Q&As on the Presentation of Financial Statements for FY2006 First Quarter

Q1 : Please explain why inventories of musical instruments have increased. Also, are you planning to reduce production beginning in the second quarter?

A1 : We reduced production of musical instruments in the first quarter, but inventories at the retail level in the United States were relatively high and growth in sales at the wholesale level was lower than expected. These are the reasons for the increase in inventories. Adjustments in inventories at the retail level are proceeding smoothly and, from the second quarter onward, we expect inventories to come down as sales rise. At the same time we will make further downward adjustments in production.

Q2 : In contrast with previous years, you are planning for an improvement of profit in the musical instruments in the second half. Please explain your outlook.

A2 : During the first quarter, sales of Electones, which were strong in the previous year, leveled off. As a result, income declined, along with the drop in sales and reduction in production levels. Looking ahead, we are scheduled to introduce many new products, mainly in Europe and the United States, and are looking for an increase in sales. In addition, we believe the positive effects of reductions in cost will gradually become apparent.

Q3 : What are the factors that led to the decline in income for the AV/IT segment compared with the same quarter of the previous year?

A3 : Factors accounting for the decline in income were lower than expected growth in sales, increases in expenditures because of the bringing forward of promotional expenditures intended to improve awareness of YSP products, and lower sales of routers.

Q4 : Compared to the drop in revenues, what factors accounted for the apparently larger increase in inventories?

A4 : We cut production as scheduled, but the expected increase in sales and disposal of inventories did not materialize, thus leading to the increase in inventories.

Q5 : To reach your outlook for income in the musical instruments segment for the full fiscal year, you will have to show an improvement in profit of about ¥10 billion in the second, third, and fourth quarters. Could you please explain your outlook?

A5 : We are working to reach our target for income by increasing sales, including the positive impact of new products, and through cost reductions.

Q6 : Would you please tell us why, in contrast to the initial outlook, profits increased in the electronic equipment and metal products segment and give us your outlook?

A6 : The main factor was higher unit volume sales than in our initial forecasts, leading to a rise in sales of semiconductors. The outlook for the second quarter and beyond is not clear. We are looking for growth in sales of mobile phones, but most of the growth is expected in the BRICs, and we believe there may not be much growth in unit sales of LSI sound chips for mobile phones. We think increases in sales of products incorporating our newly introduced 128 polyphonic ring tone LSI sound chips and audio decoders will help us to reach our initial goals.

Q7 : In the first quarter you reported a substantial increase in equity in earnings of unconsolidated subsidiaries and affiliates in contrast to your initial outlook. Please give us your outlook going forward.

A7 : Most of this is an increase in equity in earnings of Yamaha Motor. Judging from the figures released recently by Yamaha Motor, equity in earnings will be above the initial forecasts.

Q8 : In managing your business activities in the musical instruments business, could you please tell us whether you will give preference to cutting inventories or will you put priority on attaining your earnings targets even though inventories are somewhat high?

A8 : We will aim for attaining profit targets and reducing inventories, but, if we have to make a choice, we will place higher priority on reducing inventories in the interest of financial soundness.

Q9 : Would you please give us your target for inventories at the end of the interim period and the breakdown?

A9 : We have not revised our outlook this time for inventories for the interim period, but in view of conditions at the end of the first quarter, we think they will be above our initial forecast. We will work to reduce inventories to planned levels by the end of period.

Q10 : What are the trends in mobile phones in the Chinese market? Also, what is Yamaha's share in the market for LSI sound chips for mobile phones in China?

A10 : Our market share for LSI sound chips in China is holding firm. However, we are concerned about a possible decline in the percentage of mobile phone units incorporating our LSI sound chips because of the increasing ownership ratio of sound software and the decline in share of those local mobile phone manufacturers that use our LSI sound chips.

Q11 : Please provide some information on trends in semiconductors for use in products other than mobile phones and on your progress toward development of new devices. In addition, what investments are you making in 0.18μ processes?

A11 : Sales of sound sources for pachinko machines and other amusement-related semiconductors have slowed, but semiconductors for audio-related applications are holding strong. Also, we are expecting contributions from auto-mounted equipment, sensors, and other applications beginning in the latter half of next year. Regarding 0.18μ processes, we are expecting that production will begin fiscal year after next. We are scheduled to announce specific product development plans in our next medium-term business plan, which we are planning to announce in 2007.