Q1:I believe that maintaining the utilization rate of the Kakegawa factory is the highest priority to improve piano earnings. Please provide specifics about your plan to hold production at this factory at the current level as sales decline in Japan.
A1: We manufacture pianos at Kakegawa for sale in Japan and other countries. We plan to make an affordable made-in-Japan piano at Kakegawa by cutting costs by about 20% compared with current pianos that are made in Japan. By cutting sales prices as well, we are going to make our products more competitive in Japan and overseas. From a medium-term standpoint, we plan to have these affordable pianos account for more than half of production volume at the Kakegawa factory. This will allow us to hold production volume to at least 20,000 units.
To invigorate the shrinking Japanese piano market, we recently introduced a piano made in Indonesia that retails for about ¥400,000.
Q2:I believe that you will be manufacturing lower-priced pianos in China and Indonesia. If you also produce affordable pianos in Japan at Kakegawa, can you realistically expect to sell pianos from Kakegawa in Japan and other countries?
A2: Only the Kakegawa factory can produce our highest-quality pianos like the CFX grand piano, which earned rave reviews at the recent Chopin piano competition. This is why we believe it is vital to hold production level at the Kakegawa factory.
Product quality is improving at our factories in Indonesia and China. These factories can now make piano components with a similar quality as our Kakegawa factory can.
With regard to developing affordable pianos, we believe that we can supply our customers with products at lower prices by using lower-cost components from overseas factories while maintaining the same high quality of current made-in-Japan pianos.
Q4:How are you maintaining the operating capacity at the Toyooka factory, which makes wind instruments, now that the premium instrument market has declined sharply following the collapse of Lehman Brothers?
A4: Sales of high-end wind instruments are declining. This is why we decided to centralize all production in Japan by moving production from the Saitama factory to the factory in Toyooka. In addition, we shifted the Toyooka factory’s production of low- to mid-priced products to Indonesia and China. Thus, we plan to improve earnings in this business by cutting costs.
Following these shifts in production, the Toyooka factory’s production volume is now much lower than in the fiscal year ended March 2007. Production at factories in Japan was much lower in the fiscal year ended March 2010 as you can see on page 27. This was caused by a big cut in output to lower our inventories.
Q5:Will the use of components from overseas cause any quality problems?
A5: We are already exporting pianos from Indonesia to Europe and pianos from China to North America. There are no problems concerning the quality of overseas components that are made for upright pianos and lower-priced grand pianos.
Q6:What is the difference between affordable pianos and the b series of pianos made in Indonesia?
A6: The b series is made in Indonesia while affordable pianos use overseas components but are made in Japan. We have not determined prices yet, but we expect the price to be somewhere in between that of current made-in-Japan pianos and the b series.
In Japan, the b series will remain as the lowest-priced products even after we start selling affordable pianos.
Q7:You discussed products and sales channels in emerging markets. Please provide more information about promotional activities and other measures to increase sales.
A7: We have been conducting many activities for some time to increase sales in emerging markets. In Indonesia, we started activities about 30 years ago to promote wider use of recorders, mainly at elementary schools. These activities have been producing good results.
To increase the population of young people interested in music in the Asia-Pacific region, we hold a rock festival called Asian Beat every year. We plan to further upgrade these types of activities in this region.
In India and other countries with good prospects for growth, we will conduct promotional activities aimed at increasing the number of people who play musical instruments.
Q8:Wind instrument sales in China appear to be somewhat soft. Please provide more information about this.
A8: In China, students tend to learn how to play musical instruments in elementary and junior high school but stop playing an instrument in high school to prepare for university entrance exams. This is why we are considering programs aimed at convincing university students and adults to resume playing an instrument. We believe that another reason for weak sales in China is the lack of demand associated with marching bands, unlike in the United States.
Q10:I believe there are different reasons in each region of the world for the weak sales and earnings of wind instruments. How do you plan to achieve a recovery in sales?
A10: In Europe, our market share has declined in some countries because of falling demand for high-end products and the emergence of OEM models from Chinese manufacturers.
In North America, cuts in school budgets following the collapse of Lehman Brothers are a major cause of the downturn in sales. The rate of decline is currently starting to slow, and we hope to see a recovery going forward.
In China, we plan to sell almost 20,000 units in the current fiscal year. We will have to cut costs by about 30% from the current level to reach the price range of high-volume instruments, which are made mainly by Chinese companies. Our goal is to become sufficiently cost-competitive to compete successfully with Chinese manufacturers.
Our worldwide sales of wind instruments were 310,000 units in the previous fiscal year, and we expect to sell 335,000 units this fiscal year.
We expect a small decrease in sales in Japan from one year earlier. However, we plan on a big increase from 97,000 units to 110,000 units in North America and increases from 81,000 units to 90,000 units in Europe and from 61,000 units to 65,000 units in the Asia-Pacific region. We, therefore, expect sales to increase in all regions except Japan.
In the fiscal year ending March 2013, we plan to sell 37,000 units in China and 76,000 units in the Asia-Pacific region. We also plan to sell 120,000 units in North America and 100,000 units in Europe. Furthermore, in that fiscal year, we expect to start selling low-cost models that can compete with instruments made by Chinese companies.
Q12:Every medium-term plan of yours includes the goal of increasing sales of guitars and drums. However, to achieve non-continuous growth, are you using competitors as benchmarks, considering an acquisition, or working on other ideas?
A12: We are forecasting to sell 850,000 guitars in the current fiscal year. The reputation of our acoustic guitars is improving, and our production is unable to keep up with demand. We are increasing production capacity of these guitars while making investments to increase output at our factories in Indonesia and China. At some factories, we are considering the use of two shifts.
We will continue to use mergers and acquisitions for the purpose of strengthening our presence in business domains. However, no specific actions are under consideration at this time.
Furthermore, in the guitar industry, we must take brand awareness into consideration when thinking about a merger or acquisition. For instance, when we buy the brand of another company, we cannot hope for any synergies if awareness of the Yamaha brand is not so strong among guitar players.
In addition, using a merger or acquisition to purchase a revolutionary technology is less likely to occur in the guitar and drum sectors than in our other businesses.
Q13:What are your earnings from guitars and drums? Aren’t even companies specializing in these products unprofitable?
A13: The acoustic drum market is shrinking, and it is difficult to earn a profit. In the guitar business as well, we believe that other companies, too, are unable to consistently generate double-digit earnings.