter. This was mainly due to a decrease in profits resulting from lower revenues. The bar graph here shows the trends in profit attributable to owners of parent, while the line graph charts are changes in the profit for the period per share. The profit for period was JPY 54 billion and earnings for the period per share was JPY 133.1. Likewise, the bar graph here shows trends in quarterly profit attributed to owners of the parent, while the line graph charts changes in the profit for the period per share. The profit for the period was JPY 18.3 billion, and earnings per share was JPY 45.3. And next, we have quarterly inventory trend. At the end of the fourth quarter, inventory totaled JPY 294.9 billion, which is JPY 5.6 billion less than what it was 3 months ago. This graph contains a bar chart showing trends in net interest-bearing debt, which is total interest bearing debt, minus cash and cash equivalents on the line charts indicating free cash flow. At the end of Q4, net interest-bearing debt totaling JPY 208.6 billion was JPY 6.9 billion from what it was at the end of the previous fiscal year. Although operating cash flow is expected to increase at the end of the fiscal year ending March 2025, the company expects to make expenditures mainly M&A related expenditure expenses for Minebea Power Devices and the like. This is a summary of the forecasts for the fiscal year ending March 2025. We expect to reach new record highs in both sales and operating income. Net sales are expected to increase in each segment to JPY 1.5 trillion due to improved inventory levels in the end market. Similarly, operating income is expected to increase due to the effect of increased sales and continued cost reduction activities in each segment, as well as anticipated market recovery toward the second half of the year. The exchange rate is assumed to be JPY 140 to a U.S. dollar. This slide shows the forecasts by business segment. This is all for my part of the presentation.

Next, Chairman Kainuma, please?

