Full-Year Financial Results for the 2004 Fiscal Year

Q&A summary

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Information-Related Equipment

Electronic Devices

General


Information-Related Equipment

  • Q1The outlook for second-half operating income in the information-related equipment business is fairly high. What are the assumptions on which you based this?
  • AThe second half includes the year-end shopping season, and we have high expectations particularly for the new inkjet printers that will be coming out in time for the year-end shopping season. We also can expect fairly strong growth in consumables, since we have built up a large install base of all-in-ones, direct-print photo printers and other inkjet products that use consumables at a higher rate.
  • Q2Can you expect double-digit net sales growth in the second half?
  • AYes.
  • Q3What were the volume and net sales growth rates for inkjet printers and consumables in the fourth quarter of fiscal 2004 and for the full year?
  • AIn the fourth quarter, inkjet printer volume and net sales were about even with last year. Consumables grew 15% on a volume basis. On a net sales basis, they grew in the mid single digits. For the full year, inkjet printers grew 4% on a volume basis, while net sales grew in the high single digits. Consumables grew 16% on a volume basis and in the mid single digits on a net sales basis.
  • Q4What about your estimates for the current fiscal year?
  • AWe expect inkjet printers to grow 12% on a volume basis and in the mid single digits on a net sales basis. Consumables are expected to grow 20% on a volume basis and in double digits on a net sales basis.
  • Q5How do you account for the disparity between higher cartridge volume and lower net sales growth? I assume that a higher ratio of independent cartridges and changes in unit prices have had an effect.
  • AWe do not release figures on the ratio of independent cartridges, but we are increasing the number of inkjet printers that use independent cartridges. In addition, we are strategically pricing our cartridges in regions such as Asia, and this also has the effect of lowering average unit prices.
  • Q6The projected cartridge growth rate in fiscal 2005 is fairly high. What factors led you to this conclusion?
  • AThe higher growth rate will come from an increase in the number of all-in-ones and direct-printer photo printers, both of which use consumables at a higher rate.
  • Q7What plans do you have for getting into the copier market with all-in-one color laser printers equipped with a copier function?
  • AWe have not yet announced such a product, but we do have one in the development and design stage. However, we see copier/printer needs coming more from the SOHO market than from the copier market per se, so it is this market that we want to enter.

Electronic Devices

  • Q8Plans for growth in electronic devices in the second half of fiscal 2005 appear to be pinned on amorphous TFT growth, but are there any specific orders that you are counting on? Also, is the second half going to be profitable?
  • AThe plan includes orders that are essentially fixed. Profitability will be difficult in the first half, but we will make up for it in the second half.
  • Q9Do you expect the second-half operating margin in amorphous TFTs to be somewhere between the mid to high single digits?
  • AYes, that is essentially the plan.
  • Q10What was included in the 4.6-billion yen extraordinary loss that you took for restructuring the amorphous TFT business?
  • AImpairment and scrapping of inventory and equipment.
  • Q11How were the financial results of Sanyo Epson Imaging Devices?
  • ASEID's results hit bottom in the fourth quarter of fiscal 2004. We finished restructuring the amorphous TFT in fiscal 2004, to realign the business toward small- and medium-sized panels and away from large-sized panels. In and after the 2005 fiscal year we will convert to and focus on small- and medium-sized panel products.
  • Q12At the end of March you had converted 30% of amorphous TFT production over to small- and medium-sized panels. How much more progress will you make in the current fiscal year?
  • AWe will continue to switch over to small- and medium-sized panel production in stages, in response to the demand trend. We will decide the exact figure while taking into account things such as the balance with D-TFD panels.
  • Q13With regard to the impact of inventory adjustments in the projector market, TI appears to see the adjustment cycle for DLP projectors continuing. What is the situation with Epson's HTPS systems?
  • AWe are gradually seeing signs that the adjustment cycle is ending. A full recovery should take place in about June or July.
  • Q14What kind of costs are being incurred for the start of mass production at the Chitose Plant?
  • AThis year there will be an increased cost burden due to accelerated depreciation, but that has already been factored into the financial results forecast.
  • Q15Do you plan to restructure the electronic device business?
  • ANo. The new quartz device company (Epson Toyocom) will begin operations on October 1, and Sanyo Epson Imaging Devices is finally just getting off the ground. The semiconductor business is preparing for a new category of products and is also thinking about new applications for basic technologies. We intend to stick to a positive philosophy.
  • Q16What are you going to do about the semiconductor business? Are you aiming to shrink the business to balance it with demand?
  • AThe issue for the time being in the semiconductor business is to shrink LCD driver chips as much as possible and, for the medium range, to expand beyond mobile phones. We intend to widen the breadth of applications by, for example, building high-sensitivity GPS chips and other new technologies into new products. By no means do our plans call for shrinking the business.
  • Q17What kind of volume and unit price growth rates do you expect to see this year versus last year in D-TFDs?
  • AVolume is seen growing at more than about 12%, but unit prices will be pressured by customers' relentless pricing demands. Although we cannot give exact levels, you can safely assume that prices will decline at the same pace as in the rest of the industry.
  • Q18Do you expect the size of the mobile phone market this year to be 690 million handsets?
  • AThat's the figure we estimate, based on material demand.
  • Q19You said that you will be producing LTPS displays for high-end mobile phones, but do you have any concrete business?
  • AWe have won real business, and those sales are factored into our plan.
  • Q20I'd like to know the breakdown of operating income generated by electronic devices in fiscal 2004 and fiscal 2005.
  • AWe do not disclose that information.

