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April 22, 2014 10:46 am
Not many companies whose share price doubles in a year do so as quietly as Nidec – the best performer in Japan’s Topix 100 over that time. A low profile is fitting for a maker of tiny, silent motors used in electronics and elsewhere: the epitome of seen but not heard products. But Nidec’s latest forecasts, released on Tuesday, fell far short of expectations. Typical Japanese corporate caution, or is Nidec’s earnings motor starting to sputter?
The group’s gains have been based partly on an improving industry outlook – for which, read global recovery – but are more about its own position. Component producers are risky investments: as well as the cost of keeping up with technology, there is the danger of a product flop from a big customer that ripples through the supply chain. Nidec’s trick has been to dominate motors for increasingly commoditised products instead. It makes four-fifths of the world’s hard disc drive motors, 60 per cent of motors in DVD and Blu-ray players and 40 per cent of smartphone vibration motors. Nidec then uses that free cash flow to cover a couple of minor sluggish units but also to fund investments and acquisitions in faster-growing segments such as low-power air conditioners and car drivetrains.
Caution is not a word associated with Shigenobu Nagamori, Nidec’s founder and chief executive. The company’s history, told in a comic strip, makes that clear. But Nidec had to lift last year’s forecasts as it kept beating its own expectations, if not those of analysts. This could be a repeat of that.
More acquisitions are expected and these could change its outlook significantly, too. Nidec’s 99 per cent gain in the past year has left it trading on 21 times forecast earnings – at the high end of its peers’ range. Further gains will be hard work. But if Nidec underestimates its profits again, its shares should not slide far, either.
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