So, I would like to talk about the management policy and business strategy. So, this is a busy slide, but I hope I would just read this through. There's some bright news. From January, in various areas, the inventory consumption has been ended. And for the high value-added products, it has started to recover and started to push up the revenue. And I really did not understand. I just focused on where the numbers went down. For instance, data centers, it was bad. The fan motors were not selling well. The ball bearings were going down. I think, basically, I was looking at those type of news. But if you look at the current situation, the sales volume is going up. The high added value products has started to recover. In hindsight, the high added value customers products inventory reduction has been going forward. I think that is the only way I can understand this situation. And the average unit price has started to go up. So, JPY 70 billion is our assumption. And in our last fiscal year, we have to -- kind of made a downward revision twice. But as a result we have been able to achieve 73.5%, which is 5% up from JPY 70 billion. The reason is that the product mix has improved more than we have expected. So in the domain of others, I think we have seen a recovery and in others, it's a lot of varieties, small lots and high added value. Due to this situation -- I think this is the most understandable way to explain the situation. And under the topics is the Hitachi Power Device. We have that topic. And in AccessSolutions, JPY 10 billion, we have committed to that and it was JPY 10.6 billion, was it? We have been able to achieve that, and I think that's good news. So for this fiscal year, as you can see here, so JPY 100 billion of operating profit. So, we are talking about whether it will be JPY 105 billion, JPY 103 billion. I was wondering, which number we should be. But in terms of the message, we should be conservative at JPY 100 billion. I hope that you will understand this number this way. So in terms of the exchange rate, JPY 140 is our assumption. And I have just said, the product mix has started to change. This means that this is just the first news that I have received from April. Operating profit is about JPY 7 billion. So, JPY 7.8 billion was our assumption. I won't say that it's double our assumption, but it has been better than our expectations by a large margin. So PT, in terms of [ JPY 4.4 billion ], multiply by 3, so JPY 13.2 billion, would it be? I think that the aircraft and those -- so the high end bearing -- ball bearings has started to recover. So, I think as they started the fiscal year, I think it has been a long time since I have been able to talk in front of you with a kind of a good projection. So in this first quarter, I think basically, I was just looking at JPY 6.9 billion. So maybe I was a bit pessimistic. I was just wondering what we're going to do for the second half, for the last year. But for this fiscal year, the start is much, much better than I have expected. So, I'm a bit relieved. In terms of the headcount, 6,000, this is the automation project and other labor-saving initiatives have been taken. So compared to 2 years ago, end of March and compared to the end of March this year, if we compare this year-over-year. In terms of the temporary staff, including the temporary headcount and including the regular headcount, so we have -- the headcount has been reduced by 8,173. This year, we're trying to reduce another 5,000. I think this will be another driver for our revenue. So looking at this slide, I think this wasn't received very positively, but I think this is very clear. So, you have these numbers plus JPY 11 billion, JPY 10.1 billion, JPY 6.4 billion, et cetera. So what this means is that -- so, I mean, there was JPY 77 billion. If the situation has started to recover, this would be the level of profit that we'll be able to achieve. So, this is an image and apparently this. So if we look at PT, JPY 13 to JPY 17 billion. So, that has been the range that we are assuming that the recovery would look like. So this year, under this conservative plan, if you just break it down, so it will be this bold color number. So precision, JPY 11 billion, motor, lighting and sensing, JPY 10 billion plus. So, there will be an improvement of JPY 26.5 billion. So if you look at this on the left-hand side, on black, so it's a bit light color. But for instance, if you look at PT, recovery -- is a range of the recovery JPY 13 billion, JPY 17 billion, but you're talking about JPY 11 billion meaning that the recovery is not as strong as you expected. That's true in terms of volume, has not recovered fully. I think I'll talk about it later in the data centers and all of other domains is going to recover. We're going to be able to resolve the fixed cost, meaning that the numbers within the parentheses will be able to achieve. So this is not a full recovery. Maybe a moderate recovery. Going to motors. This fiscal year, JPY 25 billion, the operating profit, it will be the target. So the JPY 9 billion to JPY 11 billion probably -- this is included in that. So meaning that for motors, it has basically recovered in full. So, see, the range is JPY 7 to JPY 9 billion in terms of the actual ball bearing recovery is JPY 2.6 billion. In terms of the full fledged recovery, it is still in the midst, so at semiconductors mainly. In semiconductors, this is where we have to really focus on. So to AccessSolutions. So between JPY 9 billion to JPY 11 billion was what we have assumed for the recovery. But -- so JPY 17 billion is the target, so maybe you will say then, oh, isn't it JPY 20 billion? But one is that we are conservative and the Chinese market seems to be mainly in EV is not strong right now. So, we decided that our outlook should be rather conservative. So, that's the reason why we are showing these numbers. So not as high as JPY 9 billion. I think this is the way you should interpret these numbers, so for the 11 years in a row. In terms of the sales, we have been able to see a net level high sales, JPY 2.5 trillion on March 29. I think, basically, we are on track to achieve these numbers because this will be mentioned later in the mid-term business plan. We have revised it in a conservative manner. So if you look at this trend to achieve JPY 2 trillion with business -- basically, we'll be able to achieve that as business as usual. So if we have a Mitsumi level M&A as some term, so I think we'll be able to do [ JPY 2.2 trillion ]. I think the issue is the JPY 250 billion operating profit. Well, we're going to make the semiconductor business as a second sphere. So by expanding, we are going to focus on expanding the high-margin products. So, this is the revised figure and mid-term business plan. In terms of PT, I think we have already mentioned this. So, I will not repeat. In terms of ball screws, I would like to refer to that later. For the aircraft business, the supply chain situation has started to be solved. And in terms of the profitability, it will improve going forward. In terms of the data centers -- so as appendix in terms of liquid cooling solutions, what was the impact on the fan motors? We have our view about that. But, for instance, with the data center -- fans or data centers like we produce and the spindle motors or data centers, in terms of the increase of that, if you look at the trend, basically, it's in parallel. That's what it seems to be. So, our interpretation is that going forward we're going to see a recovery. But in terms of the --- we think that -- at least we have seen a bottoming out of the situation. So from TSUBAKI NAKASHIMA, we have acquired the ball screw and other business. We had decided to acquire this by December of this fiscal year. We want to be prepared for the coming robotics era. Motors, grippers, connectors, semiconductors, these motors -- these should be integrated and one of the components is ball screws and ball ways. So, my challenge is that in the PT business, how I'm going to grow this business? So, we have been focusing on the electronic component or the business or equipment business, but the PT was left behind. But at PMC, this is going to grow, which I will refer to later. And ball screws -- these type of products will be an add on to the profit of PT going forward. And that's my view. And I think