Start Time: 09:00

End Time: 09:54

Nidec Corp. ADR (OTCPK:NJDCY)

Q4 2016 Earnings Conference Call

April 26, 2017, 09:00 AM ET

Executives

Akira Sato – EVP and CFO

Masahiro Nagayasu – GM, IR

Masayuki Abe – GM, Institutional Sales Department, Mitsubishi UFJ Securities Tokyo

Analysts

Joe Quatrochi – Stifel

James Pulsford – Eikoh Research

Takashi Ito – ARGA

Jon Greenhill – Baring Asset Management

Chintan Mehta – Surveyor Capital

Operator

Good day, everyone, and welcome to today’s Nidec’s Conference Call hosted by Mitsubishi UFJ Morgan Stanley Securities. Today’s call is being recorded.

At this time, I would like to pass this conference to Mr. Abe at Mitsubishi UFJ Morgan Stanley Securities for opening remarks. Mr. Abe, please go ahead, sir.

Masayuki Abe

Thank you. Ladies and gentlemen, thank you very much for joining this conference call. This is Abe, General Manager, Institutional Sales Department of Mitsubishi UFJ Securities.

Before the meeting starts, please make sure all materials have been distributed. If not, please download the files on Nidec’s Homepage right now. Now, may I introduce Mr. Akira Sato, Executive Vice President and Chief Financial Officer, who will be speaking to you shortly. First, Mr. Sato will make a presentation. After his presentation, we will move to a Q&A session.

Mr. Sato will now discuss Nidec’s fourth quarter fiscal year 2016 results, future outlook and management strategy. Mr. Sato, please go ahead.

Akira Sato

Thank you very much, Mr. Abe. Good day, ladies and gentlemen, and welcome to today’s conference call. My name is Akira Sato, Chief Financial Officer of Nidec, and I will be your main speaker for today. Joining me is Mr. Masahiro Nagayasu, General Manager of Nidec’s IR team. First of all for the forward-looking statements, please see Slide 2 of our presentation material for details.

Now I will review the key figures. Please see Slide 4. We have achieved a record high net sales for five consecutive years and also achieved record high operating profits, profit before income tax and net profit, marking the fourth consecutive year of increase since the structural reform in fiscal year 2012.

In product groups, automotive and appliance, commercial and industrial or ACI, which are drivers of business portfolio transformation that exceeded operating profit ratio of 10% on annual basis. Also, we have exceeded net profit of ¥100 billion for the first time. And we rose to 13.9%, 2 percentage points higher than the previous year.

On Slide 5 and 6, you have pictures showing our sales and operating profit year-on-year and quarter-on-quarter. Especially on Slide 5, you will find that all the segments have exceeded previous year’s sales and operating profits, if you deduct exchange rate loss.

The major increase in operating profit comes from automotive and ACI and this is mainly due to our cost reduction efforts such as joint procurement of components and the materials, shifting factory locations to lower-cost countries and enhancing manufacturing productivity through automation and IoT technologies.

Please see Slide 7 regarding our results over the past 10 years. We have been continuing to achieve increased net sales and operating profit since the structural reform in fiscal year 2012. And fiscal year ’16 was another successful year, achieving the record high net sales and operating profit despite the headwind of yen appreciation.

Also, as illustrated on Slide 8, the positive effect of business portfolio transformation is clearly seen through increasing operating profit.

Slide 9 is showing cash flows over the past 10 years. The free cash flow in fiscal year ’16 was negative for the first time in four years due to the acquisition of Emerson’s European businesses.

For earnings per share and dividend on Slide 10, you will find that the dividends have steadily been increasing over the past years.

Please see Slide 12. The forecast for fiscal year 2017 net sales of ¥1.35 trillion, operating profit of ¥160 billion and operating profit ratio of 11.9%.

Now our midterm strategy Vision 2020 is illustrated on Slide 14. As prospects for our fiscal year 2020 in each business area becomes clear, we have clarified the sales target of each area, which were expressed in a range until the previous quarter.

The organic sales target for small precision motors stands at ¥600 billion. The same ¥600 billion for organic sales target for automotive and ¥1 trillion target, which includes M&A. Another ¥600 billion ACI organic sales and the ¥200 billion organic sales target for other product groups.

