A1 : In our core semiconductor area of LSI sound chips for mobile phones, sales are declining because of the decrease in the number of units sold and in average sales prices. For this reason, in addition to providing LSI chips with the ring tone functions afforded thus far, we are shifting toward LSI chips that incorporate "Chaku-UtaTM" true-tone ringtone functions and digital amplifiers. Also, in the field of semiconductors for use in amusement devices, we were expecting growth in graphics control LSI chips, but, because of delays among our customers in introducing such devices (for pachinko machines, etc.), these LSI chips did not contribute during the previous fiscal year. In the current fiscal year, however, we expect shipments to reach full-scale levels, which will boost our sales. Going forward, we would like to place greater emphasis on new applications, for example, silicon microphones, media processors, and LSI chips for blue tooth telecommunications uses. Moreover, along with the growth in requirements for vehicle-mounted LSI chips, we would like to develop graphics control LSI chips that offer improved graphics quality.
Q&As on the Presentation of Financial Statements for FY2006.3
Q1 : In your explanation of the electronic equipment and metal products segment, you mentioned that shipments of amusement graphics control LSI chips for next-generation models have begun. Could you please provide further details on this topic and the trends in the semiconductor business?
Q2 : Are graphics control LSI chips used in mobile phones?
A2 : They are used in amusement equipment and devices. Specifically, that includes pachinko and pachislo machines.
Q3 : When you mentioned graphics control LSI chips that offer improved graphics quality for vehicle use, were you referring to the LSI chips used in car navigation systems?
A3 : The applications we are considering include the drawing function of the back-up view monitors incorporated in car navigation systems and devices that improve driving safety, such as applications that improve visibility within tunnels. We are also thinking of proposing devices that have capabilities needed for combining car navigation systems and audio systems.
Q4 : Regarding the delays in structural reforms in the musical instrument segment, could you please explain whether these delays are attributable to the fact that improvements expected from specific policies have not yet emerged, the possibility that you are not implementing the right policies, or because you do not know the proper policies to implement? In responding, please look back over the past two years and give us your evaluation.
A4 : Regarding cost reductions, our policies have not resulted in clearly visible results, in part because of the countervailing impact of cutbacks in production. Also, recently we announced the consolidation of our piano production facilities in Japan, but it will take time for the effects of this policy to emerge. Regarding the consolidation of our production facilities overseas, we intend to speed up our decision making in this area.
Q5 : Please give us a comparison of conditions in the semiconductor business during the first quarter of FY2007.3 and the fourth quarter of FY2006.3.
A5 : Conditions in the first quarter of FY2007.3 were virtually the same as during the immediately preceding fourth quarter of FY2006.3. In the area of LSI chips for mobile phones, the market is gradually shifting toward high-value-added LSI chips.
Q6 : Could you give us an idea of whether the issues you experienced in inventory management were related to the systems themselves or to problems related to the operation of the systems?
A6 : The systems were just going into operation. Our understanding is that the problems were largely related to how the people in charge were operating the systems.
Q7 : Your outlook for the musical instruments segment in FY2007.3 is for an increase in sales of about ¥10 billion from the previous fiscal year and expansion in operating income of ¥5 billion. What factors are going to account for these gains in sales and income? Also, in the AV business you are forecasting sales at about the same level as in FY2006.3, but with a decline in operating income. Could you please explain the reasons for the decline in operating income?
A7 : The increase of ¥10.4 billion in sales we are forecasting for the musical instrument segment will come from our activities to expand sales of digital pianos, professional audio equipment, and the speakers produced by NEXO, one of our business partners. Breaking this down further, we are aiming for a ¥5 billion increase in digital pianos, which showed weak performance in the previous fiscal year, through the introduction of new products. Also, in the professional audio equipment business, as in the previous fiscal year, we are working to expand sales, principally in North America. Moreover, we are forecasting benefits from increases in production volume and improvements in the selling and administrative expense area.
In the AV segment, we are expecting sales to be approximately level with the previous fiscal year, but reflecting further declines in product prices we assume gross margins on sales will decline. We intend to keep the margin of decline in income as small as possible through cost-cutting and reductions in selling and administrative expenses.
Q8 : In comparison with your medium-term plan in the musical instrument segment, sales, after excluding the effects of currency conversion, are ¥15.5 billion below target, while operating income is about ¥12.0 billion lower than your goal. Is the proportionately larger decline forecast for operating income compared with the decline in sales because of lackluster performance in the Japanese market?
A8 : Domestic factors, including unexpectedly large declines in the Electone™ business in Japan, have definitely had a significant effect. In addition, other factors include delays in cost-cutting and other structural reforms as product prices declined overall, resulting in a decrease of two percentage points in the gross margin on sales compared with our medium-term plan. As a result, we are planning to continue to cut costs while working to expand sales of medium-to-higher priced products.
Q9 : I believe that the below-target performance in the AV business may have been due to problems relating to the structure of the industry, but do you believe that discontinuous responses, including restructuring and other measures, may be needed? Or do you believe you can achieve recovery in profitability by remaining on the current course?
A9 : Regarding business realignments, we have organized a sound network business unit and announced a new IP audio conference system; moves that are expected to bring closer to a fusing of the technologies for sound and networks. Looking ahead, we want to move further in the direction of developing products that expand our business into the domains of sound and networks. In addition, in the area of conventional AV equipment, along with the current lineup, we want to put greater emphasis on Hi-Fi audio products and speakers, which are regaining popularity as they suit the preferences of the baby boom generation.
Q10 : The influence of Yamaha Motor Co., Ltd., on consolidated net income and your company's market capitalization is major. Are you considering any changes in your ownership of stock in Yamaha Motor?
A10 : We share the Yamaha brand with Yamaha Motor and believe there are synergies between our companies. Both companies would like to consider the appropriate course of action in this area going forward.
Q11 : There is a major difference between your current outlook of ¥25 billion for operating income in FY2007.3 and your medium-term plan, which calls for operating income of ¥50 billion. If all the measures under the medium-term plan were implemented, do you think you could have reached the target of the medium-term plan? Or was the original target overly optimistic?
A11 : We believe the target set under the medium-term plan should have been attainable given the business environment we foresaw at the time and assuming all the measures under the plan had been implemented. In preparing our next medium-term plan, we will consider very carefully whether we should once again set ¥50 billion as a target. Major issues will be how to formulate profit plans for our musical instrument segment and the semiconductor business.
Q12 : Could you please explain the background factors that have led you to project increases in sales and income in the others segment?
A12 : We are forecasting increases in the production of automobile interior wood components and the commencement of full-scale shipments of new golf clubs that meet additional rules restricting club kickback effect. Profitwise, increases in sales and reductions in manufacturing costs through improvement in yields as well as reforms in production processes are expected to boost income.
Q13 : It appears that restoring profitability in the recreation segment is still not on the horizon. What are your plans for this business segment?
A13 : We recognized asset impairment losses in FY2005.3 and reduced depreciation costs, unfortunately, however, these measures did not lead to an improvement in profitability. Our next step going forward will be to consider decisive measures for the facilities on an individual basis.