taking this initiative will nurture and grow our PT business, which is a cash cow. So for the TSUBAKI NAKASHIMA business, it's small in size, but for the ultra precision process technology that we have, we can utilize that in this business. For the motor business, excluding some areas, overall, we have started to see a recovery. For the industrial machinery, this is not related to our motors and for instance, our textiles. There's still some recovery that has to be happening. But overall, the motor business has recovered specifically for spindle motors. The high end spindle motors has started to recover. From our point of view, motors will be able to achieve JPY 25 billion. When I became president -- so for 20 years, it was a minus JPY 3 billion loss-making business. Every year this was the kind of business this was, but JPY 25 billion operating profit would be the target for the motor business and we would like to achieve this. So, why are we able to do this? This is shown in this diagram. So 10 years ago, there were some motors that did not exist, but we have been able to enter these areas like HVAC actuators. That is about -- more than 60% of market share we already have. We already have some orders already. I think, basically, this is a given and actuator for valves, active grill shutters. 10 years ago, we did not have these type of products, but we have developed these products and we have been able to get a certain level of share and get into the market. That has led to the results of the current motor business. Going to the semiconductors and electronics business. So the second plant of Cebu plant is going to start up in earnest. We're going to secure the profit, and grow the semiconductors. And this is going to be talked about under next page and onwards. So Minebea Power Device, which used to be Hitachi Power Device. So, what can be realized through a business integration? I might have touched upon this several times in the past, but the model processes and the post processes, but IGBT side-gate. This has a special design and SiC. So, side-gate IGBT performance is expected to be very close to that of SiC, if not exactly the same. And the various customers are giving us inquiries and we are in the process of developing. So, this is, in my view, the biggest difference. As such, as you can see on the right-hand side, automotive is one thing, but the middle power and high power, power source, we have a power supply business which is a weak power. Using our chips and modules, we can work on them. And what we have not been able to do for some time, high-voltage motor, which is used in home appliances and the like, the former Hitachi motor driver people joined us this time around and we can enjoy the benefits of integration. So, I heard. So, we would like to capitalize on the integration. The problem here is the sale -- the operating income being too low. So, a full-year amount is about JPY 4 billion, which I'm sure has been already explained to you. So, operating income has been around JPY 4 billion and the revenue is around JPY 40 billion. And you can easily calculate op margin. So the op margin is very low, and we must increase that as soon as we can. And this month, the offsite meeting, our management and their management will have offsite meeting, spending a few days. And we must make sure that we make the first step right. Because if we make a wrong step, like instead of north, we must go the west, this is an analogy, but we must make sure that we put forward the first step in the right direction. And TSUBAKI NAKASHIMA is also having an offsite in June. So, we must step forward in the right direction in order to solve the problems. 8 spears analog. The integration is done, and it has surpassed motor and now it's #2. And the mortar people seem to be disappointed. But now they are ready to fight back. And JPY 2.5 trillion is now visible. But JPY 250 billion is not yet visible. So, we must focus on earnings, high margin. Access solutions has achieved JPY 10 billion. And therefore, this time, we are taking a conservative view. And that is because the Chinese market requires a special attention. We can never be complacent with regards to the Chinese market. And there must be lots of back orders. But looking at the OEM situations, it may not be so big. The back orders may not be that big. So, we are taking a conservative view in our forecast. Now, integration. The various integration products, how they are? This is for your reference to look at later on. So, 2 pages explain that. And there are various challenges that have been taken up and some of them cannot be written here. And the bath sensors, we are now making pretty good ones. So, 3 pillars we say, organic, like GDP. When GDP grows, then the high-quality parts will be selling and M&A. And the third one is solving social issues. So with these products, we would like to solve social issues. This was reported in today's newspaper. We are constructing a second plant in Cambodia, 500,000 square meters. The current one is 200,000 square meters. So the new one will take 2.5x a bigger site that we have purchased the land. What we plan to do there is to respond to the expansion of PMC products or PMA products. And PMC is taking lots of others like Tier 1 customers' requirements. Nozzles for fuel pumps and turboshafts. Such inquiries and orders that we are receiving, in Thailand, they cannot respond to such requests. And in Thailand, we are already having space issue and overflow products from Thailand are now being manufactured in the plant #3 in Cambodia. So, we need a second plant in Cambodia. Pursat in Cambodia, it has a very well prepared carbon-free infrastructure. So, we thought this would be a good choice. It's about 2.5 hours drive from Ho Chi Minh City. So the distance is similar to between Bangkok roughly. And machined products, we can handle there and redundancy. When we received a smartphone orders, the Sony, we purchased a plant -- a television set, a plant from Sony. And there was an inquiry and nobody was able to respond to that inquiry. But we were able to, because we had already purchased a plant. So the quick response is one of our strengths. And we are always thinking about redundancy. Why Cambodia? First of all, the government is investor-friendly. And as I said, the Cambodia is proactively working on carbon-neutral power sources in Pursat. And the biomass company, which is going to be a joint venture with Japanese player will be established. And also there is a very limited ForEx risk against the dollars. And in order to fulfill the social responsibility, we are seriously working on the carbon neutrality. Cambodia, as you are aware, we are spending JPY 6 billion to construct a large-scale power generation facility in Pursat. And in Thailand, 150 megawatts. It's not triple size, but it's quite huge solar farm -- solar panel farm, we are to construct. Thailand consumes 45% of the total electricity our entire group consumes and renewable energy will be able to cover 33% of energy consumed by Bang Pa-in roughly and 12.5% of the entire energy consumed by group. And Cambodia and Thailand combined a JPY 23 billion investment that we will be making. And at the AGM, we will be changing articles of incorporation and include renewable energy business in the purpose of our business. So, this is about dividend payout. I previously said that we are taking a conservative view. But if it reaches and exceeds JPY 100 billion, we will, of course, think about dividend hike. I am not to explain about this. But don't I have appendix? Yes, yes. Fortunately, thanks to your guidance, for 15 years, the March 31 of this year, I have been able to fulfill the responsibility for this company. And I would like to briefly explain about the history of past 15 years. I have put together such history, and I would like you to read it during your leisure time. And M&A, I looked back. So the JPY 610 billion is the total revenue of those companies we bought -- at the time we bought them, but now it's JPY 800 billion and excluding this, it's organic. And JPY 49 billion is the recent operating profit total. And the share price. So looking at the 15 years, we can see good performance. On data center, the cooling method I would like you to read later on. So, this concludes my presentation. Thank you for listening.