The total of each area’s target amount to ¥2 trillion which is original target for Vision 2020. And visibility for ¥2 trillion sales is increasing as each area is becoming more likely to achieve their targets.

Please see Slide 16. As top line growth to fiscal year ’20 becomes more solid, we will get down to tackle the profit structure reform over the coming four years.

As shown on Slide 17, we are aiming to achieve gross profit ratio of 31% and operating profit ratio of 15% for fiscal year 2020. And ratio to sales of outsourced components and materials will include to 57% in fiscal year ’20 from 60% in fiscal year ’16.

And our ratio to sales of direct labor will be also improved to 4% in fiscal year ’20 from 8% in fiscal year ’16. We would improve gross profit ratio to 31% in fiscal year ’20 from 23.9% in fiscal year ’16 with measures as following.

Please see Slide 18. Our cost reduction in outsourced components and materials and the cost reduction in direct labor exhibited as concrete measures to aim for gross profit ratio of 31%. For outsourced components and materials, we will promote joint procurement further and increase in-house production of components.

And for direct labor, actually we had 80,000 headcount of direct workers at March 2016. It has been reduced to 55,000 headcount at March 2017. It will be reduced to 40,000 by 2020 while accelerating the introduction of automation and IoT to our factories, which is currently driven by the Nidec smart factory strategy.

As illustrated on Slide 20, the midterm trend of the hard disk driving market is expected to be declining volume, flattish sales and increasing unit price. For the short term, on Slide 21, the actual shipment volume in fiscal year ’16 was 7% more than the original forecast of 400 million units made a year ago. For fiscal year ’17, we expect modest shipment volume of 410 million.

On Slide 22. Other small motors sales target by applications are illustrated. As you see it, faster growth is expected where higher replacement demand for brushless DC motors exists.

Please see Slide 24. The expected shipment volume of our automotive motors in fiscal year 2020 has already doubled as of now compared to fiscal year ’16. As you can see on Slide 25, other additions made in fiscal year ’16 for electric power steering or EPS to 15 million units.

Also on Slide 26, as electric vehicle or EV is becoming the next focus in electrification of cars, we are getting increasing inquiries for production motors mainly from Europe and China. And we are expecting a drastic increase in our sales target beyond fiscal year 2020.

Please see Slide 27. We have been driving modularization of components. As our strategy for appliance in ACI and just yesterday we announced the acquisition of German compressor manufacturer Secop. They are top line company both in household and the commercial compressors for refrigerators. With this acquisition, we will strongly push forward the modularization strategy by combining our core strength of motors with Secop’s compressors.

Slide 29 is showing the acquisition of the U.S. high-speed feeding equipment manufacturer, Vamco International, which we announced on 28th of March, prior to Secop’s acquisition. Vamco is a very strong brand in high-speed servo feeding industry and with this acquisition, our subsidiary Nidec-Shimpo will further accelerate the growth of their metal forming machinery business through its global reach.

Please see Slide 30. Toward the Vision 2030 sales target of ¥10 trillion, we will aim to build a unique corporate group which keeps its focus on everything that spins and moves. Motors will be a key element in the innovative development of EVs, robotics, drones and so on, which is expected to be in full swing around 2020. We will build our corporate group to enrich our lives through our distinguished fundamental technologies, production engineering and human resources.

Today in Japan, some concerns were raised in some investors’ meeting by several investors. Mr. Nagamori asked personally me to tell all of you two messages from him very precisely. One, he will work harder as CEO of Nidec until ¥10 trillion sales could be achieved in 2030.

Two, it is a fact that he would make some donation personally to the college in Dublin [ph]. But he would never sell his holding share of Nidec ever. That’s the two messages I would like to report to all of you.

Lastly, on behalf of the entire management team, I’d like to thank our customers, partners, suppliers for their support and commitment as well as our shareholders.

At this time, we would like to open up the call for questions. Thank you very much.

Masayuki Abe

Thank you very much, Mr. Sato. Now we would like to move to the Q&A session. Mr. Sato will be very pleased to answer any questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions]. Our first question today comes from Aaron Rakers with Stifel.

Joe Quatrochi

Great. This is Joe Quatrochi on for Aaron. I was wondering in the past you’ve given a breakdown of your hard disk drive motor shipments by the different sub-segments. I was wondering if you could do that, and then also for the market? And then what your expectations will be for the June quarter?

