Q1:Were weather factors alone the cause of your downward revising of forecasts for the Recreation business segment? Can you please detail your plans for improving profitability next year?
A1: The weather was not the sole reason for the downward revisions. Unit price declines were also a factor. Customer numbers have not been recovering at golf course and ski facilities, and the segment is saddled with some structural problems. Amid these conditions, unfavorable weather further eroded profits. For example, the Haimurubushi resort operation was hindered by typhoons weekly in autumn and ski facilities opened behind schedule due to lack of snow. YAMAHA decided to apply the accounting for the impairment-of-asset method to evaluate the segment business from the basis of real profit/loss conditions instead of cash flow. In addition, the Company has switched to the declining balance method for depreciation and stands by its goal to turn profitable in the segment in FY2007, ending March 2007, when depreciation charges should decrease.
Q3:In sound chips for mobile phones, where do you see unit prices trending?
A3: The Company does not disclose specific estimates of sales volume or unit prices, but its forecast has been for higher sales volume year on year. Inventory adjustments began in the second quarter, which depressed sales volume 15% quarter on quarter in the second quarter. In the third quarter, sales volume recovered slightly from the second quarter. The Company expects sales volume to stay about flat in the fourth quarter. With regard to unit prices, mobile phone manufacturers face severe earnings conditions and have been putting on stronger pressure to reduce prices.
Q4:We understand that the unit volume of semiconductor sales will not change much from the third to the fourth quarter. Could you please explain why you are forecasting that the operating income of the Electronic Equipment and Metal Products segment will decline from ¥4.6 billion to ¥2.2 billion? In addition, thus far you have adopted a policy of responding to the need for more sophisticated functions, including expanding the number of polyphonic ringtones. What policy have you been implementing during the current period?
A4: In our profit planning, we are forecasting a slight decline in volume for the fourth quarter. In addition, we are expecting lower unit prices and reduction in production levels due to inventory adjustments. Moreover, we plan to continue to emphasize more sophisticated features, including the development of 128 polyphonic ringtones. As singing ringtones (Chaku-Uta) come into wider use, we do not expect that use of melody ringtones (Chaku-Melo) will disappear. However, one issue is how much mobile phone manufacturers will be willing to spend on melody ringtones. Looking ahead, we believe that a range of variations will be necessary.
Q5: In the musical instruments segment, why did operating income overshoot the target in the third quarter, even though sales fell short of the target? Also, you have revised downward your business targets for FY2005. Are there any repercussions for FY2006 and your medium-term business plan?
A5: Operating income exceeded the target mainly because expenditures were delayed. The sales shortfall was largely attributable to slight weaknesses in the overall market in the United States and to undershooting sales targets in Japan. In the United States, Yamaha thinks a recovery is attainable in the fourth quarter, partially because new products have been well received at recent musical instrument trade shows. The Company had targeted operating income of ¥15.5 billion in the first fiscal year of the medium-term plan; however, operating income is likely to be held at ¥14.0 billion in FY2005 due to the late restructuring of manufacturing operations. The segment is recovering, as evidenced by organizational changes in the piano division.