NSK - Investors/Financial information Annual Report 2005

Precision Machinery and Parts

In addition to a substantial increase in demand for photofabrication equipment for LCD color filter production, performance in the year ended March 31, 2006 also benefited from the emergence of a recovery in demand for semiconductors and liquid crystal production equipment in the second half of the year. Sales increased by 2.6% and operating income by 16.8% year on year. This sales growth was accompanied by an improvement in productivity and profitability.

Market Environment and Performance for the Year Ended March 31, 2006
In Japan, sales to manufacturers of injection molding machines and machine tools remained strong, while demand for semiconductor and liquid crystal production equipment began to recover in the second half of the year. However, sales decreased over the period, resulting from the decline in the first half of the year. Abroad, there was a dramatic increase in demand for photofabrication equipment for LCD color filter production in Asia, while the delay in demand recovery in both the Americas and Europe led to decline in sales. As a result of these trends, sales of precision machinery and parts were 2.6% higher year on year at ¥65.8 billion.

Despite losses on declining sales in the Americas and Europe, operating income in general was sharply higher at ¥5.6 billion, a year-on-year increase of 16.8%. Reasons for this growth included reductions in labor cost achieved through productivity improvements in the Maebashi Plant and other plants, withdrawal from unprofitable product areas and increased demand for photofabrication equipment for LCD color filter production. The operating income margin was 8.5%, a healthy improvement from the previous year’s level of 7.4%.

Outlook and Priorities for the Year Ending March 31, 2007
Sales to manufacturers of semiconductor and liquid crystal production equipment are expected to remain buoyant, thanks to the recovery that emerged in the second half of the year under review. We also expect demand for injection molding machines and machine tool components to remain strong.

One priority is to strengthen our operations in the area of linear motion products to take advantage of a buoyant demand and strong sales trends. This will require improved capacity utilization resulting from volume growth. Also, profitability improvement is required by targeting improved production efficiency including the streamlining operations at the Maebashi Plant, which is our main plant for ball screws. We also plan to intensify our sales activities in new markets, especially manufacturers of automobiles, food-industry and the medical equipment as well as equipment for plant in-house transportation.

We predict that these initiatives will result in year-on-year sales growth of ¥6.2 billion, or 9.4% to ¥72.0 billion, in the year ending March 31, 2007. Operating income is expected to increase by ¥2.8 billion, or 50.0% to ¥8.4 billion, resulting in an operating margin of 11.7%.

The achievement of these performance forecasts will bring us substantially closer to our targets under the new mid-term plan, which are sales of ¥75.0 billion, operating income of ¥10.5 billion and an operating income margin of 14.0% in the year ending March 31, 2009.

Proactively Approaching Buyers with Solutions Attuned to the Market

Shuichi Kobayashi
Head of Precision Machinery and Parts Division Headquarters

My most important goal regarding NSK’s precision machinery and parts segment is to build it into a business operation that can withstand demand fluctuations and make a consistent contribution to earnings. We will achieve this goal by using our strength in ball screws, of which we are world’s top supplier, as the basis for expanding our presence in the market for linear guides and monocarriers. In addition to productivity improvements, such as the streamlining of our Maebashi Plant, we will also implement a range of marketing measures, such as the introduction of strategic products, and global sales expansion initiatives targeting specific industries. In today’s marketing environment, we need to approach buyers positively and directly. Our priority in this context is to build systems capable of providing in-depth coverage of our markets, including overseas markets.

We also aim to strengthen our business structure by improving our market mix. To do this, we will need to expand into potential business areas in which there is little risk of demand fluctuations, such as biotechnology and medical equipment, automotive manufacturing equipment and food-industry products.

Streamline Operation at Maebashi Plant
Dramatic Improvement in Ball Screw Production Efficiency

NSK implemented a project to streamline ball screw production at Maebashi Plant through the introduction of line production, aiming a dramatic improvement in production efficiency.

Ball screws are used in machine tools, injection molding machines and many other products. They are mechanical components consisting of two key parts: a screw shaft and a nut. In the past, the shaft and the nut were produced in separate processes and assembled to make the finished screw. This approach was inefficient for a number of reasons, including the fact that differences in the speed of each process resulted in the accumulation of unfinished products in the plant. However, it was difficult to improve efficiency in this area, since ball screws are order-made in small lots to meet detailed specifications. By changing its plant layout and introducing a new production control system, NSK has succeeded in streamline of operations for ball screws. We expect a 15% improvement in production efficiency, and the halving of lead times from line start-up to delivery.

Ball screws account for one-third of sales in the precision machinery and parts segment, and NSK is the world’s leading manufacturer in terms of market share of the products. We will improve our cost competitiveness by improvement in productivity resulting from this streamline of production line and systems.


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Annual Report 2006