Masahiro Nagayasu

Okay. So as you see in the Slide – just a minute – yes 21. You were talking about a March quarter shipment of hard disk drive for the market and our spindle motor market shipment, right?

Joe Quatrochi

Yes. Well, I think you’ve given a breakdown of like 2.5-inch, 3.5-inch and then enterprise.

Masahiro Nagayasu

Yes, I understand that. I’m just surprised by which quarter you were asking. So for the fourth quarter of fiscal 2016, that is a March quarter, we see a total hard disk drive shipment is 1.2 million where the enterprise is 6.8 and near line 10.7 and 3.5-inch 34.5 and 2.5-inch 50 million. Those are the market numbers. And responding to this market number, we have shipped 85.5 million spindle motors where 2.5-inch high-end 3.5 million and near line 8.2 million and 3.5-inch ATA 34.2 million and 2.5-inch mobile is 39.7. So total, we shipped 85.5 million.

Joe Quatrochi

Okay. And then I think in the past you’ve given the outlook for the June quarter?

Masahiro Nagayasu

Okay. For the June quarter we see the market, as you see in the Slide 21, we are looking at 100 million. Where we say enterprise 7.4 million; near line 11.5 million; 3.5 34.2 million; and 2.5-inch 46.9 million. In responding to this market demand, we are forecasting our old spindle motor shipment as you see 84 million total. Then that 84 million is comprising of a 2.5-inch high-end 3.2 million; near line 9.5 million; and 3.5-inch ATA 32.3 million; and 2.5-inch mobile 39.0 million.

Joe Quatrochi

Okay, great. And then also just one follow up. What was your helium shipments and what do you expect the helium to do going forward?

Masahiro Nagayasu

Okay. The helium shipment for the March quarter was 3.1 million. Then we are looking at a 4.7 million in this June quarter.

Joe Quatrochi

Okay, great. Thank you.

Operator

Our next question comes from James Pulsford with Eikoh Research.

James Pulsford

Thank you very much for your time. In the small precision area, the – you mentioned in the presentation the hard disk drive margins were very good, were up 26. However, the non-hard disk drive small precision motor margins were conversely rather weak at 6.1. I think there was a note talking about vibration motors model change. Could you just talk a little bit more about what happened to non-hard disk drive margins and what drove that in the fourth quarter? And also if it’s possible to give me a full year figure for vibration motor sales, that would be great. And also an outlook for vibration motor sales in the new fiscal year? Thank you.

Masahiro Nagayasu

Okay. So as you understand, the hard disk drive motor, we reported a very good OP margin. But as you see, because of seasonality, the vibration motor sales is coming down. And our sales of the vibration motor for this quarter is ¥12.5 billion and we were talking about around a total full year sales is 61.1 billion. Then OP margin is something like a 6% to 7%, okay?

James Pulsford

Okay.

Masahiro Nagayasu

So the reason behind that is seasonally the fourth quarter is a weaker quarter; then the volume is coming down very high from a December quarter to the March quarter.

James Pulsford

Excellent. Thank you. That’s very clear. And that’s why we see a weaker overall operating margin for non-hard disk drive motors in the fourth quarter. The big driver was this fall in sales of vibration motors, is that correct?

Masahiro Nagayasu

The vibration motor is coming down. Also, the other non-hard disk drive non-vibration motor business was rather weaker in the March quarter, mainly because the seasonality shift such as the Chinese New Year in January to February.

James Pulsford

Okay, great. And lastly, is it possible to make a comment about the outlook for vibration motors in the new fiscal year please?

Masahiro Nagayasu

So we’ve been saying that we are looking around ¥70 billion sales for this fiscal year and we have to adjust something about the foreign exchange, but still we were talking about slightly increased from the fiscal year 2016 to 2017.

James Pulsford

Okay. So I guess no great change, so modest increase in sales and probably similar operating margins or do you expect a change?

Masahiro Nagayasu

Well, at this moment we are looking – we’re expecting a higher margin, but we have been expecting in that manner in the previous two years. So we say maybe the improvement could be a somewhat limited to some minimum. So 6.7% this year and 1% or 2% improvement from the previous year. That is our current expectation.

