Consolidated Results for the half year ended September 30, 2006

Q&A summary

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Information-Related Equipment

Electronic Devices

General


Information-Related Equipment

  • Q1Doesn't your second-half financial outlook seems conservative in light of your first-half cost reductions?
  • AThe inkjet printer business reported results that exceeded the business plan. Results benefited from the systematic curtailment of printer volume as part of a marketing strategy that emphasizes profitability. They also benefited from a weakened yen. In the second half, however, we need to ensure future growth by spending where necessary to expand unit sales volume. We are thus taking a cautious view about whether we can improve income as we did in the first half. The display business outlook, meanwhile, is shaping up to be extremely difficult. Although we are making progress in reducing costs, unit volume is well below plan in every category of small- and medium-sized display. Our forecast factors in these risks and is by no means conservative.
  • Q2Why is your domestic workforce growing?
  • AThe increase in headcount versus the first half of the previous fiscal year was due to the addition of personnel from the former Toyo Communication Equipment Corp, which merged with Epson to form Epson Toyocom Corp., and of personnel from Yasu Semiconductor Corp, which became a consolidated subsidiary.
  • Q3Do you have any sense at the current time about whether you can achieve ¥70 billion in ordinary income in the coming fiscal year?
  • AFirst, we need to surmount the immediate issues and hit this year's objective of ¥40 billion in ordinary income. We are taking a number of steps toward that end. The inkjet printer business is seeing improved profitability, so during the second half we will spend as necessary to expand unit sales, taking next year and beyond into account. The display business will struggle again in the second half, but we are committed to improving fixed and variable costs during the current year so that we are in a better position next year.

Printing Solutins

  • Q4First-half inkjet printer unit volume declined compared to the year-ago period. Was the decline seen entirely in low-cost models?
  • ALow-cost models did not account for the entire first-half decline in unit volume. We chose to strategically curtail shipments of certain models that were not generating profits, including profits from ink cartridge sales. This resulted in a higher average selling price.
  • Q5Won't the decline in inkjet unit volume impact future ink cartridge growth?
  • AThe decline will have some effect. However, we will again move to expand printer unit sales from the second half, so the decline should not have a major impact on ink cartridge volume next year and beyond.
  • Q6What kind of inkjet printer unit volume have you planned for the second half?
  • AWe are planning for an approximately 15% decline in unit volume compared to the year-ago period.
  • Q7Are you seeing any benefits from platform standardization?
  • AWe do not expect the benefits to really start to kick in until next year.
  • Q8How is the sales environment in each region?
  • AThe total Japanese inkjet market shrank year-on-year, and with competitors pricing their units aggressively, prices continued to drop for all-in-ones and across the entire market. Our marketing programs focused on selling photo all-in-ones, and we adhered to a strategy of emphasizing profitability and maintaining prices. As we head into the second half, we are finding that the new products we launched at the end of September are helping to minimize any erosion of market share brought about by our commitment to maintaining prices.
    The North American market also shrank year-on-year, though sales did become brisker from July as the back-to-school shopping season gained momentum. Sales will continue to be affected by the aggressive promotions of our competitors and their low-price strategies. However, we began shipping our promising new second-half products from the end of August.
    The European market has been sluggish since April and, as in North America, unit volume declined due to competitors' aggressive promotions and pricing strategies. Our new products are selling essentially in line with plan.
    In the rest of Asia sales in the volume zone remain strong. Sales of new products are essentially in line with plan, and we project a year-on-year increase in volume.
  • Q9In what regions are you seeing the toughest price competition?
  • AThe European market is expected to be especially difficult, with our competitors launching aggressive pricing strategies even for their new products.
  • Q10What kind of potential do you see for the industrial inkjet equipment market that Epson has recently joined?
  • ALCD manufacturers appear to recognize that our inkjet systems help to reduce the cost of fabricating color filters, so we should see forward growth in this market.
  • Q11What is behind the first-half growth in 3LCD projectors, and why are you lowering expectations for the second half?
  • AIn the first half, new product sales grew faster than the market. We lowered our expectations for the second half after taking into account factors such as aggressive pricing by competitors. However, we intend to maintain profitability by maintaining prices and by lowering operating costs.

General

  • Q12You expect second-half unit volume to fall far short of plan in every category of small- and medium-sized display. Why? Don't these projections seem a little low taking Sanyo Epson's market share into account?
  • AThere are two primary external factors that we believe will act to reduce volume. One is that handset users in BRIC countries are not seeking to upgrade to color panels as quickly as anticipated. The other is that disappointing growth is projected in QVGA-class LCDs. Our earlier estimates were predicated on strong growth in this category, which is a strength of Sanyo Epson. Internal factors include a serious misreading of the situation at the planning stage. This misreading was due mainly to an overly optimistic reading of market trends and to a lack of close coordination and cooperation between sales and design engineering. These are problems we are addressing.
  • Q13Is your share of the handset panel market being affected by pricing?
  • APrice competition in this business is fierce, so pricing is one important factor. However, we are trying to compete on our technology and overall strength.
  • Q14What factors are behind the loss projected for the second half in the electronic devices business segment?
  • AThe display business accounts for the loss. Weighing particularly on earnings is the anticipated large shortfall in amorphous-silicon TFT LCD unit volume.
  • Q15Are you contemplating any additional restructuring or structural reforms in the display business?
  • AAfter going through the first half, we now recognize a variety of issues that need to be addressed. But improving profitability is a higher priority than restructuring. Moving forward, we want to keep our fixed-cost structure in line with net sales. We will also deal seriously with internal factors. Specifically, we are looking to improve our position by, for example, examining opportunities to increase site efficiency and promote greater workforce efficiency in line with the mid-range business plan. This year, therefore, we do not anticipate reporting a large loss like the one taken last year.