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Financial Information:
Annual Report 2004
Bearings
Michio Hara
Head of Industrial Machinery Bearings Division - Headquarters |
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Sales of Bearings
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1. Business Overview
Products
Bearings are NSK’s core business, accounting for approximately
60% of total sales. A comprehensive bearing manufacturer supplying
various types of bearings, we are a global leader in automotive
bearings, such as hub unit bearings and needle roller bearings, as
well as standard ball bearings and precision bearings. We have a
well-balanced customer base, with this division’s total sales split
almost evenly between the automotive industry and the general
industrial sector. Our goal continues to be to meet the needs and
requirements of our customers in each industry.
Superior Ability to Differentiate
NSK’s strengths are grounded on superior technology and production
capacity for automotive bearings. We also have the
advantage of being able to develop high-value-added products
such as hub unit bearings in close collaboration with automakers.
This not only stabilizes prices over the medium term but also
leads to combined orders for automotive components and commodity
bearings. NSK is building a global production, sales, and
R&D system capable of meeting the needs of automakers, who
are promoting local production in countries such as China. In
addition, we have accumulated over many years the tribology
(friction control technology), material engineering, analysis, and
mechatronics technologies capable of meeting the highly diverse
needs of the general industrial bearing market.
Global Positioning
NSK is the largest bearing maker in Japan and among the largest
in the world. We have an overwhelming 26% share of the global
market for standard ball bearings and a 17% share in automotive
bearings, making us a top global player alongside AB SKF and
The Timken Company. We have secured about 30% of the
Japanese market for general industrial bearings. On a global level,
however, our share of the general industrial bearing market is still
low, at approximately 6%. This is because the Japanese market,
our home market, for this product segment remains relatively small
in scale.
2. Business Environment and Strategy
Business Environment
In Japan, economic recovery is leading to a marked improvement
in the business environment. Machinery orders, a leading indicator
of capital expenditures, had been on a downward trend for the
past few years, falling 12.6% year-on-year in fiscal 2001 and
3.7% in fiscal 2002. However, machinery orders are showing
signs of recovery, rising 8.2% year-on-year in fiscal 2003. Capital
expenditures in Japan have also started to pick up momentum
following the emergence of the new digital home appliance industry,
where Japan currently has international predominance, and
the strong economic growth in China and other Asian markets.
The bearing industry is currently enjoying a very favorable business
environment. Past experience shows that strong machinery
order statistics have a direct positive correlation to demand for
bearings, and this is true in the current environment as well.
NSK’s bearing production in Japan is currently at historically high
levels.
| Sales by Industry |
Sales by Region
(Sales are recognized by customers’ location) |
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Business Strategy
In fiscal 2003, we not only took advantage of the favorable business
environment but also laid the groundwork for reinforcing
growth and profitability over the medium to long term. We
strengthened production and sales of automotive bearings in
China, and we took measures aimed at expanding sales of general
industrial bearings to the industries where China-related
demand is strong and to the highly profitable aftermarket.
1) Automotive bearings
Our main products in the automotive bearing business are hub unit
bearings (26% of automotive bearings in terms of sales), needle
roller bearings (19%), and electromagnetic clutch bearings (6%).
With respect to our hub unit bearing business, we invested ¥2.6
billion
to build a new automotive bearing plant at Kunshan NSK Co.,
Ltd. (China), which so far has mainly produced standard ball bearings
for home electrical appliances and first-generation “HUB I” bearings.
We have received monthly orders for approximately 90,000
third-generation “HUB III” bearings from Japanese and South Korean
automakers producing in China as well as from local manufacturers.
European automakers are also showing some new interest.
Following the The Timken Company’s purchase of The Torrington
Company in February 2003, we acquired full control of our needle
roller bearing production company in July 2003, which had until
then been managed as a joint venture with Torrington. A compact
product capable of bearing large loads, needle roller bearings are
used in large quantities in automotives, mainly in automatic transmission
units and car air-conditioners. The move toward multiplespeed
automatic transmission units and higher-function continuously
variable transmissions (CVT) has expanded the applications
of needle roller bearings, and we expect demand for these bearings
to grow faster than automobile production. Gaining full control
of the needle roller bearing business has removed a variety of
constraints on the expansion of this business. We are now
aggressively pursuing global expansion, starting with commencement
of local production in China in 2005.
For tapered roller bearings, used in transmissions and wheel
units,
we launched production in January 2004, as scheduled, at
Timken-NSK Bearings (Suzhou) Co., Ltd. (China), which we are
operating as a joint venture with Timken.
2) Bearings for general industrial use
In order to meet the
needs of industries, particularly where Chinarelated demand is strong, such
as steel, railway vehicles, and machine tools, as well as to take full advantage
of the highly profitable aftermarket, by fiscal 2005 we will boost production
capacity for roller bearings for general industrial use by 25%. To that end,
we
are investing ¥5.0 billion to reinforce manufacturing facilities at our
Fujisawa Plant (Japan), our main production site for industrial roller
bearings.
Sales by Production Region for FY2003
3. Review of Business Results for Fiscal 2003
and Overview, by Region
Review of Business Results
Total sales in this division exceeded our initial target set at the
start of the fiscal year by ¥15.8 billion, increasing 3.4% year-onyear
to ¥332.8 billion. This was mainly attributable to the continued
strength of sales to both the automotive industry and the
general industrial sector in Japan and other parts of Asia.
Operating income also exceeded our initial target, by ¥3.6 billion,
rising 6.5% year-on-year to ¥23.6 billion. This was due to the
positive effects of our business restructuring activities in Europe
as well as to increased sales. As a result, the operating income
margin was 7.1%, also higher than our initial expectations.
Looking at the second half of the year only, the operating income
margin was 8.2%, a clear sign that our profitability improvement
activities are already taking effect.
Overview, by Region
Sales in Japan increased 4.0% year-on-year to ¥156.7 billion,
supported by growth in sales to the automotive industry and to
the general industrial sector.
Sales in Europe rose 12.2% year-on-year to ¥51.6 billion.
The
negative impact of the economic slowdown in Germany and the
U.K. on sales to the general industrial sector from the middle of
the year was offset by strong sales to the automotive industry.
Earnings also improved steadily, supported by the effects of usiness
restructuring activities, including a headcount reduction and
the transfer of standard ball bearing production from the U.K. to
Poland.
Sales in Asia also grew, up 6.0% year-on-year to ¥70.3
billion, a
result of increased sales to China and to the automotive industry.
In contrast, sales in the Americas decreased 8.0% year-on-year
to ¥54.2 billion. The general industrial sector continues to transfer
production to China and other locations. The negative impact of
low-priced imports coming into the market was offset by strong
sales to the automotive industry.
4. Outlook for Fiscal 2004
In accordance with our February 2004 reorganization, we have
changed our segment categorizations beginning in the year ending
March 31, 2005. The former “Bearings” segment has been
divided into “Industrial Machinery Bearings” and “Automotive
Bearings,” with the latter now part of the “Automotive Products”
segment.
We expect the favorable business environment to continue in
fiscal 2004, supported by the global economic expansion. For fiscal
2004, we expect sales of the Industrial Machinery Bearings
division to increase 2.7% year-on-year to ¥181.0 billion, with
operating income increasing 15.2% to ¥14.0 billion (operating
income margin of 7.7%).
General industrial bearings for the aftermarket are expected to
be a major driver of higher profits. Centering on the large U.S.
market and on China, where rapid growth is expected to continue,
we estimate that sales for our aftermarket business will
increase from ¥53 billion in fiscal 2003 to ¥56 billion and ¥61
billion
in fiscal 2004 and fiscal 2005, respectively.
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