Nidec Corporation

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Nidec Corporation

338 Kuzetonoshiro-cho, Minami-ku
Kyoto 601-8205
Japan
Telephone: +81-(075)-935-6140
Fax: +81-(075)-935-6141
Web site: http://www.nidec.co.jp

Public Company
Incorporated: 1973 as Nippon Densan Corp.
Employees: 33,331
Sales: ¥231.84 billion ($1.93 billion) (2003)
Stock Exchanges: Tokyo Osaka New York
Ticker Symbol: NJ
NAIC: 335312 Motor and Generator Manufacturing; 333412 Industrial and Commercial Fan and Blower Manufacturing

Kyoto-based Nidec Corporation is the world's leading manufacturer of the tiny electric motors that power hard disk drives on personal computers and other digital electronics. The company supplies about two thirds of global demand for the so-called spindle motors that spin hard drives as data is recorded and retrieved. As hard drives begin to be incorporated into more and more devices, Nidec's motors are being used in products ranging from video game consoles to DVD recorders to car navigation systems. Nidec's precision products make use of "brushless DC motor" technology, which is quieter, more efficient, and longer-lasting than conventional brush DC motor technology. As applications for brushless DC motors expand beyond their use in hard drives, Nidec is making precision motors for a wider range of products including home appliances, office equipment, and power steering systems in cars. The company also makes fan motors used to dispel heat from computer chips as well as pivot assemblies for hard disk drives.

Since its founding in 1973, Nidec has grown rapidly through numerous mergers and acquisitions. The company's founder, CEO, and President Shigenobu Nagamori, is known for his competitive drive and his willingness to go against conventional Japanese business practices. With more than three dozen subsidiaries, Nidec's production network stretches across Asia. The company has factories in China, Thailand, the Philippines, Indonesia, Singapore, and Vietnam, as well as in the United States. Nidec's research and development capabilities have helped it remain a leader in precision motor technology, enabling it to thrive amid the constantly advancing information technology industry.

Developing Markets for Precision Motors and Fans: 1973–88

In 1973 Shigenobu Nagamori was working for a precision machinery maker known as Yamashina Seiki when his boss called off development of the miniature motor project Nagamori was spearheading. Nagamori had been researching the development of precision motors since his high school days and was determined to pursue opportunities in the field. Consequently, he quit his job and, at the age of 28, started Nidec—originally known as Nippon Densan Corporation—from a small building behind his house in Kyoto. Three engineers from his former employer joined him. The four-person firm, with no startup capital except for Nagamori's life savings, began researching precision motors.

Nagamori had no success finding customers at the large electronics manufacturers in Japan. All they wanted to know "was how old I was and how many staff I employed," he told Business Week in May 1999. Nagamori lacked connections to Japan's large industrial groups, known as keiretsu, and in Japan's business climate small startup companies were only able to get subcontracts. Nagamori did not want to play second fiddle to anyone. Thus he set off for the United States, where he made cold calls to the companies he found in the Yellow Pages. He managed to set up a meeting at 3M headquarters in St. Paul, Minnesota, and won a contract worth $2,000. That contract grew into regular orders for precision motors that 3M used in high-speed cassette duplicators.

Soon after founding the company, Nagamori set an annual sales goal of ¥1 billion. His coworkers laughed, but the contracts gradually accumulated thanks to Nagamori's sales persistence and the quality of the company's product. IBM ordered $1 million worth of disk drive motors in 1974. Contracts followed with Digital Equipment and other major U.S. corporations. Back in Kyoto, Nagamori had trouble getting credit for loans, so he invested his first profits into real estate which could be used as collateral. His employees were tempted to leave for more secure positions at larger companies, so he implemented stock options as a form of compensation—an unconventional approach for a Japanese firm.

