Financial Information: Annual Report 2002

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Wheel hub unit bearings are modularized bearings are modularized bearing products for vehicle wheels. NSK has experienced increasing demands from automakers to help them streamline their assembling processes, in addition to helping them produce lighter vehicles and improving vehicle functions. Our response has been to accelerate development of next-generation wheel hub unit bearings from the first generation Hub I bearings to second generation Hub II bearings, and on to the third generation Hub III bearings.
 By manufacturing all types of wheel hub unit bearings and having production bases in Japan, the Americas, Europe and Asia, we aim to be able to satisfy increasing global demand.

In the bearing business, NSK has targeted the following three areas.
 The first major target is rapidly growing China. Our production facilities in China have become major production bases that manufacture commodities as well as procure preprocessed products and parts. We are aiming to further expand these production bases.
 In addition, the bearing market in China is now a ¥300 billion market, with an expected annual growth rate of over 6%. NSK will concentrate on value-added products for electrical appliances, IT equipment and automotive products to expand sales resulting from China's industrialization.
 Another market that NSK has targeted for growth is the automotive bearing market. NSK currently occupies the No.1 market share position. We are seeking to further increase our market share in all four economic zones of Japan, the Americas, Europe, and Asia, by strategically marketing our high technology products, such as wheel hub unit bearings, water pump bearings and bearings for electromagnetic clutches for vehicle air conditioning units. We are expecting growth especially in Europe, where we have received large-scale orders from automakers in Germany and France.
 Our third target is the aftermarket. In particular, we will introduce new roller bearing products for general industrial use, an area where we have not been very aggressive in the past. As our flagship production site for these products, we have launched a restructuring program at our Fujisawa Plant to improve our cost competitiveness.

NSK and The Timken Company, the largest bearing manufacturer in the U.S., have agreed to form a joint venture company that will build a plant in Suzhou, China. Ownership of the joint venture will be equal between NSK and Timken. The new company, Timken-NSK Bearings (Suzhou) Co., Ltd., will build a ¥5 billion plant specializing in the production of tapered roller bearings for truck and passenger vehicle applications. The new plant is scheduled to begin production in spring 2004 and is expected to have an annual production capacity of approximately 15 million sets. This new production base will increase the competitiveness of our tapered roller bearings and enhance our ability to respond to market demands in China and other Asian countries.

The Kunshan Plant began production in 1997. Every year since then, production of bearings for electrical appliances, such as air-conditioning units and vacuum cleaners, has increased as a result of China's rapid economic growth. We are expanding production by utilizing a recently completed second factory, but we anticipate production to reach full capacity in the very near future. In order to meet the increasing demand from the local market and to accommodate transfer of production out of Japan under the 2nd phase of the "NSK Business Restructuring Program," preparations for construction of a third factory have begun. The budget for this third factory has been set at ¥5 billion.