Q&A on the Presentation of Performance Results through the Second Quarter of the Fiscal Year Ending March 31, 2022 (FY2022.3)

Q1: Please provide more information about the difficulty in procuring semiconductors.

A1: We were expecting the semiconductor supply situation to hit bottom in the second quarter and then start improving, but it has become clear that the difficult conditions will continue. There is a polarization between components for which supply is recovering and those for which recovery is not expected. Sound generating LSI is one of the components that remains difficult to source.

Q2: How do the rises in the cost of materials and ocean freight rates affect profit in the first and the second halves?

A2: Costs also rose in the first half, but the increase was offset by lower SG&A expenses, higher profit, and favorable exchange rates. Logistics and material costs have remained high longer than we were anticipating, and we expect them to have a bigger impact in the second half.

Q3: How will you use price optimization in the second half to counter the rising cost?

A3: We will step up our efforts at price optimization, but because of the time lag between notifying distributors and implementation, we do not expect the price revisions to reach full effect in the second half.

Q4: How is the COVID-19 pandemic affecting operations at the Malaysia plant?

A4: The pandemic had strongly impacted plant operations, with operations falling to about two-thirds of full capacity in the first quarter and to about 70% in the second quarter. Operations finally started to normalize in October and are currently back to above 90% of operations. However, even though operations are recovering, it is rather difficult to expect the current level because of the difficulty in procuring semiconductors.

Q5: What is your perspective on the supply chain issues?

A5: Using dedicated components have been a prime factor to maintaining our competitiveness, but we are considering other approaches, including using combinations with general purpose parts. In addition, in the past we have put priority on efficiency, but we believe that we need to increase our resilience, such as by building up inventories of key parts and holding these parts with a sense of priority, as well as by creating overlapping production operations.

Q6: Why is the larger decrease in profit, due to lower sales and production, as large as ¥7.3 billion, while the downward revision of revenue is ¥10 billion?

A6: Part of the difference is due to the exchange rates, and the actual decline in revenue is a little larger, which also affects profit.

Q7: What is the status of the order backlog as of the end of September?

A7: The backlog above our usual, increased by roughly ¥8 billion, from ¥31 billion at the end of June to roughly ¥39 billion at the end of September. Products with order backlog increases include digital pianos, pianos, and AV products.

Q8: The results for the first half appear to exceed the plan; if so, why was the full-year forecast lowered?

A8: First half earnings ended up relatively favorable because the higher sales in the first quarter offset the impact from the semiconductor procurement difficulties, which started to appear in the second quarter. However, the semiconductor situation will lead to reduced production in the third quarter, which will have an impact on fourth quarter sales. We revised the full-year forecast figures to reflect both the positive and negative factors.

Q9: The negative impact from the second quarter onward seems to have been sudden. Were you not anticipating it in August?

A9: We knew what the production volume would be, so the second quarter sales were within the range we were anticipating. However, the cost increases, such as for logistics, were higher than we were expecting. We had assumed that material procurement would recover a little more in the third quarter, but instead it worsened, leading to the current review.

Q10: At this point, when do you expect the difficulty in semiconductor procurement to be resolved and logistics costs to decline?

A10: We do not see the semiconductor procurement conditions improving during the current fiscal year. We also do not expect the impact to worsen next year because we are implementing countermeasures, such as changing the designs of products that use components that are in shortage and switching to components for which supply is improving. We do not expect logistics costs will continue to rise further; however, structural issues had been holding them quite low before, and we do not expect them to return to the previous level.

Q11: What are your demand projections for each type of musical instrument?

A11: Piano demand in China is firm and we believe it can grow further. Overall demand for digital musical instruments remains strong, and we expect sales to increase from last year if supply recovers. Demand for wind, string, and percussion instruments has started to steadily recover in Europe and the United States and, although it remains stagnant in Japan because school brass band activities are still on hold, we expect overall demand to begin recovering after the pandemic subsides. In addition to demand due to people staying at home, various efforts to expand market share have been successful in guitars, so we believe we can continue to grow in the future.

Q12: The difficulty in procuring semiconductors appears to be affecting the whole industry. How do you see it affecting the market share of digital musical instruments? Although semiconductors would not likely affect acoustic instruments, what is your analysis of the impact on competition for piano products?

A12: The semiconductor supply situation is affecting our procurement of both general-purpose semiconductors and our proprietary sound-generating LSI semiconductors. So, although our market share for digital musical instruments declined slightly in the second quarter, we believe we will regain market share if the semiconductor supply recovers. In pianos, there was a small impact on player pianos that use semiconductors, but we believe that switching to production of acoustic pianos is maintaining our market share.