General

  • Q21Are the figures in the mid-range plan commitments or are they stretch targets?
  • AWe project an operating margin of 8% in the second half of fiscal 2005. If this level of operating margin continues into fiscal 2006, the hurdles to achieving the numbers will not be that high. Of course, we will take a variety of actions to ensure that we hit our numbers.
  • Q22How high is the probability that you will hit this year's financial forecast?
  • AForecasting financial results is a fairly difficult task, but we do everything we can to establish plans that accurately reflect the situation. Our fiscal 2005 forecast projects high profit in the second half in information-related equipment, for the reasons given earlier. Electronic devices hit bottom in the fourth quarter of fiscal 2004, and we see the capacity utilization ratio improving dramatically from the second half of fiscal 2005. In the second half, we expect electronic devices to be solidly profitable.
  • Q23Is it safe to assume that you are confident that you will achieve higher earnings on higher revenues in fiscal 2005?
  • AYes.
  • Q24Is the first quarter of fiscal 2005 going to start off in the red?
  • AWe have not disclosed our outlook for the first quarter, but the information-related equipment business looks strong, strong enough to make up for weakness in electronic devices.
  • Q25What ratios of fiscal 2006 operating income will be accounted for by information-related equipment and electronic devices?
  • AWe have not established any specific figures. As a percentage of sales, the ratio of information-related equipment to electronic devices is about 2-to-1, on average. In terms of profit, the ratio is probably closer when the electronic device business is performing well.
  • Q26Mr. Hanaoka, are there any differences between your business policies and those of your predecessor, Mr. Kusama?
  • AI was responsible for overseeing the formulation of the medium- to long-range corporate vision (SE07) and the medium-range business plan (Action07), and I have proceeded on the basis of these plans ever since. There will not be any changes to the basic policies moving forward.
  • Q27You indicated that you saved 52.3 billion yen by reducing costs in fiscal 2004. Where did these savings come from, and what kind of savings do you project for the current fiscal year?
  • AWe cannot disclose details. We rolled out actions to reduce costs in a wide range of fields, and they all contributed to the overall figures.
  • Q28Weren't your inventory levels in the fourth quarter of fiscal 2004 high?
  • AInventory levels were not high. Although the inventory of Sanyo Epson Imaging Devices was added in from last year, the inventory turnover ratio was not bad.