Let's go into the Q&A session. We received the questions limited to institutional investors and analysts. Before you ask your question, please state your name and your company name. Please raise your hand, and we will bring a microphone to you. So on the very front row, please.

Takayama from Goldman Sachs. I have 2 questions. So in terms of this year's forecast, when you look at conservative, the SE -- semiconductor, electronics, it was a bit lower than expectations. I would like to look into the contents, Hitachi Power, the sales and profit, how much this will be reflected? On the other hand, for the existing actuator, or the semiconductor business or the mechanical structures, how this will be reflected on a year-over-year basis? Can you refer to that?

In terms of the semiconductor business, so the existing Mitsumi semiconductor, ABLIC, so the profit level year-over=year will be flat. That is our assumption. On top, based on this, power device, on the 1st of May has been integrated. The 11 months worth will be reflected. And as Mr. Kainuma has said, for net sales, [ 90% ] of profit will be reflected. So, that will be, first of all, in terms of semiconductor, that is how it will look like. In terms of the optical devices, last year's profit compared to 2 years ago, the profit has gone down considerably. The major reason behind this, is in the first quarter -- the previous year's first quarter, the former model went down, and there has been a lot of loss coming from that. So, we think we'll be able to recover to the current market share, and we have adjusted that for the full year of August. So year-over-year, it's a JPY 2 billion positive coming from that initiative. That's for the optical devices. With the mechanical components, that's basically the same as the previous year. And as a result JPY 35.4 billion was last year. This year plan is JPY 38 billion. That is how the numbers will look like. And that is our forecast. Excuse me. For the semiconductors or the mechanical components profit flat year-over-year, the optical devices increased. If you look -- if you for power, maybe some areas will be seeing a decline or else. So, I will not add up. In terms of the decrease in profit, maybe slightly switches and switches. There are new models. And we are not assuming that this will not be sold. So, that will be one of the elements for declining profit. Switches. So the optical devices, nothing is happening. And semiconductors, although moderately is going to bottom out. In terms of the sales, it's going to recover slightly. But the CapEx, we are conducting CapEx and fixed cost level has gone up. So in terms of the profitability, it's a bit tough. But in terms of absolute value of profit, it will be the same as last year. And the power device will be added on.

