Q1:Please tell us your assumptions for key foreign exchange rates in the second half of the fiscal year ending March 31, 2008. Could you also tell us your forex sensitivity to each ¥1 change in the value of the yen against the U.S. dollar and euro on an annual basis?
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.
Q2:It appears that nearly all of the year-on-year growth in operating income in the first quarter at the musical instruments segment can be attributed to foreign currency gains, but could you tell us about any earnings boost from sales growth on an adjusted basis and any cost savings from measures taken in the previous fiscal year to consolidate and close operational bases?
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.
Q3:In the net assets section of the balance sheet, retained earnings fell while net unrealized holding gains on other securities increased sharply. Does this reflect the removal of Yamaha Motor Co., Ltd., from the scope of consolidation as an equity-method affiliate?
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.
Q4:Please tell us about regional sales trends at the musical instruments segment in 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.
Q5:Could you tell us the reasons the performance of the electronic equipment and metal products segment exceeded your 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.
Q6:Please tell us how you see the musical instruments segment for the full fiscal year. Please comment in particular on electronic musical instruments and professional audio equipment?
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.
Q7:Was a decline in sales of IP conferencing systems the main reason for the shortfall in earnings versus the previous forecast at the AV/IT segment?
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.
Q8:Within the semiconductor business, how do you see the growth prospects for digital amplifiers? Please give us your medium-term outlook.
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.
Q9:What are profit margins on digital amplifiers? Are they comparable to the profit margins earned by LSI sound chips for mobile phones when they were first launched?
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.
Q10:Sales at the electronic equipment and metal products segment grew year on year. Within this segment, the year-on-year decline in semiconductor sales was not especially steep, but operating income fell ¥800 million. Please explain the reasons for this.
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.