Outsize Earnings from Tiny Motors

Nagamori's 30 years of persistence have made Nidec a winner

As a young Japanese engineer in the late 1960s, Shigenobu Nagamori realized that miniature motors to power small devices were going to become a big business. Since then, he hasn't let anything stand in his way. Angry that his boss called off the development of a tiny motor he was working on, Nagamori quit in 1973--and took the motor with him. That same year, in the depths of a nasty recession, he launched Nidec Corp. (NJ ) from a shack behind his house to sell the machines. Unable to generate interest from Japanese electronics makers, he crisscrossed the U.S. for three months until he won Nidec's first contract, from 3M.

His persistence has paid off. Today, Nagamori presides over a company that employs 41,000 people in 15 countries and dominates the global market for the tiny spindle motors that power computer hard-disk drives, digital cameras, DVD recorders, and other digital electronics. And given his persistence, it should come as no surprise that the 58-year-old Nagamori is plowing ahead despite the electronics industry's worst downturn in decades. On Sept. 27, 2001, while global markets were still convulsing over the terrorist attacks on the U.S., he listed Nidec on the New York Stock Exchange. "What happened was terrible, but I'm not one to waver," he says. "We need to raise funds overseas to further expand our business." His timing was right: Since the listing, Nidec's NYSE share price is up 48%, to $51.

That's because Nidec is growing even as most of the tech world has swooned. In the fiscal year ended Mar. 31, revenues rose 12.8%, to $2.3 billion. Granted, net profits fell 35%, to $54 million, but Nagamori says that was due largely to research and development costs for a new micromotor. Masashi Kubota, an industry analyst at ING Securities Japan, forecasts that Nidec's net profits this year will nearly double, to $100 million, on sales of $2.6 billion. "The company stands out at a time when so many tech firms are down," he says.

Still, Nagamori faces challenges. Kyoto-based Nidec today controls nearly 70% of the global market for the tiny motors that go into hard drives. Last fiscal year, sales of micromotors used in computer drives accounted for 33% of Nidec's revenue. But with sales of personal computers--87% of the hard-drive market--falling, Nidec will have trouble finding significant growth there.

So Nagamori is fighting to keep his edge. Nidec's newest hard-drive motor will feature "fluid dynamic bearings" that use a thin layer of lubricant to cut friction. These motors spin faster, make less noise, and use less power than those currently in use. Nidec's four-year, $330 million effort to develop the motors should pay off in coming years as they are incorporated into virtually all hard drives. "Nidec has done a lot to advance technology in the industry," says Hirotaka Ohno, a spokesman for Hitachi Ltd., a major Japanese hard-drive manufacturer that uses Nidec's products. Analysts predict that the company's market share of hard-drive micromotors could reach 80% by yearend.

Also helping Nidec are the growing sales of new consumer gadgets that use hard drives. These days, MP3 players, DVD recorders, digital cameras, and a slew of other gizmos all have drives that can store songs, movies, and TV shows. Global shipments of audio players, including MP3s, are expected to reach 207 million units by 2006, up from 15 million last year, says market researcher International Data Corp. Those of DVD recorders are expected to surpass 1 million this year, according to Cahners In-Stat/MDR, another market research firm.

Then there's the car market. Right now, Nidec is a bit player in the business of building midsize motors for the global auto industry, which is dominated by Japan's Mabuchi Motor and Johnson Electric of Hong Kong. But Nagamori has big plans. Volvo and Peugeot have started using Nidec's motors in their electric power steering systems. That business, according to UBS Warburg, will be worth $200 million in sales for Nidec in 2003. And if sales of electric-gasoline hybrid vehicles take off, so will opportunities there. Such cars "require twice as many micromotors as today's automobiles," says Nagamori.

Nidec's edge is Nagamori, a self-described workaholic who puts in 16 hours a day, 350 days a year. His company sets the pace in a sector where hard-drive capacity doubles every year and micromotor technology is updated every three months. Indeed, Nagamori strives to be No. 1 in whatever he does. That's why Nidec's new headquarters, now under construction, will be Kyoto's tallest building. Nidec, Nagamori boasts, "will be the Intel of micromotors." That's a big dream for these troubled times. But so far, no one has ever bet against Shigenobu Nagamori and won.

By Irene M. Kunii in Kyoto

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