The company established a factory in Kameoka City, Kyoto, in 1975 and a U.S. subsidiary, Nidec America Corp., in 1976. In 1978 a joint venture was set up with the U.S. fan manufacturer Torin Corp. to make axial fans for cooling of electronics. The company began full-scale production of axial fans using brushless DC technology in 1982. In 1984 Nidec gained full control of the fan manufacturing operation when it purchased the axial fan division of Torin Corp. Torin had been producing air blowers for over 100 years but became overwhelmed with red ink in the early 1980s. Nagamori promised to make the division profitable in three years. He put the former number two man, Thomas T. Keenan, in charge and asked him to follow a list of 117 points, such as the requirement that executives arrive at the office earlier than regular employees every day. Even though some of the requirements clashed with American culture, they were implemented and the division posted a $650,000 profit in 1987. Torin's precision fan technology was a good supplement to Nidec's precision motor technology. The company was rolled into Nidec America Corp. and became a research, development, and manufacturing center for many of Nidec's small motor products.

While the fan business began to take off in the 1980s, Nidec was also advancing in the hard drive motor business. A major breakthrough came in 1979 when the company became the first to successfully commercialize a spindle motor for an eight-inch hard disk drive. The product made the company a major player in the world computer market. In the past, hard drives were driven by belts attached to motors; Nidec's DC motor revolved the hard drive spindle directly and made possible the development of much smaller computers. Production of a 5.25-inch spindle motor began in 1981 and a 3.5-inch motor followed in 1985.

In 1988 Nidec went public with a listing on the Second Section of the Osaka Securities Exchange and on the Kyoto Stock Exchange. By this time, the company had established several manufacturing subsidiaries, including plants in Tottori and Okayama Prefectures in Japan. With over ¥25 billion in annual sales for 1988, the company had already surpassed the ¥1 billion and ¥10 billion sales goals set by Nagamori. His employees were not laughing at his next goal: ¥100 billion in sales by the company's 20-year anniversary in 1993.

Mergers, Acquisitions, and Offshore Subsidiaries: 1990s

Mergers, joint ventures, and acquisitions were the tools that drove Nidec's growth through the 1990s. With the 1989 purchase of Shinano Tokki Co. Ltd. from Teac Corporation, Nidec acquired one of the major world manufacturers of spindle motors for hard disk drives, with a factory in Nagano, Japan.

In 1989 the company entered the power supply market with the purchase of DC Pac Co., Ltd., followed by the 1991 acquisition of Power General Corporation, a Massachusetts-based manufacturer of power supply products. Nidec was hoping to increase its sales in this area. In 1993 Nidec acquired the power supply manufacturer Masaka Electronics Co. Ltd. The power supply units were merged into Nidec Power General Corp.

Nidec set up sales and procurement offices in Singapore, Taiwan, and Hong Kong in 1989, 1992, and 1993, respectively. The company also began locating factories outside of Japan to take advantage of cheaper labor. Nidec Electronics (Thailand) Co., Ltd. was established in 1990 and Nidec (Dalian) Ltd., in 1992. Nidec built a plant in the northern Chinese city of Dalian in 1994 in a joint venture with Koyo Seiko Co., Ltd., a leading Japanese manufacturer of bearings. The drive to move production offshore gained momentum in the mid-1990s as Nidec suffered from its exposure to exchange rate fluctuations. The company lost over ¥1.3 billion in the fiscal year ending March 1995 because of the strong yen. In the following years Nidec increasingly transferred production to plants in Thailand, Singapore, China, and the Philippines. The company established Nidec Philippines Corp. in late 1995 and invested ¥4.5 billion in a large plant there to make spindle motors for hard disk drives. As manufacturing jobs were transferred out of Japan, the domestic subsidiaries were converted into research and development centers.

Many of Nidec's major acquisitions in the 1990s targeted companies that were expected to create synergies with Nidec's existing operations. Nagamori's strategy was to seek out companies that had quality technology and potential for growth but were struggling financially. His view, as he told the Nikkei Weekly in 2002, was that nontechnical problems were easier to solve than technical deficiencies. "The biggest problem at a struggling company is not the ability of management and employees, but their morale," Nagamori explained. "We change the mindset of staff at acquired firms so they come to believe that posting red ink is a sin." Just as he had with Torin Corp. in the 1980s, Nagamori would revamp management at a newly acquired subsidiary and bring the company back into the black. Often Nidec would acquire a minority share, just enough to have a say in how things were run, and gradually gained full control of the company as its performance improved.

