Nidec Corporation Earnings Call: Record Highs Amid Headwinds

Nidec Corporation Sponsored ADR ((NJDCY)) has held its Q3 earnings call. Read on for the main highlights of the call.

Nidec Corporation Books Record Results but Flags Market Headwinds

Nidec Corporation’s latest earnings call painted a picture of resilient growth amid notable macro and operational headwinds. Management emphasized record-high net sales and operating profit, fueled by surging demand in AI servers and water cooling systems, alongside a profitable turnaround in the Chinese traction business. At the same time, they acknowledged pressure from currency fluctuations, delivery delays, and weak automotive markets in Europe and the U.S. Even so, the tone remained cautiously optimistic, with the company positioning itself for structural reforms and new growth drivers over the next few years.

Record High Net Sales and Operating Profit

Nidec reported net sales rising 11.5% year on year to JPY1.946 trillion, with operating profit up 5.0% to JPY175.5 billion—both all-time highs for the company. Management underscored that this performance came despite a challenging external environment, underscoring the strength of its diversified business portfolio. The record results highlight how growth in newer, technology-driven segments is increasingly offsetting softness in more traditional markets, reinforcing Nidec’s positioning as a key player in high-growth industrial and electronics applications.

AI Server Demand Emerging as a Key Growth Engine

The company stressed that demand for AI servers is growing rapidly and has become a major contributor to revenue. As AI workloads surge globally, Nidec is benefiting from rising content per server and higher value-added components, positioning itself on the right side of the data center investment cycle. This momentum in AI-related products was highlighted as one of the most important structural growth drivers supporting the company’s topline in the near to medium term.

Water Cooling System Business Poised for Scale

Nidec’s water cooling system business, which supports GPUs and chipsets, is seeing strong traction as power-hungry AI and high-performance computing systems require more advanced thermal management. Management described this segment as enjoying “growing momentum,” with an explicit ambition to build it into a JPY500 billion business over time. This reflects the company’s strategy to move deeper into critical infrastructure for next-generation computing, where demand visibility is robust and pricing power can be stronger.

Chinese Traction Business Turns Profitable

A key bright spot was the traction business based in China, which turned profitable from the third quarter and is expected to remain in the black in the fourth quarter and beyond. This shift is significant because traction systems, often linked to electric vehicles and rail-related applications, are strategic for Nidec’s long-term growth. Profitability in China suggests that earlier investments and restructuring efforts are bearing fruit, and the region could serve as a profit growth engine even as other automotive markets remain sluggish.

Machine Tool Segment Sees Strong Order Recovery

The machine tool segment has seen a sharp recovery, with order intake rising 1.5 times, particularly in China and the United States. This robust order growth signals improving capital investment by manufacturers and confirms solid demand for precision equipment, a positive indicator for industrial activity. For Nidec, this segment not only adds revenue growth but also supports higher-margin, technology-intensive offerings that can enhance the company’s overall profitability profile.

Strategic Participation in the IOWN Initiative

Nidec announced its decision to participate in the IOWN initiative, positioning the company to acquire advanced technologies critical for its five core business pillars. This move supports its long-term strategy to stay at the forefront of digital infrastructure, networking, and next-generation communication technologies. By aligning with IOWN, Nidec aims to deepen its technological capabilities and reinforce competitive advantages across multiple business lines that depend on high-speed, high-efficiency data and power solutions.

Currency Fluctuations Hit Pre-Tax Profit

Despite record operating profit, operating profit before income taxes fell 4.7%, hurt by currency exchange swings and financial losses totaling JPY22.5 billion. Management highlighted these as largely external, non-operational factors, but they nonetheless weighed on bottom-line performance. For equity investors, this underscores a key risk factor: the company’s global footprint exposes it to FX volatility, which can obscure underlying operational improvements in reported results.

Losses from Delivery Delays Add Operational Drag

Nidec also reported losses in the latest quarter tied to delays in delivering products to customers. These disruptions, while not fully quantified in the call summary, signal operational execution issues that can undermine otherwise-strong demand. Management presented them as temporary and addressable, but they remain an important watchpoint for investors since delivery performance directly affects revenue recognition, customer satisfaction, and cost control.

Sluggish Automotive Markets in Europe and America

The company’s automotive segment is feeling the strain from a weak demand environment in Europe and the U.S. Nidec is undertaking restructuring efforts in response, which have contributed to profit losses in these regions. While the Chinese automotive-related business is profitable, the lagging performance in Western markets highlights the uneven nature of the global auto cycle and the challenges of repositioning for electrification and new mobility trends in slower-growing regions.

Seasonal Weakness in U.S. Motor Products

In the U.S., Nidec’s motor products business suffered a seasonal drop in momentum, which weighed on overall profitability. Management framed this softness as temporary, consistent with typical seasonal patterns rather than a structural downturn. Still, combined with other headwinds, the seasonal loss adds to the near-term pressure on margins and emphasizes the importance of higher-growth segments picking up the slack.

Restructuring and Challenges in ACIM and AMEC Units

The ACIM (AC industrial motors) and AMEC business units are navigating “severe” conditions, with restructuring costs impacting results. Nidec is actively working to improve cost structures and operational efficiency in these units, signaling a willingness to take short-term pain for long-term gain. Management conveyed confidence that these efforts will translate into better performance going forward, but investors should expect some ongoing volatility as the restructuring progresses.

Guidance and Strategic Outlook Focused on Structural Reform and Growth

Looking ahead, Nidec reaffirmed its growth trajectory, anchored by record net sales and operating profit alongside disciplined cash flow management, including JPY41.1 billion in operating cash flow. The company expects continued strong demand for AI server products and sustained high demand for hard disk motors, while the profitable Chinese automotive and traction operations help offset weaker European and U.S. auto markets. Nidec plans substantial structural reforms and business expansion into fiscal 2025, with a major push into water cooling systems and deeper involvement in the IOWN initiative to sharpen its technological edge. Management also highlighted strategic expansion moves, including the planned acquisition of Makino Milling Machine, which they believe offers strong synergy potential with the machine tool and industrial businesses. Overall, Nidec is setting a clear course toward double-digit profitability by FY 2025, betting on a mix of restructuring, M&A, and high-growth technology segments to drive the next leg of earnings growth.

In summary, Nidec’s earnings call showcased a company hitting record levels of sales and operating profits while candidly confronting FX losses, operational hiccups, and weak Western auto markets. Growth in AI server-related products, water cooling systems, and the Chinese traction business is increasingly defining the company’s future profile, supported by strategic initiatives such as IOWN participation and the Makino acquisition. For investors, the story is one of solid underlying momentum and ambitious restructuring, with near-term volatility offset by a clear roadmap toward higher profitability and stronger competitive positioning.