Q&As on the Presentation of Financial Statements for FY2005 Interim Period

A1 : Sales in volume terms fell slightly less than 20% from the first quarter going into the second quarter. In addition, prices declined slightly. During the second half of the fiscal year, we predict the inventory adjustments by mobile phone manufacturers will continue through the end of the calendar year. We cannot make any forecasts for the fourth quarter and are adopting a somewhat cautious outlook, as announced previously.

A2 : We misjudged the profit ratio when we calculated the unrealized income from inventories. We were not aware that actual conditions had deteriorated. We believe that, during the second half of the fiscal year, there will be some reverse adjustments from realized income on inventories.

A3 : We are moving forward with adjustments in inventories and production. The deduction of unrealized income from inventories in the first half of the fiscal year was larger than expected because we used the profit ratio in the first half, but we expect to recover this in the second half.

A4 : Selling, general and administrative expenses-including advertising and promotion, transportation, maintenance, and other costs-will rise compared to the second half of the previous year. However, we are planning for an increase in income because of increased sales of new products, including the player piano "Disklavier" and electronic piano, improvement in gross margins, and reverse adjustments of realized income from inventories.

A5 : Sales in the United States were lower than expected. Increased inventories in the United States are a major factor.

A6 : Yamaha's share of the market for LSI sound chips is virtually unchanged. However, since there are signs of weakness among local mobile phone manufacturers in the Chinese market, the ratio of mobile phones equipped with these chips has declined.

A7 : We believe that melody and vocal ringtone services will coexist. We are developing a single LSI sound chip that can handle both melodies and vocal ringtones.

A8 : Price pressures on semiconductors are continuing. Conditions during the fourth quarter are totally unclear; so, we are adopting a cautious stance.

A9 : We have encountered unexpected performance in this segment and are now considering how to proceed.

A10 : In Japan, we have a spring selling season at the time of the beginning of the new school year. In Europe and the United States, we have the Christmas selling season. In terms of sales, there is no difference between the first half and the second half of the fiscal year, but operating income is higher in the first half than in the second half. This is because our margins are higher in Japan, and we produce more in the first half of the fiscal year.

A11 : Factors accounting for the increase will be the strong positive impact of the introduction of new products and reversals due to realized income on inventories. In addition, the last period was somewhat unusual in that certain expenses increased as we incurred some advertising and other promotional expenditures, including TV commercials and paid special bonuses to employees because of the Company's good performance.

A12 : We expect to attain these goals, because of the positive impact of new products and other factors.

A13 : In our medium-term plan, we have set goals for semiconductors of ¥40 billion in sales and ¥7 billion in operating income in FY2007, ending March 2007, but we expect semiconductor sales will exceed this target. In addition, we are moving forward with projects that use LSI related to sound. We would like to incorporate at least one of these in the framework of our management plans.

A14 : Along with the shrinkage in domestic demand for pianos and electones, we are working to streamline our domestic marketing systems and organization, while also endeavoring to rationalize and review our sales channels to adapt to changes in the markets for pianos and electones. Previously, Yamaha, as a manufacturer, worked closely together with retail shops, but now we have begun to divide up our activities and specialize.

Yamaha is placing emphasis on promoting interest in and demand for music through music schools, concerts, and other activities. Our activities also include establishing footholds in music schools for adults. On the production side, we are working to improve efficiency through the introduction of the Toyota Production System and the cell manufacturing system. Along with these efforts, we are upgrading our information systems and introducing SAP. We believe these activities will have a major positive impact in the years ahead.