Q&As on the Presentation of Financial Statements for FY2006.3

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.

A2 : They are used in amusement equipment and devices. Specifically, that includes pachinko and pachislo machines.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.