Q&As on the Presentation of Performance Results for the Second Quarter of the Fiscal Year Ending March 31, 2015 (FY2015.3) (Held on November 4, 2014)

Q1 : What were the factors leading to the reduction of the outlook for income (loss) during the full fiscal year in the electronic devices segment from zero to a loss of ¥1.5 billion?

A1 : The principal factor accounting for the decline in sales in the electronic devices segment was that sales of graphics LSIs for amusement equipment are now expected to be substantially below the planned level.

Q2 : In the electronic devices segment, how do you intend to increase your top line next fiscal year and beyond? Also, as a result of the transition to fabless production, how much do you think you can reduce your breakeven point?

A2 : We think that the graphics LSIs that are now under development will contribute to sales. In addition, we will be working to expand sales not only of semiconductor chips but also module-related products. In particular, we will strive to expand the top line through sales of sound domain products, such as speaker modules and other items.

Regarding the breakeven point, there are a number of different points of view, but we are assuming that amount will decrease to about ¥12.0 billion as a result of the transition to fabless production.

Q3 : Please explain the factors leading to good performance in the digital musical instruments business. I believe the introduction of new products, including new model Electones, had a positive impact. However, without new product introductions next fiscal year, why is your outlook for increases in sales and operating income?

A3 : Digital musical instruments include Electones, digital pianos, and portable pianos.

During the period, we introduced new products in the Electone lineup. We think sales will certainly decline gradually from the next period onward. However, from a global perspective, favorable performance is expected to continue for digital pianos and portable pianos, which are growing faster than sales of Electones, and this will cover the gradual decline in Electone sales. The outlook is, therefore, for expansion in sales.

Q4 : Performance this quarter in the audio equipment business was lackluster. How do you view the prospects going forward? Are there any synergies between this business and other Yamaha businesses? Could you please explain the significance of continuing in this business?

A4 : Audio equipment handles sound, and there are technological affinities between professional audio equipment and musical instruments. Looking ahead, to give greater satisfaction to our customers, we are going to offer products that reflect an awareness of the potential connectivity and team play among musical instruments and professional audio equipment.

Q5 : You explained that the income (loss) position in the electronic devices business would improve by ¥1.5 billion. Does this mean that the loss of ¥1.5 billion this period will be just at breakeven or zero?

A5 : Under our structural reforms this time, we are working to achieve a ¥1.5 billion reduction through lowering fixed costs. In addition, we are looking to achieve a ¥1.0 billion improvement (cutback) in R&D and other expenses. Therefore, in total, we are aiming for a ¥2.5 billion improvement in our cost position.

Q6 : Is there any special reason for the rate of expansion year on year in the digital musical instruments business to decline from 14% in the first half of the fiscal year to your forecast of 4% in the second half?

A6 : During the latter half of the previous fiscal year, sales increased because of the introduction of our new TYROS portable keyboard. Since this fiscal year will be the second for this product, our outlook is for lower growth in sales. Moreover, there are uncertainties regarding future directions in the European market. Also, we have assumed that growth of digital piano sales will be more moderate in the second half.

Q7 : If you examine the changes in operating income in slide number 5, which are shown under "versus previous projections," the decline in SG&A expenses for the interim period is ¥2.7 billion, but the outlook for the full fiscal year shown in slide 14 is ¥2.2 billion. Are there special reasons for the rise in these expenses in the second half of the fiscal year?

A7 : We are expecting that some SG&A expenses that should have been incurred in the first half of the fiscal year will be carried over into the second half. However, after taking account of the status of sales and other factors, we will continue to work to cut the costs contained in the initial SG&A expense plans. We do not think there will be any special reasons during the second half.

Q8 : In the data for sales by quarter shown in slide 31, although the projections of sales of musical instruments are shown rising from the second to the third quarter, projections of income are shown declining. What are the reasons for this?

A8 : Since demand is strongest at the end of the calendar year, typically, promotional expenses and costs associated with inventories rise in the third and fourth quarters compared with the first and second quarters. For this reason, we are assuming this will occur in FY2015.3, and are not expecting any special factors in the second half of the year.

Q9 : In slide 31, the data for projected sales by quarter show an increase in the fourth quarter for the Others segment. What are the factors accounting for this?

A9 : We are expecting an increase in factory automation (FA) equipment sales in the fourth quarter as well as an increase in golf product sales in the fourth quarter. We are, therefore, assuming that we will show a profit in the fourth quarter.

Q10 : Projected sales in the electronic devices segment are shown falling to ¥3.0 billion in the third quarter, but then rising to ¥4.0 billion in the fourth quarter. Please explain these trends.

A10 : At the beginning of the current fiscal year, we had assumed that recovery in the audio and graphics LSIs for amusement equipment would take place in the second quarter, but at the last briefing, we explained that this would be delayed until the third quarter. However, difficult conditions have persisted in this business, and we have revised our outlook and are now forecasting that improvement will be delayed until the fourth quarter.

Q11 : According to your news release, the transfer of your semiconductor manufacturing subsidiary is scheduled for October 2015. I think you said the positive effects on profit of the structural reforms this time will emerge beginning at the start of the next fiscal year. Could you explain these circumstances in more detail?

A11 : The reasons why we decided to make the transfer not at the beginning of the next fiscal year, but six months later, included our decision to manufacture and inventory products through June 2015 to provide for the current level of supply. The other main reason was because the company that will take over these operations requested that the transfer take place after changes in factory layout were implemented. The operational losses that will be incurred during this interval are included in the current period among structural reform expenses, as costs related to the transfer. Therefore, the beneficial effects on profitability will emerge at the beginning of the next fiscal year.

Q12 : Did profitability in the musical instrument products field increase from the first quarter into the second quarter? If so, please explain the reasons for this.

A12 : Our operating income ratios improved from the first quarter to the second quarter.

In a typical year, the first factor accounting for this is an increase in capacity utilization at our factories from the first quarter to the second quarter. This year, in addition to this factor, we have seen the depreciation in the value of the yen and made steady progress toward the cost reductions targeted in our medium-term plan.

Q13 : Among the factors accounting for changes in projected operating income shown for the fiscal year in slide number 14, you show an improvement of ¥3.6 billion in manufacturing costs. Can we assume that this reduction in costs is proceeding?

A13 : Under our medium-term management plan, we are working to cut costs by ¥15.0 billion, and this will absorb expected increases in labor and other costs at overseas factories. We are, therefore, planning for a net improvement in manufacturing costs of ¥7.0 billion. We think we are still on track toward reaching these objectives.

Q14 : Now that we have passed the end of October, what can you tell us about the recent status of the musical instruments business by region?

A14 : On a shipments basis, there are some differences by region, but movements in North America are steady, advances in shipments were reported in Europe and in China during the second quarter, but conditions were somewhat weaker. Our understanding is that there have not been any major changes in market conditions as such that would differ from our expectations.

Q15 : Following your recent decision regarding the semiconductor business, at this turning point, what can you tell us about what directions your businesses will take and how you will use your cash?

A15 : Basically, the directions of our businesses will not undergo major changes.