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Review of Operations Precision Products

Sales of wristwatch components remained solid owing to strong sales by wristwatch makers in the first half. Turning to non-wristwatch components, sales for air conditioning and medical-related components were strong. This was despite a drop in the HDD component market. In the fiscal year ending December 31, 2019, trends in demand are projected to be sluggish for both wristwatch and non-wristwatch components.

PRECISION PRODUCTS

SALES BY SEGMENT NET SALES OPERATING INCOME & OPERATING INCOME RATIO

Business Environment and Results in the Fiscal Period Ended December 31, 2018

PRECISION PRODUCTS SEGMENT SALES

The products in the Precision Products Segment are divided into two main areas: wristwatch components, a business that the Company has been involved in since it was founded, and other precision components (non-wristwatch components) such as automotive-, medical- and air-conditioner-related components.

Sales of wristwatch components remained solid owing to strong sales by wristwatch maker in the first half. In specific terms, sales reached ¥1,629 million (US$14,676 thousand). While sales of HDD components were sluggish amid market shrinkage, sales for air conditioning and medical-related components were strong. As a result, sales of non-wristwatch components came to ¥2,321 million (US$20,910 thousand). As far as the Group’s non-wristwatch component operations were concerned, the Star Micronics Group took steps to review its production structure and systems including overseas bases. As a part of this review, the Group sold Star Micronics Precision (Thailand) Co., Ltd., a production subsidiary in Thailand, at the end of September 2018. In addition, the Group is promoting efforts aimed at rebuilding its business organization. This includes making the decision to close the precision product department of its production subsidiary in Dalian, China, which is experiencing a downturn in profitability, around the end of 2019.

Based on the aforementioned, sales in the Precision Products Segment were ¥3,950 million (US$35,586 thousand). Operating income came to ¥322 million (US$2,901 thousand) *.

Outlook for the Current Fiscal Year and Business Strategies

Automotive Components

In the current fiscal year, demand for wristwatch components is projected to be sluggish owing to production adjustments made by wristwatch makers. As far as non-wristwatch components are concerned, sales are forecast to decline due to the impact of efforts to reorganize production bases. Having said this, the Group is withdrawing from fields where profitability continues to decline and is focusing on rebuilding its structure and systems in such areas as wristwatch and air conditioning components, where profit margins are high. From a production perspective, the Group is ramping up its automation and streamlining endeavors while improving production efficiency in order to increase profits.

In the fiscal year ending December 31, 2019, sales in the Precision Products Segment are expected to come in at ¥3,110 million and operating income ¥30 million.

* The consolidated fiscal period for the fiscal period ended December 31, 2018 is based on and presented for a 10-month period for the Company and consolidated subsidiaries in Japan and a 12-month period for overseas consolidated subsidiaries. Due to this method of presentation, year-on-year percentage change data is not provided.

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