Minebea Co. Ltd. (Japan; TSE:6479) reported financial results for first quarter 2009, ended June 30, 2008.

In the wake of unexpectedly disappointing results, Minebea saw its share price plummet 16%, the most in 33 years. Goldman Sachs also cut its rating on Minebea from "buy" to "neutral," exacerbating the slide.

So far in 2008, Minebea shares are down 33% while Tokyo's benchmark Topix index is down 14%.

Minebea is an industrial manufacturing and distribution conglomerate, made up of 47 companies operating in two business units -- Machined Components and Electronic Devices and Components.

Sales in the first quarter were ¥74 billion (USD $693 million), down 9.5% from 2007's ¥82 billion ($769 million).

Operating income dropped 29%, to ¥5.1 billion ($48 million), from 2007's ¥7.1 billion ($66.7 million).

Net income for the quarter fell to just ¥2.6 billion ($24.3 million), or 3.5% of sales, down 16% from 2007's ¥3.1 billion ($29 million), or 3.8% of sales.

Capex continues to trail depreciation and amortization, often a signal that management is being overly cautious about the company's prospects. In first quarter, capex was ¥5.9 billion, against D&A of ¥6.3 billion.

Minebea said first quarter saw slowing and uncertainty in the Japanese, U.S., and European markets, while Asian market growth was led by China's continued demand for capacity, capex, and stronger exports.

But primarily, Minebea said the strong yen, weak dollar, and "soaring" raw material prices added up to the company's inability to adjust fast enough to keep pace with external circumstances. Net income was also hit by a ¥374 million retirement plan transaction.

We will focus on the Machined Components Business, where bearing manufacturing and sales operations are contained. Ball bearings are the division's primary product, but it also includes rod end bearings for aircraft and aerospace, and pivot assemblies for hard disk drives. The business also produces screws for automotive, aerospace, and defense-related devices and equipment.

Minebea's bearing manufacturing operations are Minebea Co. Ltd., New Hampshire Ball Bearings Inc., NMB-Minebea UK Ltd., NMB Singapore Ltd., Pelmec Industries Ltd., NMB Thai Ltd., Pelmec Thai Ltd., NMB Hi-Tech Bearings Ltd., and Minebea Electronics & Hi-Tech Components Ltd.

Ball bearings and rod end bearing sales were "good," but sales were hurt by the strong yen.

U.S.-manufactured ball bearings and rod end bearings, sold in North America, reported down results primarily due to currency effects translating to the strong yen and weaker dollar -- although the business itself remains strong.

European market sales of ball bearings and rod end bearings stayed firm, even as the economy there slowed moderately.

Worldwide ball bearing sales were ¥17.7 billion ($166 million), from ¥19.1 billion ($179 million) in first quarter 2008; rod end sales were ¥5.0 billion ($47 million), from ¥5.2 billion ($49 million); pivot assemblies were ¥6.5 billion ($61 million) from ¥6.6 billion ($62 million).

Added together, those total bearing and bearing-related product sales were "below plan," slipping 7% to ¥29.3 billion in the first quarter from ¥31 billion in first quarter 2008. Again, Minebea pointed out the decline was primarily due to the decline of the U.S. dollar against the Thai baht and China's renminbi.

In terms of absolute volume, Minebea shipped approximately 125 million ball bearings per month in the first quarter of 2009. In the second quarter, the company said monthly shipments may dip to 120 million bearings per month, due almost entirely to expected seasonality. But internal demand for bearings going into hard disk drive pivot assemblies will be up due to seasonality, for a net increase in overall shipments.

By business segment within the entire corporation, bearings and related components were 40% of sales. Rotary components such as motors were 33%, other electronic devices 22%, and other mechanical components 5%.

Buried in the conference call was an important development which will impact future sourcing decisions -- Minebea's wage rates in China have increased 10% in real terms over the past year.

The company said its exposure to the auto industry is minimal, as most ball bearings find their way into consumer electronics, such as fan motors, office equipment and personal computers. Sales of these devices are generally up, signaling sales increases for ball bearings into the second quarter.

Price increases are also on the way for ball bearings, and price adjustment negotiations with customers started in July. The company said it will take until second quarter for the effect to show on its bottom line, and until third quarter for the full impact.

Rod end bearing have seen Minebea use a combination of absorbing some cost increases internally and passing on some in higher prices. That approach will probably continue.

Overall, the impact of the strong yen and weak U.S. dollar has been very strong. A year ago, in first quarter 2008, a dollar was worth ¥119.85 on the company's financials; this past quarter, a dollar was worth only ¥103.36.

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