James Pulsford

Excellent, wonderful. Okay. Thank you very much indeed.

Operator

Our next question comes from Takashi Ito with ARGA.

Takashi Ito

Hello. Thank you very much for your time today. I have two questions. The first question is regarding your costs in the last quarter and your outlook for this fiscal year. I’m interested in how much cost you have reduced from headcount reductions? And on the other hand I believe costs are also going up because you’re hiring a lot of engineers. So it would be great to hear how you’re doing on the hiring front of new engineers as well? That’s the first question. And my second question is regarding your new midterm plan to 2020. You have clarified your revenue organic growth targets and I just wanted to confirm that the probability for autos is very high because probably the car cycle is quite clear and you know what your customers want to put out in terms of new products. So I assume that that’s very high probability. I wanted to also just ask how you feel about the other segments like appliance, commercial and industrial products. Is this a little bit lower probability or is this also a pretty high probability organic growth target? Thank you very much.

Masahiro Nagayasu

Okay. So number one that you are asking how much we have reduced the cost of direct labor. So we just are measuring at the end of March 2017 over one year from April 2016, we have reduced 25,000 direct laborers, okay. Then you can assume one person full year will be something like ¥1.2 million. Then on the other hand, we mentioned that we have hired 500-plus engineers over the year from April to March. Then we are assuming the cost per person is 10 times higher direct labor; that means ¥12 million per year. Then you can assume whatever the so-called speed or ratio over here how much, but usually we were simplifying that is something zero from the start at the end of the year that’s going to be something that’s 25,000 for 500 at the end of the year. So you can calculate how much we could save. Is this fine with your question?

Takashi Ito

Yes, this is for the —

Masahiro Nagayasu

The second question.

Takashi Ito

This is for this current year or is that for the year end?

Masahiro Nagayasu

Yes, April 2016 until March 2017, the reduction of direct labor force was 25,000 and increase of engineers of 500.

Takashi Ito

Yes. And do you have the same numbers for this current new fiscal year, March ’18?

Masahiro Nagayasu

Well, at this moment we have not yet decided that core number because we understand the second year will be much more difficult to reduce the same number. But at minimum, we are looking for something like 10,000 more for this year but we have not yet set out the so-called official target. Then for the engineers, we clearly mentioned that another 500 by the end of this fiscal year.

Takashi Ito

Great. Thank you.

Masahiro Nagayasu

Am I answering your question?

Takashi Ito

Yes.

Masahiro Nagayasu

Great. Then second question that you mentioned is auto and ACI. And you were asking the auto would have somewhat the so-called cycle situation, because of the car number was very, very high in 2016, maybe also the current street estimate of the car number for this fiscal year will be somewhat lower than the last year. That’s what you mentioned, right?

Takashi Ito

And also for your 2020, yes, outlook. Is it – because you know your customers’ new model plans – organic target?

Masahiro Nagayasu

Okay. So clearly we have to separate – okay we have to separate some factors. The number one factor is as you mentioned is the total car number, the total car number which is going to be sold each year. And we are assuming 2020, 100 million cars will be sold. Then we understand there is a cycle question. But still we do see there is some room for our assumption. So we are not changing our assumption of 100 million cars per year sales in 2020. That’s my answer to your first question. Second, for the AC – because of that we didn’t change the total car number which is going to be sold in 2020. Then our target won’t change. That’s my answer for your first question. Then also if you’re looking at the other factors, something like the speed of the electrification of the car, then every year we are observing the speed of electrification of the car is coming up. So also we have to monitor those trends to determine whether we are going to change our target. So at this moment, still we are saying we are keeping the target and the target number is sales 600 billion auto and auto-related sales of Nidec in the fiscal year 2020.

Takashi Ito

Great.

Masahiro Nagayasu

Okay. For the ACI – okay ACI, there are some other factors because ACI as we have – we just announced a new acquisition of the so-called refrigerator compressor maker. We may have more and more, even smaller M&A. So even at this moment, as you mentioned that if we are going to make more acquisitions then we do have more bigger opportunity or bigger probability to achieve 600 billion, o maybe even today we could say 600 billion plus at this point. But still at this moment, we are not changing that because we just announced an acquisition yesterday. So until we are going to see the revealed situation, then maybe in the next financial announcement, we may change the number. That’s my answer at this moment.

