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Q&As on the
Presentation of Financial Statements for FY2005 Interim Period
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| Q1 |
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Results for the semiconductor business
of the Electronic Equipment & Metal Products segment were down as forecast. What
was the principal reason for the decline, lower volume or lower prices? Are inventory
adjustments among mobile phone manufacturers continuing into the third quarter?
Also, could you please give us your outlook for LSI sound chips in the second
half?
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| Q2 |
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Why was operating income in the Musical
Instruments segment lower than announced previously (on August 2, 2004)? Was this
solely because of the deduction of unrealized income from inventories, and why
did this occur?
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| Q3 |
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In looking at income in the Musical
Instruments segment during the second half of the fiscal year, shouldn't you consider
the effect of production adjustments?
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| Q4 |
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Could you please explain why the ratio
of operating income to sales for the Musical Instruments segment in the second
half of the year is higher than for the same period of the previous year?
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| Q5 |
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What are the reasons for the increase
in inventories?
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| Q6 |
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Have there been any changes in competitive
conditions in the market for LSI sound chips for mobile phones?
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| Q7 |
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What are LSI sound chips for vocal
ringtones? How do they differ from existing LSI sound chips for ringing melodies?
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| Q8 |
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Compared to the sales of LSI sound
chips for mobile phones during the second half of the year, the decline in income
from this source during the second half seems quite large.
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| Q9 |
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What is your outlook for the Lifestyle-Related
Products segment next year and thereafter?
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| Q10 |
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Why is the performance of the Musical
Instruments segment worse in the second half every year, compared with the first
half?
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| Q11 |
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It appears that you do not usually
show a profit in the second half of each year; so, why are you expecting ¥5
billion in operating income in the second half of this fiscal year?
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| Q12 |
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In view of recent conditions, what
is the probability that you will achieve a ¥10
billion increase in sales and a ¥5 billion
gain in operating income in the Musical Instruments Segment during the second
half of the fiscal year, compared with the same period of the previous year?
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| Q13 |
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What will happen to Yamaha's earnings
structure next fiscal year and thereafter, as growth in sales of LSI sound chips
for mobile phones slows?
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| Q14 |
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How is your restructuring program
for distribution and production in Japan proceeding?
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| Q1: |
Results for the semiconductor business of the Electronic Equipment & Metal Products segment were down as forecast. What was the principal reason for the decline, lower volume or lower prices? Are inventory adjustments among mobile phone manufacturers continuing into the third quarter? Also, could you please give us your outlook for LSI sound chips in the second half?
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| A1: |
Sales in volume terms fell slightly less than 20%
from the first quarter going into the second quarter. In addition, prices declined
slightly. During the second half of the fiscal year, we predict the inventory
adjustments by mobile phone manufacturers will continue through the end of the
calendar year. We cannot make any forecasts for the fourth quarter and are adopting
a somewhat cautious outlook, as announced previously.
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| Q2: |
Why was operating income in the Musical
Instruments segment lower than announced previously (on August 2, 2004)? Was this
solely because of the deduction of unrealized income from inventories, and why
did this occur?
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| A2: |
We misjudged the profit ratio when we calculated
the unrealized income from inventories. We were not aware that actual conditions
had deteriorated. We believe that, during the second half of the fiscal year,
there will be some reverse adjustments from realized income on inventories.
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| Q3: |
In looking at income in the Musical
Instruments segment during the second half of the fiscal year, shouldn't you consider
the effect of production adjustments?
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| A3: |
We are moving forward with adjustments in inventories
and production. The deduction of unrealized income from inventories in the first
half of the fiscal year was larger than expected because we used the profit ratio
in the first half, but we expect to recover this in the second half.
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| Q4: |
Could you please explain why the ratio
of operating income to sales for the Musical Instruments segment in the second
half of the year is higher than for the same period of the previous year?