Understood. And my second question is, Mr. Kainuma, you have talked about high added value, profitable products that was not visible but has started to be more apparent. So as a product, can you be more specific? Is it SCD, automotive? I think this has various high added value products. But what would be the biggest contributor and for this fiscal year? What will continue to -- or do you expect to continue to contribute? So the data centers, fans, which are in the adjustment phase, I think the assumption is that they will start to recover. But at this -- do you have any view in terms of what timing this will be talked about the second half? And you do meet with a lot of people. Do you have more specific ideas of when this is going to recover? Or have you started to see signs of recovery?

Well, the second part of your question, I think, Mr. Yoshida will answer, but I would like to answer to the first part of your question. So as a category, others would be a major driver. So across the board to the medical areas, they have been conducting inventory adjustment and some areas, they didn't have money during COVID pandemic. But we have gone through COVID pandemic and they were able to get the budget and started to buy. I think there's a lot of stories behind this, but there's no specific thing that jumps out. So across the board, gradually, these type of sales are increasing. For the automotive business, we are doing strong, although slightly. It is continuing to grow. So this, across the board evenly, the product mix improvement has been seen. Of course, I'm not saying that there's no impact coming from the foreign exchange rate, but that is one element as well. In terms of the data centers -- so currently, the data center related demand, so AI servers and the kind of general purpose servers, I don't know how to categorize these. But in terms of the AI servers, the type of products that we sell, whether it be fans or ball bearings, we have started to see recovery at a certain acceleration. But whether it be servers or the data centers overall, whether this is driving the whole demand in this market, it's not always the case. When this starts to be covered in earnest -- well, I think in terms of the overarching trend, the data center market overall in the future because -- so maybe the language model will become a kind of a video model. So, maybe the non-purpose service may be recovered. But in this fiscal year, it is not the case that we are reflecting those large numbers. But for the general surface, in terms of the recovery, it won't be that large. But the so-called data centers investment has been very harsh and inventory correction has ended. In terms of the recovery in demand, or should I say, I think, basically the demand has come back to the level to the real demand out in the market. In the second half of this year, we have reflected that type of anticipation. So in terms of the outlook for the ball bearings, this will be more, not in this fiscal year or going into next fiscal year. If this -- we are hoping that we're going to see a [ proposed ] recovery for ball bearings in this area for next fiscal year.

So if you look at -- can you show Page 54? So, this is down under appendix. So on the lower right -- so AI servers, how much is this going to push up the overall market? So this, I'm showing you the image. According to our analysis or surveys going forward, the user activity utilizing AI will become more active and the data centers servers -- volume for the data centers for AIs is going to be covered. So if you don't have AI, CAGR will be only 5%. If we have AI, it will be 16.5%. That's what we are talking about. So in this sense -- so the dotted line shows that it's kind of a linear growth. But I think basically it will look like it would be flattish for the time being. But ultimately, we're going to see a growth of 16.5%. I think that's the growth rate that we will be looking at. That's our view.

Any questions? So the person near the aisle.

Sato from Morgan Stanley. Let me confirm the numbers, please. Ball bearings January to March, external and internal sales as well as production and April to June plan, if you can share with us the figures?

So, January to March production and the unit would be million units, 262, 245, 266. External sales, 214, 203, 212. Internal sales, 39, 38, 44, January to March. Next, the quarter 1 onwards from April, production 245, 268, 263. Sales, external sales, April 217, May 217, June 224. And internal, 46, 46, 45. And Q1 external sales average 218. Q2, 233; Q3, 257, and Q4, 259. Internal; Q1, 46; Q2, 47; Q3, 48; Q4, 50. Accordingly, production, Q1 average 259; Q2, 280; Q3, 298; Q4, 316.

My second question is SE. Optical devices, Page 34. This second plant in Cebu, the super wide angle. So, you will not take up periscope, but only a work on the existing products. Am I right in understanding it that way?

Yes. That is correct.

And also another question about SE. The mechanical products, the sales, when do you think sales will recover in a full fledged manner and start increasing?

Well, it has to do with our customers and it's rather difficult for us to share such information with you. But in terms of our guidance, our production plan, from Q3, the revenue is likely to increase gradually.