Japan's Nidec slashes full-year operating profit forecast on weak demand, restructuring costs By Reuters

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Japan's Nidec slashes full-year operating profit forecast on weak demand, restructuring costs

Stock Markets Jan 24, 2023 06:01AM ET

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Japan's Nidec slashes full-year operating profit forecast on weak demand, restructuring costs

By Daniel Leussink

TOKYO (Reuters) -Japanese electric motor maker Nidec Corp slashed its full-year operating profit forecast by nearly half on Tuesday as it faced pressure from weakening demand for technology goods and a slower-than-expected recovery of the global car industry.

The downgrade, which was partly due to expenses from an on-going restructuring push to bring down fixed costs, shows the difficulties manufacturers may face in attempting to capture a bigger slice of the global electric vehicle (EV) market.

The company cut its operating profit forecast for the financial year through March by 48% to 110 billion yen ($845 million), well below an average forecast of 202.5 billion yen by 20 analysts, according to Refinitiv data.

Nidec probably targets a V-shaped recovery by cutting back on fixed costs, reminiscent of a move it made after Japan's 2011 earthquake and the 2008 global financial crisis, said Koichiro Hagiwara, senior analyst at Tokai Tokyo Research Center.

"Restructuring costs in the fourth quarter will likely be quite big," Hagiwara added.

E-AXLE BUSINESS

In the third quarter, the restructuring shaved 11 billion yen off quarterly operating profit, mostly in the automotive business as Nidec gears up for growing competition in the EV market.

Chairman Shigenobu Nagamori, who set up the company with three others in Kyoto 50 years ago, said the cost-savings push was not being done due to worries over sales.

"We plan to spend about 50 billion yen on structural reforms," Nagamori said, adding he wants to complete those reforms this quarter.

For the third quarter through December, the firm reported an operating profit of 28 billion yen, down 37% from a year earlier. That was lower than a 51.34 billion yen average profit estimated by six analysts.

Nidec has invested heavily in production and development of a traction motor called e-axle, which combines an electric vehicle's gear, motor and power-control electronics.

The company expects that its e-axle business will reach profitability in the financial year starting from April.

It began producing a second-generation model of its e-axle system in Guangzhou, China in September. It aims to roll out a third-generation model in 2025 and another model in 2029 or 2030, seeking to cut costs by 30% or more with each model.

($1 = 130.1300 yen)

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