Q&A of Financial Results for Second Quarter of the Year Ending March 31, 2012
The following includes questions and answers at the conference for the financial results for Second Quarter of the Year Ending March 31, 2012.
Q. What can you tell us about extraordinary losses and insurance coverage on the damage from the floods in Thailand?
A. At present, facilities are still submerged and we are unable to obtain an accurate damage bill and as a result, extraordinary losses resulting from damage caused by the floods in Thailand have not been included in these forecasts. Thorough survey of the damages will commence once the water has receded. Further, the facilities are covered by insurance therefore we do not expect the impact will be excessive.
Precision Equipment Business
Q. What is the outlook for the market of IC/LCD steppers and scanners?
A. The size of the market for IC and LCD steppers and scanners in 2011 remains unchanged from the forecast though we are expecting the possibility of slight reduction in the IC scanners market for ArF immersion scanners. In 2012, we predict that market for ArF immersion scanners may drop from 110 units to be recorded this year to approximately 70 units due to the eventual controls over capital investment into IC steppers and scanners. However we are working to increase product competitiveness in preparation for when the market recovers. We are forecasting that the market for the LCD steppers and scanners for next year will decrease as the demand for the LCD panels for smartphones will slow down and expect to see a reduction of approximately 40% market size compared to this year.
Q. How are Precision Equipment business earnings?
A. In addition to a significant increase in sales for LCD steppers and scanners, primarily for the production of mid-sized and smaller high-definition panels, unit sales for IC steppers and scanners also increased and we saw a shift in our product mix of ArF immersion scanners towards our more competitive NSR-S620D model. As a result, sales increased by 55% in the first half on a year-over-year basis and operating income returned to positive figures as a result of cost reductions due to the shortening production lead times for IC steppers and scanners and a decrease in sales and administration costs, to gain profit levels on par with the highest records achieved in the past. In terms of unit sales over the year, although the push-out of investment by memory manufacturers and foundries results in a drop of four units in the sale of ArF immersion scanners, total sales of IC/LCD steppers and scanners except for ArF immersion scanner are likely to increase. As a result, sales forecasts for the year remain unchanged at 265 billion yen while an upward adjustment of operating income to 37 billion yen is made adding the increase in operating income over the first half of the year.
Q. What affect will Japan Display K.K. have on the LCD stepper and scanner business?
A. Eventually there is still a lot of uncertainty surrounding the merger, such as how the alliance will be formed and we are still investigating the impact that will have an effect on our LCD stepper and scanner business. In any case, our stance of acquiring as many orders as possible remains unchanged. Even though the three companies will merge to form Japan Display K.K., we do not predict that it will have a particular impact on the products we have already received the orders.
Imaging Products Business
Q. What can you tell us about the digital camera market?
A. With the exception of Japan, which suffered following the earthquake and tsunami in March, the digital SLR camera market in all other regions showed positive growth in the first half in comparison to the same period the previous year while the compact digital camera market posted negative growth in all regions. Despite this environment, Nikon increased its sales of compact digital cameras in Europe and Asia and succeeded in increasing its market share overall. In terms of market size for the year, a drop in supply volumes due to the damage caused by the recent floods in Thailand is expected to result in a downward adjustment of digital SLR camera and interchangeable lenses to 15 million and 25 million units respectively, while compact digital camera sales forecasts remains unchanged at 100 million units. Further, average prices are revealing an end to the downward trend based on local currencies.
Q. What can you tell us about the impact of the floods in Thailand and what measures are you implementing?
A. Nikon (Thailand) Co., Ltd., our production base for digital SLR cameras and interchangeable lenses, suffered damage as a result of the recent floods and has suspended its operations since October 6. In order to recover production as soon as possible and fulfill our supply responsibilities as a manufacturer, we have already started the process of procuring new production equipment and procurement from alternative suppliers as well as production at our own other manufacturing facilities. From December 2011, we will commence production at alternative facilities of the Nikon Group both in Japan and overseas as well as at other partner facilities in Thailand with the aim of resuming the operation and increasing production at Nikon (Thailand) Co., Ltd. from January 2012 and production of digital SLR and interchangeable lenses will return to the normal level by the end of March 2012.
Q. What can you tell us about the Nikon 1 series?
A. Following the launch on October 20, sales have been strong in all regions and at present, our supply cannot keep up with demand. Product assembly for the Nikon 1 series is conducted at our Chinese facilities and as a result, the floods in Thailand have had only a minimal impact. In order to compensate for the drop in sales due to our loss of production of digital SLR cameras, we are increasing our efforts to ensure production and increase sales of the Nikon 1 series.
Q. How are Imaging Products business earnings?
A. Following our rapid recovery from the impact of the Great East Japan Earthquake on March 11, 2011 in the 1Q period, sales have continued to perform strongly in the 2Q period for digital SLR cameras, interchangeable lenses and compact digital cameras. As a result, we posted record sales units across all product categories. Sales showed increase from the same period of the previous year while operating income recorded highest ever for the first half period. Annual sales units are expected to fall due to the restricted supply of digital SLR cameras and interchangeable lenses as an impact of the floods in Thailand. Every possible effort will be made to recover these losses by securing alternative production sites and with the help of strong sales from the newly launched Nikon 1 and compact digital camera sales. As a consequence, we have made a downward adjustment of unit sales for digital SLR cameras and interchangeable lenses and an upward adjustment of unit sales for compact digital cameras in light of the current environment. We have also made a downward adjustment of annual sales and operating income to 65 billion yen and 23 billion yen respectively due to the impact of the recent floods in Thailand and an upward revision of the yen exchange rate by five yen against the dollar and the euro.