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| A4: |
Selling, general and administrative expenses-including
advertising and promotion, transportation, maintenance, and other costs-will rise
compared to the second half of the previous year. However, we are planning for
an increase in income because of increased sales of new products, including the
player piano "Disklavier" and electronic piano, improvement in gross
margins, and reverse adjustments of realized income from inventories.
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| Q5: |
What are the reasons for the increase in inventories?
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| A5: |
Sales in the United States were lower than expected.
Increased inventories in the United States are a major factor.
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| Q6: |
Have there been any changes in competitive
conditions in the market for LSI sound chips for mobile phones?
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| A6: |
Yamaha's share of the market for LSI sound chips
is virtually unchanged. However, since there are signs of weakness among local
mobile phone manufacturers in the Chinese market, the ratio of mobile phones equipped
with these chips has declined.
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| Q7: |
What are LSI sound chips for vocal
ringtones? How do they differ from existing LSI sound chips for ringing melodies?
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| A7: |
We believe that melody and vocal ringtone services
will coexist. We are developing a single LSI sound chip that can handle both melodies
and vocal ringtones.
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| Q8: |
Compared to the sales of LSI sound
chips for mobile phones during the second half of the year, the decline in income
from this source during the second half seems quite large.
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| A8: |
Price pressures on semiconductors are continuing.
Conditions during the fourth quarter are totally unclear; so, we are adopting
a cautious stance.
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| Q9: |
What is your outlook for the Lifestyle-Related
Products segment next year and thereafter?
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| A9: |
We have encountered unexpected performance in this
segment and are now considering how to proceed.
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| Q10: |
Why is the performance of the Musical
Instruments segment worse in the second half every year, compared with the first
half?
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| A10: |
In Japan, we have a spring selling season at the time of the beginning of the new school year. In Europe and the United States, we have the Christmas selling season. In terms of sales, there is no difference between the first half and the second half of the fiscal year, but operating income is higher in the first half than in the second half. This is because our margins are higher in Japan, and we produce more in the first half of the fiscal year.
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| Q11: |
It appears that you do not usually show a profit
in the second half of each year; so, why are you expecting ¥5 billion in operating
income in the second half of this fiscal year?
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| A11: |
Factors accounting for the increase will be the
strong positive impact of the introduction of new products and reversals due to
realized income on inventories. In addition, the last period was somewhat unusual
in that certain expenses increased as we incurred some advertising and other promotional
expenditures, including TV commercials and paid special bonuses to employees because
of the Company's good performance.
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| Q12: |
In view of recent conditions, what
is the probability that you will achieve a ¥10
billion increase in sales and a ¥5 billion
gain in operating income in the Musical Instruments Segment during the second
half of the fiscal year, compared with the same period of the previous year?
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| A12: |
We expect to attain these goals, because of the positive impact of new products and other factors.
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| Q13: |
What will happen to Yamaha's earnings
structure next fiscal year and thereafter, as growth in sales of LSI sound chips
for mobile phones slows?
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| A13: |
In our medium-term plan, we have set goals for semiconductors
of ¥40 billion in sales and ¥7 billion in operating income in FY2007, ending March
2007, but we expect semiconductor sales will exceed this target. In addition,
we are moving forward with projects that use LSI related to sound. We would like
to incorporate at least one of these in the framework of our management plans.
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| Q14: |
How is your restructuring program
for distribution and production in Japan proceeding?
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| A14: |
Along with the shrinkage in domestic demand for
pianos and electones, we are working to streamline our domestic marketing systems
and organization, while also endeavoring to rationalize and review our sales channels
to adapt to changes in the markets for pianos and electones. Previously, Yamaha,
as a manufacturer, worked closely together with retail shops, but now we have
begun to divide up our activities and specialize.
Yamaha is placing emphasis on promoting interest in and demand for music through
music schools, concerts, and other activities. Our activities also include establishing
footholds in music schools for adults. On the production side, we are working
to improve efficiency through the introduction of the Toyota Production System
and the cell manufacturing system. Along with these efforts, we are upgrading
our information systems and introducing SAP. We believe these activities will
have a major positive impact in the years ahead.
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