Q&As on the Presentation of Financial Statements for the First Quarter of FY2008.3

A1 : As in our previous forecasts, we assume the yen-U.S. dollar rate will be ¥115/US$1 from the second quarter onward. For the euro, we now expect the yen-euro rate to be ¥155/EUR1, versus our prior assumption of ¥148/EUR1. Our forex sensitivity against the U.S. dollar is virtually neutral, while we estimate the earnings impact of every ¥1 change in the value of the yen against the euro at ¥420 million.

A2 : On the surface, it appears as if foreign currency gains were merely tacked onto segment results of the first quarter a year earlier. As you mentioned, however, sales growth on an adjusted basis boosted earnings and cost-cutting measures yielded savings. Yet, depreciation costs increased ¥250 million as a result of accounting system revisions, and SG&A expenses climbed ¥600 million as a result of expenditures to support the expansion of the professional audio equipment business and new markets overseas. These cost increases cancelled out the positive impact of the aforementioned factors.

A3 : You are on the mark. The decline in retained earnings reflects the removal of Yamaha Motor from our scope of consolidation as an equity-method affiliate due to our sale of a portion of our shareholdings in Yamaha Motor. On the other hand, net unrealized holding gains on other securities increased on the remainder of our shareholdings in Yamaha Motor as a result of the application of mark-to-market valuation at the end of the first quarter.

A4 : In Japan, sales fell ¥500 million on a year-on-year basis in the first quarter, but sales were ¥1.2 billion ahead of our previous forecast. In terms of key product lines, we note that while Electone sales fell short of our previous forecast, sales of pianos, centering on grand pianos, and wind instruments were firm, as were sales at Yamaha music schools.

In the United States, sales were up ¥1.5 billion year on year, but were ¥500 million below our previous forecast. Even after adjustment to exclude foreign-currency effects, sales were up on a year-on-year basis but were below our previous forecast. In terms of key product lines, we note sales of portable keyboards slipped mildly short of expectations, but piano sales rebounded. Sales of guitars were broadly even with the previous year’s level.

In Europe, sales were up ¥2.9 billion year on year and were ¥600 million above our previous forecast. After adjusting to exclude foreign-currency effects, sales were up on a year-on-year basis and were slightly below our previous forecast. In the first quarter, European sales were impacted by a piano inventory adjustment in Germany, but we look for sales to rebound gradually going forward.
In other regions, after adjusting to exclude foreign-exchange driven sales growth, sales were up year on year and exceeded our previous forecast.

A5 : In semiconductors, while unit sales of LSI sound chips for mobile phones were only in line with our previous projection, overall sales bettered our prior forecast thanks to an upturn in the average unit price. In addition, the sales growth in electric metal products reflected higher prices for metal materials that were pass along through product price increases.

A6 : On the whole, we forecast growth, led by digital pianos and professional audio equipment, and sales are expanding in line with our plan thus far. In digital pianos, our product line is clearly more competitive, and we look for further growth. Moreover, we plan to announce going forward new products that are vital to the “Total Piano Strategy” in our new medium-term business plan.
In professional audio equipment, the steps we have taken are leading to positive results, and we are looking for ways to expand further, including product lineup extensions and M&A.

A7 : The main reason for the decline in earnings at the AV/IT segment was a shortfall in sales of IP conferencing systems against our previous forecast. At present, we are forging ahead with measures to expand our sales channels, such as dispatching representatives to North America. In addition, we expect sales of AV equipment to also fall short of our previous forecast on an adjusted basis. The market for home theaters, a mainstay product line, continues to be challenging. Our sales of speakers for flat-panel TVs are growing, and we aim to recover lost ground in this area with the introduction of new products going forward. In conjunction with the above initiatives, we are working to pare costs further.

A8 : While sales of digital amplifiers remain modest, they are growing steadily. Of the ¥9.7 billion in semiconductor sales in the first quarter, sales of audio-related devices, which include digital amplifiers, accounted for ¥500 million. We forecast a doubling of sales year on year, to ¥2.7 billion, in the full fiscal year. Three years from now, in the final year of our current medium-term business plan, we forecast digital amplifier sales of ¥4.5 billion.

A9 : Sales of LSI sound chips for mobile phones grew substantially and made a large contribution to profits. Since the unit price for digital amplifiers is lower than that of LSI sound chips for mobile phones, we do not look for the same level of growth in digital amplifiers, but we believe we can make this product category into a steady profit earner through the introduction of distinctive high-value-added products and measures to keep down production costs.

A10 : The average unit price for our mainstay LSI sound chip models for mobile phones was even with that of the same quarter a year earlier due to changes in the product model mix, and overall semiconductor sales did not fall that sharply, but the gross margin on the mainstay models shrank.