Company Perspectives:

Amid a fast-changing environment that demands rapid technological and corporate innovations, Nidec's motto, "Do it now, do it without fail, do it until completed" exhorts employees to thrive on challenges. Fueled by independent determination, flexible thinking and bold commitment to action, Nidec continues to be dedicated to global leadership in its core competence of "turning & moving" products.

In 1995, for example, Nidec acquired a 36.5 percent stake in the struggling Japanese manufacturer Shimpo Industries Co. Shimpo made variable speed mechanisms for stepless automatic transmissions, and the acquisition was expected to improve Nidec's expertise in the area of midsize commercial use motors. The next year Shimpo absorbed Daisan Kogyo KK, a Japanese manufacturer of control equipment. The company, renamed Nidec-Shimpo Corporation, eventually became a wholly owned subsidiary of Nidec. Another acquisition in 1995 was Kyoritsu Machinery Co. Ltd., which made automated equipment for precision motor assembly lines. Nidec initially bought a 38.5 percent stake in the company, later gained control of 60 percent, and renamed the company Nidec Machinery Corporation.

Another major acquisition came in 1997 when Nidec bought 30 percent of Tosok Corporation from Nissan. Like Shimpo, Tosok made parts for continuous variable transmissions as well as other precision auto parts and machinery. In Nagamori's opinion, the company had languished under Nissan. He put it colorfully at a press conference in January 2000: "In the past an evil lord took all our money and discouraged our efforts to turn a profit." Nagamori discontinued Tosok's unprofitable products and moved production to Vietnam to cut costs. By 2000, the company was back in the black. Nidec gained majority control of the company in 1999. Other acquisitions in 1997 included Read Corporation, which made printed circuit boards and testing systems for computer displays, and Kyori Kogyo Co., Ltd., which made automatic presses and other types of industrial machinery. The companies were renamed Nidec-Read Corp. and Nidec-Kyori Corp.

In 1998 Nidec became the largest shareholder in Copal Co., a manufacturer of precision optical equipment and cell phone motors with factories in Malaysia and China. Nidec also established a joint venture, Shibaura Nidec Corp., with Toshiba Corp. and Shibaura Engineering to make precision motors for electric appliances and automobiles. Nidec pushed for extensive restructuring at the company, in which it had a 40 percent stake, and later acquired its partner's shares when profitability had improved. Through these two subsidiaries, Nidec established offshore plants in Malaysia, Thailand, the Philippines, and China. Nidec also opened a new $30 million plant in Singapore in 1998 for production of hard disk drive spindle motors and pivot assemblies.

New Technology, New Applications: 1998–2003

Nidec broke the ¥100 billion sales goal in 1998, when it reported net revenues of ¥115.7 billion and an after-tax profit of ¥6.33 billion. That year the company listed its stock on the First Section of the Osaka Securities Exchange and on the Tokyo Stock Exchange. The First Section was reserved for more prominent companies. But Nagamori, always striving to be number one, desired the prestige of being listed on the world's largest stock exchange. This goal was achieved on September 27, 2001, when Nidec debuted on the New York Stock Exchange, pushing ahead with a successful listing even though markets were still weak in the wake of the terrorist attacks several weeks earlier.

As a result of its numerous acquisitions, Nidec's sales more than doubled over two years to ¥249.2 billion in 2000. With its subsidiaries making a broader array of precision equipment, Nidec began to define its business sphere generally as "turning and moving" products. One activity, however, that did not fit into its business strategy was the power supply manufacturing capability it had acquired in the late 1980s and early 1990s. In 1997 Nidec sold a portion of its power supply subsidiary Nidec Power General Corp. to the Taiwanese power supply manufacturer Potrans Electronical Corp. In 2001 the remaining share was transferred to the Japanese Nipuron Corporation. Nidec completed its exit of the sector in 2002 when the American subsidiary sold its power supply division to Minneapolis-based Ault Incorporated.