Takashi Ito

Thank you very much.

Operator

Our next question comes from Jon Greenhill with Baring.

Jon Greenhill

Hi. Thank you for the call. I’m just wondering if you could talk through the increase in CapEx this year and give us a few more details on what that spending is going on as well as what the outlook beyond next year is, or have we moved to a higher new level or is this a one-off spend? And secondly, just on the acquisition, I wondered if you could talk us through the main ways of getting those margins up from the existing margin to something more like your current level? And given historically, you found it easier to raise margins on domestic acquisitions and overseas acquisitions. So it will be interesting why you’re confident that can be achieved in this case?

Masahiro Nagayasu

When you talk about the domestic, does that mean Japan or –?

Jon Greenhill

Yes, just the domestic Japanese takeovers have probably got a better track record of improving margin.

Masahiro Nagayasu

Okay. So you say that doing Japanese acquisition would be much easier for – could be much easier to improve the profitability than the acquisition of the international or foreign companies might be a little bit more difficult to improve the margin, that’s what you mentioned?

Jon Greenhill

Yes.

Masahiro Nagayasu

Okay.

Akira Sato

Okay. In answer to your first question about the capital expenditure in fiscal year ’17, we are reporting the ¥100 billion of capital expenditure plan in fiscal year ’17. And 50% of that might be invested for increased capacity, production capacity in automotive and ACI area which is ¥50 billion. And another ¥20 billion would be in industry for kind of automation or IoT type of the investment in order to streamline our production and our profit in fiscal year 2017. So that is our capital expenditure breakdown.

Masahiro Nagayasu

Is that fine?

Jon Greenhill

Sorry, just on the 100 billion note, is that a one-off spend or is that a new kind of level we should expect?

Masahiro Nagayasu

So you mean for this year? Mr. Sato just explained why – what was the completion of 70 billion CapEx that we made in fiscal year 2016, right? Are you talking a little more about how we are looking at the 2017 number?

Jon Greenhill

I’m just – obviously, this 100 billion is a big pickup of the levels of the last two years. I’m just wondering is this an unusually high year or also in fiscal ’18, ’19 should we expect that sort of same 100 billion level?

Akira Sato

Yes, I think the ¥100 billion level would be lasting because we have to continue to invest money to increase the production capacity for the future.

Jon Greenhill

Thank you.

Operator

[Operator Instructions].

Jon Greenhill

Just a second question on the acquisition?

Masahiro Nagayasu

Yes, please.

Jon Greenhill

Just related to the Secop acquisition margin?

Masahiro Nagayasu

Jon, are you asking how we are going to improve the margin of this business from the current low margin up to a high margin, that’s what you asked?

Jon Greenhill

Yes.

Masahiro Nagayasu

Okay, so we mentioned there are two or three things, okay. Number one, we purchased this Secop on a very low valuation thereby amortization of a tangible, intangible would be much lower. That will be a very good use so that we do not have to amortize a high amount for each year for coming years, number one. Number two, we are looking at synergy between this Secop and our business.

The first synergy is, now we put this Secop in under our global appliance business. Under the current global appliance business, we were making the motor for a washer, dryer and dishwashers. And our customers are also making refrigerators. Now we do have the product that we can serve the same customer with a new product, which is a compressor for the refrigerator. So thereby, we do see a synergy between the current product line that we offer to those home appliance maker as well as a new product, which is a refrigerator compressor which is the new product. So that’s the first synergy.

The second synergy also if you’re looking at the entire Nidec group, we were additionally supplying to the same home appliance makers refrigerator with a different product, such as the icemaker, the fans which will be used within the refrigerator and several other small motor module, which they will use in the refrigerator. So thereby we were selling those small motor, icemaker or fans or some other motor unit to the refrigerator. Now we do have this compressor business. So we do have more synergy. Third synergy we were talking about is a module, because we have been selling those components each, one-by-one to the same customer. Now the customer wants everything combined in one module so that we can provide those modules at a much high value-add. That’s going to be the third synergy.

