Q01:In the first quarter of fiscal 2005, sales of musical instruments declined while income rose compared with the initial projections. Please explain any changes in the relative sales and income within your line of products.
A01:The first quarter saw sales of products with high profit margins increase, particularly Electone^(TM) models. In addition, sales benefited from the deferral of certain expenses.
Q02:In the AV/IT business, why did income expand significantly while sales were virtually unchanged from the initial projections?
A02:Income in the AV/IT business benefited not only from cost reductions, but also from strong sales of routers and on-line karaoke machines. As with musical instruments, profits improved thanks in part to the deferral of certain expenses.
Q03:In the semiconductor business, in June and July 2004, inventory adjustments were cited as the reason for the drop in sales. Please discuss how far sales declined compared with the first quarter of fiscal 2004? In addition, what are your projections as to the number of orders to be placed from August?
A03:In the first quarter of fiscal 2005, sales amounted to ¥17.5 billion, compared with ¥13.3 billion in the first quarter of fiscal 2004. However, there is no point in comparing inventories for the two terms because, in the first quarter of fiscal 2004, sales in China were adversely affected by the SARS outbreak. In June 2004, sales dropped 10% compared with April and May and remained at that level through July. That said, order placements have been steady and are expected to form the basis of a recovery in August.
Operating income was ¥3.1 billion above the initial May 7 projection at the end of the first quarter but is expected to drop to ¥2.5 billion above the initial projection by the end of the second quarter. The expected decrease reflects expense adjustments in the AV/IT business and ongoing difficulties in the lifestyle-related products business.
Q06: Is Yamaha concerned about the inventory problems currently facing distributors of AV products around the world? Are these problems exerting downward pressure on income from the AV/IT segment? If not, please explain whether Yamaha's insulation from these problems derives from its targeting of niche markets.
A06:Fortunately, neither Yamaha nor its distributors are having problems with rising inventories.
Q07:In the Analyst and Investor Briefing on May 7, 2004, Yamaha explained some of the difficulties in maintaining current profit levels in the mobile phone LSI sound-chip business. Please discuss any negative or positive trends that have emerged since the last briefing.
A07:It is extremely difficult to make sales forecasts given that mobile-phone manufacturers are facing extremely uncertain operating conditions at present.
Q08:Why is the current fiscal 2005 forecast for operating income different from the projections announced on May 7, 2004? In particular, please account for the decrease in gross profit, from ¥4.6 billion to ¥1.3 billion, and the increase in sales expenses, from ¥3.0 billion to ¥5.1 billion.
A08:Gross profit is higher than projected on May 7, 2004 due to increased sales; enhanced profitability in the musical instrument, AV/IT, and semiconductor businesses; and other factors. Regarding the increase in SG&A expenses, sales promotion expenses and freight expenses were slightly increased. We are considering increasing our sales expenses by approximately the same amount as the increase in gross profit margin.
Q09:You've said that income in the musical instrument business was possible if Electone™ sales increased. Does the income achieved during the first quarter reflect factors beyond the increase in Electone™ sales?
A09:A detailed analysis is not possible here. However, as mentioned before, to generate income we worked to halt the decline of domestic musical instrument sales. Ultimately, we did succeed in raising income, thanks in part to increased Electone^(TM) sales; however, there were other contributing factors, including an improvement in manufacturing costs and the deferral of certain expenses. With Electone^(TM) sales surpassing our initial projections, we have increased manufacturing rates to reduce the backlog of orders.
Q10:In electronic equipment and metal products, despite projecting a decline in semiconductor sales, the Company recorded increased sales and income in the first quarter. Now, one month into the second quarter, do you foresee a decrease, based on conservative estimates, in semiconductor sales for the second quarter?
A10:There is strong downward pressure on semiconductor prices. Taking into account the factors discussed above, current projections remain essentially unchanged from the forecast announced on May 7, 2004.