Nidec had plenty to keep it busy in the area of brushless DC motor manufacturing. Although sales of personal computers were slowing worldwide, the use of hard drives in devices such as MP3 players, DVD recorders, and digital cameras was growing. Nidec also continued to acquire companies with expertise outside the traditional area of hard disk drive spindles. In late 1999 the company bought over 70 percent of Nemicon Corporation, which made electronic equipment such as optical rotary encoders and proximity sensors. In 2000 Nidec acquired Y-E Drive Corp., a maker of mid-size motors for industrial equipment and home appliances, and set up a joint venture with Johnson Electric of Hong Kong that gave them access to Johnson Electric's brush DC motor technology.

Meanwhile, Nidec kept pace with the latest developments in hard drive technology. A new technique known as "fluid dynamic bearings" was replacing the traditional bearing system in hard drives. Instead of metal ball bearings, the new technique used a thin layer of lubricant to separate rotating and nonrotating parts. Fluid bearings could spin faster than ball bearings while using less power, generating less friction, and standing up better to impacts. Nidec introduced a hard drive motor with fluid bearings in 2002 after spending $330 million on its development over four years. That year it also opened a factory to produce fluid dynamic bearings in Zhejiang, China, where some of its affiliates already operated. Another subsidiary, Nidec (Dongguan) Ltd., was set up to manufacture brushless DC motors in Guangdong Province in China.

Key Dates:

1973:: Shigenobu Nagamori founds Nippon Densan in Kyoto to research precision motors.
1974:: IBM orders $1 million worth of hard disk drive motors.
1976:: Nidec America Corp. is founded.
1979:: Nidec successfully commercializes a spindle motor for an eight-inch hard disk drive.
1984:: Nidec purchases Torin Corp.'s fan manufacturing business.
1988:: Nidec goes public on the Osaka Exchange.
1995:: Currency exchange rate fluctuations spur Nidec to move more production offshore.
1998:: Nidec achieves more than ¥100 billion in sales after a decade-long series of acquisitions.
2001:: Nidec lists on the New York Stock Exchange.
2002:: Nidec introduces a hard drive motor with "fluid dynamic bearings."

Nidec celebrated its 30th anniversary in 2003 by moving into a new headquarters in Kyoto. The company also made yet another acquisition, buying a 40 percent share in Sankyo Seiki Manufacturing Co. Sankyo had been experiencing net losses in recent years and stood to benefit from Nidec's marketing capabilities, while Nidec was attracted to Sankyo's expertise in the manufacture of motors smaller than 1.8 inches. Although Nidec was an expert with 2.5 inch motors, it was not as strong in the production of the smaller motors that were increasingly used in portable electronic devices.

In 2003, Nidec was keeping pace with the latest hard drive technology while looking ahead to new applications for many different kinds of brushless DC motors. Automobiles became a huge potential market as power steering and braking systems began to be electrically operated. Nidec's efficient precision motors could also replace traditional motors in devices such as refrigerators, washing machines, and vacuum cleaners. Nidec's vision was to have its motors whirring quietly inside appliances, electronics, and automobiles around the world.

Principal Subsidiaries

Nidec Electronics (Thailand) Co., Ltd.; Nidec (Dalian) Limited; Nidec Singapore Pte. Ltd.; Nidec Philippines Corporation; Nidec Precision (Thailand) Co., Ltd.; Nidec Shibaura Corporation; Nidec Power Motor Corporation (78%); Nidec Nemicon Corporation (93.8%); Nidec-Kyori Corporation (69.2%); Nidec Machinery Corporation (60%); Nidec America Corporation; Nidec Taiwan Corporation; Nidec Electronics GmbH (Germany); Nidec (H.K.) Co., Ltd. (Hong Kong); P.T. Nidec Indonesia; Nidec Tosok Corporation (54.7%); Nidec-Shimpo Corporation; Nidec-Read Corporation (61.5%); Nidec Total Service Corporation (85.7%); Nidec (Zhejiang) Corporation (China); Nidec (Dongguan) Limited (China); Nidec (New Territories) Co., Ltd. (Hong Kong); Nidec System Engineering (Zhejiang) Corporation (China); Nidec (Shanghai) International Trading Co., Ltd.; Nidec Copal Corporation (46.7%); Nidec Copal Electronics Corporation (43.9%).