The fourth synergy, if you’re looking at is on the cost side. If you’re looking at those compressors and our motor, the materials are almost same; steel, copper, aluminum, magnet. So by making a joint procurement program, we could reduce the cost of those materials used in the compressor as well as the motor. So those are the cost synergies we are looking at. So even we understand the current OP margin for the Secop is much on the lower single digit, but we are confident that we can raise up to 10% in the more recent times than 2015, maybe not just Secop but overall global price business. We believe that we can raise the OP margin up to 15% by fiscal year 2020. Am I answering your question?

Jon Greenhill

Yes. Thank you very much.

Operator

[Operator Instructions]. Our next question comes from Chintan Mehta with Surveyor Capital.

Chintan Mehta

Hi. Thanks for taking my question. In the past, you’ve talked about wanting to – and you’ve touched on it during this call as well, but wanting to provide more of the module solution for your customers and you’ve talked about needing to build software capability, build adjacency to small car software, chipsets, sensors, things like that. I was wondering if you could talk a little bit more about efforts around the software side, to what extent you’ve been able to make progress against that sort of organically. Are there – do you see sort of inorganic opportunities in your pipeline as well, maybe if you can just touch on that?

Masahiro Nagayasu

So on which product?

Chintan Mehta

Sorry, for both autos and ACI, as you move towards modularizing your offering to customers?

Masahiro Nagayasu

The growth of auto in this year, okay?

Chintan Mehta

Yes, if you could just talk about sort of the role of software, how important that is to your ambition?

Masahiro Nagayasu

So clearly in the auto area, we understand that software would become more and more high value product within the auto industry. Then the most visible area is ADAS for automotive driving area, as you understand. At this point, we were providing sensors for ADAS, advanced driver assistant system. Sensors are consisting of camera and millimeter regulator and several other radars. Then all the information should be gathered and analyzed to find out if there is a danger in front of the car. So that’s where, as you understand, the software comes. And then you’ll see an image recognition software is needed, okay. Then we were making those image recognition software or traffic sign recognition software. So those are clearly done by software and the control will be done by artificial intelligence, okay. So if you’re looking at this way, the software is becoming more and more important part. In this market, the ADAS sensor market, we are developing those software by ourselves. So at this moment, we need more software engineers to support that endeavor and we were trying to strengthen. But at this moment we are – we were thinking of making it by ourselves, okay.

And the other part of the software you mentioned is something that the module or some other control area, if you call it a software then we do need a more and more control or some software to control the whole module. That’s where we need a software. And once we are moving more and more to the module business, motor, controller, some other device, then some software or controller to control all the device into the one function, then that’s where we say the software is needed. And for that one, also we were trying to do that by our own resources for that part. As Mr. [indiscernible] mentioned that we are hiring more engineers in that end, okay.

Chintan Mehta

Perfect. Thank you.

Masahiro Nagayasu

Does this answer your question or you want some other answer?

Chintan Mehta

No. That’s very helpful. I guess maybe one follow up. Do you also see – so aside from hiring more engineers, are there – could this also be an area of inorganic activity of acquisition activity in the future, or you’re less likely to entertain that?

Masahiro Nagayasu

Yes, always we were looking at the future picture of our business. If some missing piece for that picture is a software, we will buy any company with that technology. And we are not going to exclude that possibility. But when and how and what kind of company? Well, at this moment we cannot mention that. Is that fine?

Chintan Mehta

Yes. Thank you.

Masahiro Nagayasu

Okay.

Operator

We’ll take a follow up from James Pulsford with Eikoh Research.

James Pulsford

Thank you very much. Again, I’ve just got sort of a couple of follow-ups. One, following up to the previous question, the capital expenditure is going up to ¥100 billion this year. The depreciation charge is basically flat at 60. And I wondered why is that the case? One would naturally expect it to have risen sharply. Is that due to timing of the spend or some other reason? Could you comment on that and maybe to mention whether should we expect it to rise sharply the following year, for example?

Akira Sato

Yes, mainly due to time lagging. Mainly expenditure in Japan is some kind of building so that the depreciation term is longer than equipment, so that probably increase of depreciation cost has been slowing. That’s the kind of main reason for your question.

James Pulsford

Right. How much of the 100 billion is buildings?

Akira Sato

Up to ¥20 billion.

James Pulsford

20, right, okay.

Masahiro Nagayasu

So if you’re looking at the slide, you can look at Slide 30 and you can see those buildings that we were talking about. Slide 30.

