Nidec Posts Record First Quarter Profit Jump,prepares for control of Sankyo

Nidec Corp. (Japan), the world's largest manufacturer of fluid dynamic bearing disk drive motors, posted a record ninefold increase in quarterly profits and announced plans to acquire a controlling share of loss-riddled competitor, Sankyo Seiki Manufacturing Corp. (Japan). Nidec has an 80% market share in hydrodynamic bearing disk drive motors, manufacturing fluid dynamic bearings for its precision motors at four plants in Thailand, one in Singapore, two in the Philippines and two in China. Nidec motors are also used in DVD and CD-ROM drives. In addition, Nidec produces ultra-high-precision bearings and pivot assemblies that support and control the arm of the read/write head in hard disk drives. Nidec's pivot assemblies are developed and produced in Singapore. First quarter 2003 (period ended June 30, 2003) sales were ¥75.1 billion, up 2% from ¥73.6 billion in 2002. Nidec pointed out this happened even as the yen appreciated against the dollar by 7%. Sales of small precision motors fell by 6.5% to ¥39.7 million, primarily due to continuing weakness in fan motors for gaming systems. Operating income hit ¥6.5 billion, up 25% from ¥5.2 billion in first quarter 2002, with net margins averaging 8.7%, up from 7.1% in 2002. Operating income from small precision motors fell during the quarter, but Nidec blamed a large part of that fall on startup costs related to new plants being built in China. Recurring income, however, was up almost 300%, to ¥6.3 billion in the quarter from ¥1.6 billion in first quarter 2002. • article: Nidec expands fluid dynamic bearing motor production to China Net income was the star, however, jumping a record 811.5% to ¥3.5 billion from ¥0.4 billion a year ago. Nidec said a 30% jump in sales for DC motors was income attributed to stronger-than-expected worldwide demand from makers of DVD players and personal computer disk drives. Nidec also recorded a rise in inventory due to the SARS epidemic. Inventories were accumulated well in excess of standard practice, to protect against the possibility Nidec's vendors might be shut down unexpectedly. Sankyo acquisition Separately, Nidec and Sankyo Seiki Manufacturing Corp. have reached an agreement whereby Nidec becomes a 39.8% owner of Sankyo, bailing it out with a $104 million cash infusion. Sankyo has a number of promising technologies in areas where Nidec has some weakness, and Sankyo has already made considerable development progress on hard disk drive fluid dynamic bearing motors. Although Nidec has a commanding share of its current markets, Sankyo has the lead in developing even smaller fluid dynamic bearing motors such as used in the next generation of super-small 1.8" disk drives and other portable computing devices. Costs in Sankyo's programs are increasing faster than the company can pay for them. Sankyo lost $70.5 million in the fiscal year just ended March 31, 2003. Sankyo will issue 57.8 million new shares October 1, 2003, which Nidec will purchase for approximately USD $104 million. Under the Nidec umbrella, Nidec will take responsibility for better organizing and managing Sankyo. Sankyo will use the cash to rebuild its finances and help jump start development and production of those very small high precision FDB motors. In a joint statement, the companies said, "As a member of the Nidec Group, Sankyo will pursue synergies with Nidec and its group companies in various areas starting with the FDB motor business, and will concentrate its management resources on areas in which Sankyo and Nidec have comparative advantages." They went on to say, "Nidec highly values Sankyo's technologies, which it expects will enhance Japan's international competitiveness when proactively utilized under the umbrella of Nidec Group for the development and exploitation of new products and businesses."