Consolidated Results for the Half Year Ended September 30, 2004

Q&A summary

Click on the appropriate question to view the answer.

Information-Related Equipment

Q1
What kind of growth rate did you see this quarter for inkjet printers ("IJP") and consumables compared to the second quarter of last year?
A
Inkjet printer volume grew 5% year-on-year, while sales revenue grew more than 10%. Consumables volume grew slightly less than 20%, while sales revenues showed high single-digit growth. For the full-year, we expect inkjet printer volume and revenue to grow in the high single digits. Consumables volume is expected to grow slightly less than 20%, while revenue growth is expected to be in the high single digits.
Q2
Did you see any regional differences in consumables growth?
A
The market environment for consumables was marked by the same trends we saw in printers. The Japanese printer market overall contracted to about 90% of last year's level, but Epson's volume was still 98% or 99% that of last year. In Asia, volumes of printers declined more than 10% versus last year. On the other hand, the U.S., and particularly Europe, exhibited strong sales and a high growth rate.
Q3
How have sales been for the new IJP products you released in Japan? Also, the PM-A900 comes with a CD label copying function. Has this led to any problems involving copyright infringement?
A
Among the new products that we released on October 7, the PM-A870 has sold especially well. According to one market research company, the PM-A870 has already captured a 9% share of the Japanese market. The PM-A900, which was released on October 22, is another strong seller, and it has won a market share exceeding 6%. The CD label copying function was provided to allow users to share labels with their family and friends. As long as the copying is restricted to personal use, no copyrights are being infringed.
Q4
In the U.S., Lexmark hasn't been seeing much growth in consumables, despite its growing IJP sales. Is Epson seeing the same phenomenon in the low-price zone?
A
Lexmark and Epson have fundamentally different IJP product lineups. Lexmark is focused exclusively on the low-price zone. In contrast, Epson's lineup is on the higher-end and includes all-in-one units that provide photo-quality printing, as well as single-function pigment ink (DURABrite) printers. Our printer lineup is driving 20% year-on-year volume growth in consumables.
Q5
In the information-related equipment segment, you upwardly revised your second-half sales outlook by 24 billion yen, yet you raised your operating income outlook by only 5 billion yen. Why?
A
We have considerably fortified our IJP cost structure, so we are comfortable with these numbers.
Q6
How does the anticipated second-half growth rate for IJPs compare with the outlook you announced when you released your first-quarter financial results? What action will you take to boost share in the second half in each region? Also, what types of pricing measures will you take to boost share?
A
We expect growth to be between 5% and 6%, which is exactly what we predicted when we released our previous outlook. Globally for the second half, we will release both all-in-one units and single-function printers that feature photo-quality output. We aim to boost our share not in the low-price zone but in high-value-added products. Since we are thus targeting the high-price zone, we think our average selling prices will hold.

Electronic Devices

Q7
You lowered your outlook for fiscal 2004 operating income in the device segment by 9-billion yen compared to your previous outlook. Can you provide a breakdown of the decline ratio by product group?
A
Although we do not disclose specific figures for our operations divisions, we can tell you that the display business accounts for an overwhelmingly high percentage of the decline and that the impact of amorphous-TFT and low-temperature polysilicon panel businesses is particularly large. Although operating income from semiconductors is also expected to decline, semiconductors will not have as large an impact as displays. Although we will see a decline in revenue from mobile displays, we have fortified the business structure such that we will still see profit.
Q8
Why do you expect such a decline in amorphous-TFT income?
A
The price of displays 15-inches and larger has been falling rapidly, and we factored that trend into our operating income outlook.
Q9
Will you make an aggressive move to switch amorphous-TFT panel production more toward small- and medium-sized panels?
A
Initially, we planned to convert about 15% of production capacity to small- and medium-sized panels during the current fiscal year. However, we raised this to 30% due to the softening of the large-size panel market. Since converting the lines to small- and medium-sized panel production will naturally result in an increase in the number of panels yielded per wafer, we can increase profitability even if the large-panel market softens further. The ratio in fiscal 2005 and beyond has yet to be decided. It will be decided based on a balance between customers and the market.
Q10
At the time you released your first-quarter financial results, you indicated that you expected D-TFD panel prices to fall by more than 10%. How far do you expect them to fall in the second half?
A
We do not anticipate any significant change from our previous outlook.
Q11
How is the capacity utilization rate at your major device plants?
A
Our color STN, D-TFD and HTPS fabrication facilities are currently running at full capacity. Our semiconductor fabs have a little bit of extra capacity. Tottori has extra capacity on some lines, but orders for panels used in digital cameras are beginning to rise, and the capacity utilization rate is rising along with it.
Q12
What percentage of the 10.9-billion yen in operating income expected for electronic devices in the second half is accounted for by displays? How much will HTPS panels account for?
A
Displays will account for about 25% of operating income in the electronic device segment. We do not disclose the operating income ratio of individual products.
Q13
Do you expect the start of an inventory adjustment cycle in devices for the mobile market?
A
Orders from customers remain strong, and we ourselves are not making inventory adjustments.
Q14
At the time of your previous announcement, you explained that with the establishment of Sanyo Epson Imaging Devices (SEID) there would be a 900-million-yen outflow of profit, equivalent to the minority stockholder's interest. Has this figure changed?
A
At the time of our previous announcement, we ventured a rough estimate as to the figure in order to provide some idea of the scale of profits to accompany the business merger. However, since SEID began operations on October 1 as an independent subsidiary, we cannot comment on its profit and loss.

General

Q15
Despite your strong business performance, your labor costs haven't risen. Why? How is employee morale?
A
Last year, severance benefits were on the rise, but this year we were able to reduce labor costs. This reduction is due to a variety of factors, including some changes in the pension system and improved pension asset performance.
We have absolutely no problems with morale. We have implemented operational innovations over the past two years. These innovations included a total review of everything from our business structure to the work processes of individual employees. Moreover, this year we have been driving a consolidated total cost ratio reduction initiative that has started to make us more cost competitive.
Q16
Given the strength of your first-half results, it seems that you could have expected full-year operating income of about 120 billion yen. Why are you being so conservative about the second half?
A
We forecast our numbers based on the results yielded by a variety of analyses. We do not consider our outlook to be overly cautious.