Consolidated Results for the Year Ended March 31, 2006

Q&A summary

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Information-Related Equipment

Electronic Devices

General


Information-Related Equipment

  • Q1What kind of growth in inkjet printer unit volume and net sales did you see in fiscal 2005, and what kind of growth do you expect in fiscal 2006?
  • AFiscal 2005 volume grew by about 2%, while net sales declined at a rate in the low single digits. We expect fiscal 2006 unit volume in this segment to decline by about 10% and net sales to decline at a rate in the high single digits.
  • Q2What kind of unit volume and net sales growth did Epson see in inkjet printer consumables for the full year and in the fourth quarter? What are your volume and net sales expectations for consumables in fiscal 2006?
  • AFiscal 2005 unit volume grew by about 13%. Net sales growth was in the mid single-digits. Fourth-quarter unit volume grew at a rate in the mid teens, while net sales growth was in the high single digits. In fiscal 2006 we expect inkjet consumables volume to grow by about 8%, with a low single-digit decline in net sales.
  • Q3Income in the information-related equipment segment ended higher than the estimate you provided in your previous guidance. Was this increase due to some major factor outside the inkjet printer business?
  • AIncome ended slightly higher because each of the businesses in the information-related equipment segment stayed relatively strong.
  • Q4What does the trend look like for income in the information-related equipment segment in fiscal 2006?
  • AIn fiscal 2006 we expect income in the inkjet printer business to be flat versus last year, but the other businesses in the segment (the laser printer, business systems, and visual instruments businesses) should contribute to improved income.
  • Q5Do you expect to see changes in the inkjet printer market environment in fiscal 2006?
  • AWe do not foresee any major changes in the market environment.
    During the current fiscal year Epson will strategically reduce unit shipments of inkjet models that generate only negligible print volume. On the consumables end, we intend to continue taking action to raise the ratio of genuine Epson consumables purchases, but we cannot be certain of the magnitude of their impact and thus have not factored them into the plan. Consequently, we are projecting negative net sales growth.
  • Q6You said that Epson will be reducing shipments of certain models in its inkjet printer line. Specifically, what types of models will be affected?
  • AAlthough we said that we will be reducing the unit shipments of low print-volume models, that does not mean we will be cutting back on all of our low-priced single-function printers or all-in-ones. We will strategically and dynamically adjust the model mix in each sales region and each country.
  • Q7Can you give us an idea about the growth picture you envision for consumables in fiscal 2007 and onward?
  • AThe problem we are faced with in terms of inkjet consumables is raising the ratio of genuine Epson consumables purchases as a percentage of total ink purchases. We are attacking the issue from a number of different angles, including by taking stronger legal action in response to patent-infringing non-genuine cartridges, implementing technological countermeasures, and driving marketing campaigns designed to raise the ratio of genuine consumables. However, the outcome of these efforts is not yet certain, so it is still too early to comment on projections for fiscal 2007 and beyond.
  • Q8Prices for both printers and consumables are expected to continue declining. What sort of action are you taking in response to this trend?
  • AOn the printer hardware end, we are conducting reviews from the design engineering stage to enable us to generate profit on hardware.
    On the consumables end, we are taking action to further drive down our costs so that we can squeeze more profit from consumables.
  • Q9What percentage of total inkjet unit shipments did all-in-ones account for in fiscal 2005? What is your projection for fiscal 2006?
  • AAll-in-ones accounted for 44% of total unit shipments in fiscal 2005. We expect that figure to rise to 50% in fiscal 2006.
  • Q10Price erosion of consumables appears likely to further accelerate in fiscal 2006 compared to fiscal 2005. Would it be accurate to say that your outlook factors in a measure of caution in this regard?
  • AThe income trend is expected to follow the typical pattern. The second quarter is a period of preparation for the critical third quarter, so we will incur slightly higher expenses. The third quarter, with the year-end shopping season, is traditionally our biggest quarter, and the income level is high. We see a fall in the fourth quarter when income dips.

Printing Solutins

  • Q11You mentioned a 12 billion yen total monetary effect from restructuring fixed costs in your electronic device businesses. Could you be more specific about what this includes?
  • AThe total consists of 8 billion yen from the reorganization of semiconductor manufacturing sites and lines and 4 billion yen from impairment of MD-TFT display assets, as well as from the impairment and disposal of amorphous-silicon TFT and LTPS display production equipment.
  • Q12Is there any change in your production capacity plans for small- and medium-sized LCD panels?
  • AThere is no major change.
  • Q13In addition to domestic display manufacturers, more and more cost-competitive overseas manufacturers are entering the display business. Can Epson survive under these conditions?
  • AIt is true that we are facing fierce competition from domestic manufacturers over transflective displays, which form the bulk of shipments to the mobile phone market. On the other hand, the technological barriers to entry for overseas manufacturers are still quite high, and we believe we can differentiate our products. It is harder to stand out from the crowd with transmissive displays, so we will try to differentiate our products with higher aperture ratios, wider viewing angles, and other technological advancements.
  • Q14What factors will cause the volume of amorphous-silicon TFT displays to increase and low-temperature polysilicon (LTPS) TFT displays to decrease in fiscal 2006?
  • AAmorphous-silicon TFT displays will grow due to strong demand from mobile phones and due to gains in other applications. LTPS TFT displays volume will decline due to continued weak demand from the market. However, we aim to expand applications and win orders by furthering development on technologies that can leverage Epson's strengths, such as low power consumption.
  • Q15What is the medium- to long-range outlook for the semiconductor business?
  • AWe are aware that significant reforms are needed if our semiconductor business is to survive. We are currently implementing the structural reforms we announced on March 16.

General

  • Q16Have there been any significant changes in the environment of your core businesses since you announced your mid-range business plan on March 16?
  • AThere have been no major changes.
  • Q17You mentioned changing the mindset of all employees. How successful have you been at instilling a shared sense of urgency and commitment among individual employees towards meeting the goals of the mid-range business plan?
  • AWe have been successful in getting our employees on the same page. Now it is important that we tie the goals of the plan into the duties of individual employees. We are aware that it is the responsibility of the management to narrow down those goals into specific measures and indicate a direction for individuals to work towards.