Q&As on the Presentation of Performance Results for the Second Quarter (Ended September 30, 2010) of FY2011.3

A1 : In Europe, the German market is holding strong, and we are expecting the premium keyboards that we will launch in the second half to drive growth.

Also, in the United Kingdom, where sales fell in the previous year, we are looking for an increase in sales because of the launch of new strategic wind instruments. In addition, we are expecting recovery in the markets of southern Europe. In other areas, we are looking for increased sales in Eastern Europe, especially Poland, Turkey, and other countries in this area.

In other regions, as in the first half, we are expecting double-digit growth in Latin America and the Middle East. In Southeast Asia, where recovery seems to be lagging, we are looking for strong comebacks especially in Indonesia and Malaysia. We also believe that we can expect growth even in Russia and India.

A2 : The pace of recovery continues to be slow, but in major markets, especially the United States, conditions are on a gradual recovery trend. In the second half, we are looking for sales above the same period of the previous year. However, the downward trend in unit prices is continuing, and we believe that full-scale recovery will take more time.

A3 : Our outlook for third-quarter sales is for an increase compared with the same period of the previous year, principally sales to North America, China, and certain other areas. We are forecasting a decline in operating income, however, despite increases in sales and production, in part because of the impact of foreign currency fluctuations.

A4 : Compared with the schedule of the initial integration plans, production volume has declined substantially, and we are taking measures to cope with the decline in output. We think the direct effects of the concentration of domestic piano production in the Kakegawa factory will result in initially projected cost savings of about ¥800 million. These benefits will emerge in the latter half of this fiscal year, and we have included the positive effects of ¥400 million for a half-year period.

A5 : Although the Chinese market slowed temporarily, it has begun to show steady growth again.

In addition, although the market was originally focused mainly on acoustic pianos, sales of other musical instruments, including keyboards and guitars, are gradually expanding.

However, the focus of the market remains on pianos, and Yamaha’s share in terms of the number of units is 14% (ranking third) and 20% in terms of monetary value. The selling prices of pianos are increasing along with growth in disposable income, and, through the launch of very low-priced piano with a price somewhat above 15,000 yuan next year, we are working to further increase our share.

A6 : Of the total sales of electronic devices in the first half, about ¥4.0 billion was accounted for by sales of sound generators for mobile phones. This is less than half of total sales. On the other hand, although sales of magnetic sensors did not reach ¥1.0 billion, they showed substantial growth over the same period of the previous year, and this resulted in a change in the product mix.

Also, sales of analog devices, such as digital amplifiers, graphics controllers for amusement equipment, and certain other items are expanding.

The outlook is for an increase in the production of magnetic sensors for smartphone applications beginning in the second half of this fiscal year, and for the full fiscal year, we are forecasting sales of ¥2.5 billion.

A7 : The breakdown of the first half ¥7.1 billion real rise in operating income due to increased sales and production is as follows: ¥2.7 billion in the musical instruments segment, ¥1.3 billion in AV/IT, ¥1.9 billion in semiconductors, and ¥1.2 billion in the others segment.

Also, for the full fiscal year, a ¥9.7 billion increase in operating income, due to the increase in real sales and production, is forecast, and musical instruments will account for ¥5.7 billion of this.

A8 : The reasons for the lack of growth in income in the second half are that, compared with the first half, the level of production will decline, and that yen appreciation will have an adverse effect in the second half.

A9 : Our plans, excluding foreign currency factors, called for a 17% rise in production in the first half, and we are planning on a 13% rise in the second half. However, the absolute level of production in the second half is 86% of the level in the first half.

A10 : Now is the season for inventories to increase, but, in the case of musical instruments, there are no significant amounts of dead stock, and, if sales go well during the end-of-the-year selling season, we believe we will almost have an appropriate level of inventories at the end of the calendar year.

However, in the case of AV products, in North America, which is a key market, the selling environment was tough, and we had a somewhat heavy inventory load at the end of the first half.

Through the end of this calendar year, we are going to focus on sales and adjust production downward to get closer to an appropriate level of inventories.

A11 : This increase was due to higher sales of magnetic sensors as well as semiconductors for amusement equipment, digital amplifiers, and certain other items.

A12 : This loss was due to valuation losses on stocks we hold in financial institutions.