Q&As on the Presentation of Performance Results for the Fiscal Year Ended March 31, 2011 (FY2011.3)

Q1 : Please provide specific information regarding the difficulties in procuring parts that you are assuming will occur during the current fiscal year (FY2012.3). Which parts will be difficult to obtain and what will be the timing of the impact on production?

A1 : The main parts we are having difficulty in procuring are sound generators (LSIs) used in digital musical instruments. These are custom-made, and we cannot substitute standard types for them. Other parts where we are having procurements difficulties include condensers.

In April, we used the parts we had in our inventories, and there was no major impact, but from May onward, we expect that some models will be affected by the shortage. There are some models where about 50% of production will be affected, including digital pianos, synthesizers, and some of those products where final assembly is carried out overseas. Also, because of the difficulty in procuring parts for AV products, such as controllers and condensers, production may drop to 60% to 70% of former levels for some models in May, June, and subsequent months.

Q2 : When are you anticipating that these difficulties in procuring parts as a result of the earthquake will be resolved?

A2 : In our current forecast for FY2012.3, we are assuming that the impact of the earthquake will continue in the first half of the fiscal year, but thereafter our assumption is that production will recover in the second half.

At present, we do not have a specific outlook for recovery in parts procurement. We are continuing to negotiate with parts manufacturers, and will be working toward an early solution.

Q3 : What measures are you taking to overcome the difficulties in obtaining parts?

A3 : In cases where we can substitute alternative parts, we are taking a number of measures, including changing suppliers and altering the necessary specifications. Unfortunately, however, for custom-made sound generators and other parts, for which use of substitute parts is not possible, we are going to have to wait until the suppliers' production levels recover.

Q4 : What exchange rates for euros and U.S. dollars are you using for planning purposes? What is the degree of sensitivity to exchange rate fluctuations?

A4 : We have prepared our plans based on rates of ¥85 to one U.S. dollar and ¥110 to one euro.

Previously, in the case of U.S. dollars, our profitability was almost unaffected by exchange fluctuations because of the use of exchange marry positions. However, because we shifted from yen-denominated to U.S. dollar denominated transactions for a portion of sales to the rest of Asia and semiconductor customers, now a ¥1 change in the exchange rate results in a difference of ¥70 million on an annual basis.

On the other hand, for euros, a ¥1 change in the exchange rate results in a difference of ¥390 million on an annual basis.

Q5 : Regarding your forecast of ¥10 billion in operating income for the current fiscal year, can we assume that management is working to attaining this objective?

A5 : During the first year of the medium-term management plan, entitled "Yamaha Management Plan 125," that began in April 2010, we reported acceptable results, but because of the effects of the earthquake and other factors, quite a number of things, which we did not expect initially, have occurred. We are holding firm on attaining our goal of ¥25 billion in operating income in the third year of the medium-term plan. So, our goal of ¥10 billion in operating income for the current fiscal year (the second year of the management plan), reflects our determination to overcome the effects of the earthquake and other factors and attain this second-year objective.

America. There are no problems concerning the quality of overseas components that are made

Q6 : Judging from the 7% decline in the musical instruments business in Japan in the fourth quarter of FY2011.3, isn't your outlook for only a 2% decline for the whole of the current fiscal year optimistic?

A6 : In the Japanese market last fiscal year, after the March 11 earthquake, sales have been affected not only in the stricken areas but also in the Tokyo metropolitan area. Here in the Japanese market, conditions are continuing to be tough, and we believe the decline of 7% in the fourth quarter was not due just to the earthquake. Prior to the earthquake, we were planning on 1% growth in FY2012.3, but in view of the cooling down of consumer spending after the disaster, our outlook now is for a 3% decline due to the effects of the earthquake and a 2% drop for the full fiscal year.

Q7 : As indicated in your slide, output at your factories in China and Indonesia is increasing. Do you have any plans for additional investments or other measures?

A7 : Thus far, we have continued to make investments to increase capacity, but we are not scheduling any particular investments this fiscal year.
In the case of guitar production, we are approaching a limit on production capacity at our factory in Indonesia. Therefore, we are shifting a portion of guitar production to our Hangzhou factory in China and are planning to increase capacity at both factories.

In our outlook for pianos, production in China is proceeding smoothly, and we are not scheduling any investments for increasing capacity in our Indonesia factory. Also for digital musical instruments, we are not scheduling any investments for increasing capacity in our Indonesia factory or our factory in Tianjin in China.

Q8 : What are the reasons for the success of Tyros4, which has been showing steady increases in sales?

A8 : We introduced Tyros about eight years ago, and Tyros4 is the fourth-generation model. It is regarded highly for its sound quality and other features, especially in Germany. In places like piano bars in Germany, there are many musicians who give solo performances rather than having sessions with other instruments, such as guitars and drums. As a keyboard, Tyros4 is somewhat expensive, but people are aware that the cost performance is much better, compared with putting together an ensemble of other instruments. We believe we have been successful in identifying and meeting these needs. Another factor is that, in terms of functions and specifications, the Tyros4 has relatively few competitors. So, including replacement demand, Tyros4 accounts for a very high ratio of sales in Europe.

Q9 : Could you provide some information on the current status of AV receivers, which are encountering difficulties in the North American market, and what countermeasures you are planning to take?

A9 : We are in the middle of price competition with other Japanese manufacturers. We believe that the key to increasing our competitiveness is to offer AV receivers that have functions that differentiate them from the competition. We are looking forward the performance of our new models that we are just beginning to ship.

Q10 : What is the outlook for electronic components during FY2012.3? You are expecting sales to increase in the third and fourth quarters, but what are the reasons for the lack of growth in income?

A10 : There are two basic reasons. The first is the delay in launching new products at the manufacturer stage and the delay in making shipments in the first half of the fiscal year accompanying trends in sales. The second reason is the temporary impact on production at the manufacturer stage because of the earthquake. As regards the impact of the earthquake, we are looking for a recovery in shipments of CODEC and digital amplifiers in the latter half of the fiscal year.

Conditions in the amusement industry are also severe, but recovery is expected in the second half of the fiscal year.

As a result of changes in the product mix, the level of operating income will decline in the second half, and, for the fiscal year as a whole, we are assuming a decline in operating income from the previous fiscal year.

Q11 : What is the current status of your efforts to convince potential customers, other than Korean manufacturers, to adopt your geomagnetic sensors?

A11 : At present, the ratio of Korean smartphone manufacturers adopting our geomagnetic sensors is high, but we are continuing to market these and submit proposals to manufacturers around the world. This is a product area where competition on price and features is intense, but we are thinking of making an appeal based on the strong point of our sensors, which is a small footprint or mounting area.

Q12 : Will the stoppage of the Hamaoka nuclear plant result in power shortages at the Kakegawa factory?

A12 : We cannot say definitely that there will be no impact, but we view the effect as likely to be small.

Q13 : For which investment securities did you report impairment losses and what is the outlook going forward? Also, please explain your unrecognized retirement benefit liabilities?

A13 : We recognized ¥1.5 billion in impairment losses on stocks of financial institutions in FY2011.3, but in FY2012.3 we are not anticipating any such losses in FY2012.3. As of March 31, 2011, our unrecognized retirement benefit liabilities amounted to ¥20.1 billion.