James Pulsford

Okay.

Masahiro Nagayasu

We were making a lot of buildings, right. Then those buildings – usually we are going to depreciate the real estate.

James Pulsford

Okay, I understand. Good. And can I, on a separate matter, could you make a comment please the ACI area. The margins in Q4 were 9.3%. How do they split down between auto and ACI please?

Masahiro Nagayasu

Okay. So the auto was something like – just for Q4, right? For the March quarter?

James Pulsford

Yes.

Masahiro Nagayasu

March quarter auto OP margin was 11.1 and ACI was 9.3, okay. But please note the ACI 9.3 includes a two months portion of Emerson European business, which just came in, because we closed the deal at the end of January. So the February and March, we included the sales of Emerson Europe. Then as we reported, the margin of that business is quite long.

James Pulsford

Right. Wasn’t the margin for whole combined automotive, appliance, commercial, industrial 9.3 for the quarter?

Masahiro Nagayasu

Yes, including Emerson Europe, the Q4 margin was – sorry, the entire margin is 9.3, right. And should I correct the number for the ACI? ACI was 7.9%. 7.9% ACI and 11.1% auto, then overall the average is 9.3%. And please note that 7.9% ACI OP margin include a two-month portion of Emerson Europe, which is the low single-digit OP margin.

James Pulsford

Okay. Thank you very much. It’s very good. And lastly is it possible just to in the spindle motor area, overall dollar ASP was about flat quarter-on-quarter. But were there any changes in terms of different types near line, enterprise? Is there any movement within that overall average?

Masahiro Nagayasu

Okay. So spindle motor ASP was, as you suggested, is flat but we were expecting that to become higher in the following quarters. The reason being – somebody just asked what is the percentage of the helium within the near line? So as I mentioned, the near line number is increasing, number one. Then the share of the helium within near line is also increasing. So we are looking at a June quarter helium could be just half, 50% of near line, okay. So as you understand, our spindle motor ASP is higher for the helium compared to normal near line. And thereby, we say the near line is going to occupy more volume as well as more revenue, then the helium is going up within the near line that suggests ASP would be rising into the following quarters. That’s how we are looking at this business at this point.

James Pulsford

Okay. Thank you. And can I just check, if you look at the underlying components within that, if we look at the price over the last year for example of near line, enterprise, helium air fills [ps]. Has there been any major changes [indiscernible] 2.5-inch, mission-critical other more sort of mass market drives. Did the dollar prices change at all over the last year for those individual products?

Masahiro Nagayasu

Okay. For the near lines, the March quarter ASP is something — just a minute, flattish, maybe a little bit down from the quarter a year ago. But overall, we say the near line prices for the more recent three, four quarters are rising.

James Pulsford

Because helium is going up, yes?

Masahiro Nagayasu

Yes. Then the second point is, as you see we were looking at flattish ASP for each sector like 2.5-inch high end, near line, 3.5, 2.5. So overall, the biggest driver of the overall average selling price of our spindle motor is a mix change, especially in the sales of the near line or sales of the server. So one year ago, in the June quarter last year, we were left on 30%, 29.2% in the server revenue share is now going up near 35% this June quarter. So 5%, 6% is the share of the – revenue share of the server suggest the mix is going to shift to the server, thereby the ASP is shifting higher.

James Pulsford

Okay, great. And so there’s no – in the underlying, the individual underlying components, there’s no big change in any of the categories compared to a year ago. Is that correct or not?

Masahiro Nagayasu

At this point. Because there is dollar pressure out there, as you understand. But we are keeping some other flattish ASP for each component. Then the mix is shifting quarter-to-quarter, that’s what is changing our average selling price of the entire spindle motor.

James Pulsford

Excellent. Good. That’s very clear. Thank you very much.

Masayuki Abe

Thank you. Are there any questions please?

Operator

[Operator Instructions]. Mr. Abe, there are no further questions today. So at this time, I would like to turn the conference back over to you for any additional or closing remarks.

Masayuki Abe

Thank you. Then we would like to conclude this conference call. Thank you very much for your participation today. Should you have any inquiries, please do not hesitate to contact Nidec Corporation or through our sales representatives at Mitsubishi UFJ Securities. Thank you very much, and have a good day.

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