Q&As on the Presentation of Financial Statements for the Interim Period of FY2008.3

Q1 : You indicated that the factors responsible for the improvement in the profitability of the musical instruments business included changes in the mix of products and reductions in cost. Could you please provide a more-detailed explanation?

A1 : Sales of higher gross margin products, including medium to high-end wind instruments, professional audio equipment, and digital keyboards, increased. Other factors contributing to profitability were cost reductions associated with the closing of production facilities in Taiwan and certain other areas and improvement in the profitability of our production facilities in Indonesia and elsewhere.

Q2 : The ratio of operating profit to net sales in the musical instruments business for the interim period was above 10%. Do you think this level of performance was temporary or will it continue going forward?

A2 : In the acoustic musical instruments field, business entry barriers for medium to high-end musical instruments, such as wind instruments, are high, and we anticipate that these levels of profitability will continue going forward. However, in the digital musical instruments business, competition is intense, and we believe that it will continue to be difficult to sustain profitability above the current level.

Q3 : Compared with performance in the first half of the fiscal year, your outlook for the second half is lower. In what areas do you believe you might encounter more difficult conditions?

A3 : Competition in the AV/IT business and the lifestyle-related products business is becoming more intense, and there is concern that these businesses might experience a downturn in performance. In addition, in the musical instruments business, conditions in the North American market are uncertain. Demand for pianos has been weakening since last fall, and there are no signs of a recovery in retail sales of pianos. As a result, we believe that large-scale keyboard instruments will experience difficulty, even over the year-end.

Q4 : Your plans for musical instrument sales in the European market in the second half of the fiscal year call for a slowdown in comparison with those of the first half. Could you explain the reasons for this?

A4 : At present, we do not see any particular factors that might bring a slowdown in the European market in the second half, but we are taking a somewhat cautious stance overall in our planning

Q5 : What was the effect of increases in raw material prices?

A5 : Compared with the previous fiscal year, the rise in raw material prices, including metal materials, resulted in an increase in costs of about ¥1 billion.

Q6 : According to your outlook this time, you have lowered performance targets in the AV/IT segment during the second half of the fiscal year. What are your reasons for this?

A6 : All of our business units within the AV/IT segment are confronting challenging operating conditions. In the online karaoke equipment field, sales in the first half were about 40% of the level for the same period of the previous fiscal year, and we are expecting a similar year-on-year decline in sales for the second half.

Sales of routers have been affected as overall market demand has dropped about 10% year on year, and our sales have been influenced by this downward trend.

In addition, it will be difficult to attain the planned level of sales for IP conferencing systems that we announced previously. Therefore, we are focusing on strengthening our organizational systems and further developing our sales network for these systems. In the AV equipment field, the development of new products is lagging somewhat, and, as a result, we have to anticipate some lost sales opportunities during the year-end demand period.

Q7 : Sales of electronic musical instruments in the first half of the fiscal year rose compared with the same period a year earlier. What is your outlook for the second half? Also, was the increase in the first half due to expansion in your market share or due to expansion in the market as a whole?

A7 : Prices of digital pianos are continuing to decline, but in the Japanese market, sales of these units are expanding at musical instrument retailers and at consumer-electronics chain stores, camera mass retailers, and other types of outlets. Since fall this year, we believe we have recovered market share from competitors at mass merchandisers through the introduction of new products. Similarly, in Europe and the United States, we have introduced new, high-value-added products with a wider range of features and are looking to increase our share in these markets.

In the Asia/Pacific region, sales of entry-level portable keyboards and medium-priced models are proceeding smoothly.

Q8 : Performance of wind instruments appears to be robust. Could you provide some information on performance in Japan versus performance overseas?

A8 : In the Japanese market, medium to high-end wind instruments are selling well, in part because of the positive impact of the “band boom.” In addition, worker strikes at the plants of U.S. competitors have reduced their output, and this has contributed to Yamaha sales. Also, in the U.S. market, models developed jointly with wind instrument performers have also been well received in the market. However, in the European market, we are somewhat behind.

Q9 : Following purchases of Yamaha Corporation shares by Yamaha Motor Co., Ltd., what percentage does Yamaha Motor currently hold?

A9 : As of September 30, 2007, Yamaha Motor held 2.93% of Yamaha Corporation’s shares.

Q10 : Please explain the reasons why profitability in the semiconductor business improved in the first and second quarters, and give us your outlook for the third quarter.

A10 : Compared with the same period of the previous fiscal year, we are facing challenging conditions, but, in the second quarter, changes in the product mix resulted in improvement in profitability. However, in the second half, the product mix that we anticipated in the previous outlook will change, thus making it difficult for us to attain the profit level of the previous outlook. For the fiscal year as a whole, we are anticipating results at a level somewhat higher than the previous outlook.

Q11 : The actual level of your capital investment is lower than you forecast in your previous outlook. What are the factors accounting for this?

A11 : This is because of delays in acceptance inspections, principally in the musical instruments business. Also, for the fiscal year as a whole, part of the investment in increasing production capacity in China has slipped into the next fiscal year. We have, therefore, reduced our previously planned expenditures.

Q12 : What is your outlook for the semiconductor business in the second half of the fiscal year? Will you decrease production?

A12 : LSI sound chips for mobile phones account for a high percentage of our semiconductor sales, and the ratio of relatively high-value-added LSI sound chips for mobile phones is increasing in Japan and overseas. In addition, sales of LSI chips for pachinko machines are expanding steadily, and, as a result, sales and profits rose in comparison with our previous outlook for the first half of the fiscal year. In the second half, we are looking for production at about the level forecast in the previous outlook, but due to other factors, including the delay in budgeted development expenses into the second half, we are expecting a decline in operating income compared with the first half of the fiscal year.