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• Q1

  It appears that you are anticipating significant second-half growth in inkjet printer consumables, but what makes you think you can achieve such growth?

• Q2

  You said that Epson is being allocated more shelf space for its inkjet products in the United States. Can we expect a commensurate volume increase?

• Q3

  Epson struggled in the European market in the first half. What kind of measures are you planning to deploy in the second half to get back on track?

• Q4

  The market for LCD projection televisions is growing slowly compared to that for plasma TVs and direct-view liquid crystal TVs. What action are you going to take to hasten growth? Also, what are you going to do with the high-temperature polysilicon (HTPS) TFT LCD line at Chitose?

• Q5

  You said that LCD projection TVs have competitive advantage in terms of cost, but in the United States the price of LCD projection TVs has not fallen much as compared to the prices of plasma and LCD televisions. Why is that? Also, are you considering focusing more on China than on the U.S. as a market for OEM engines?

• Q6

  I like to know what segments of the semiconductor business you will compete in and whether you have any major structural changes planned.

• Q7

  I believe that one of the reasons you downwardly revised your financial outlook was that you gave in to pressure from a major customer to lower amorphous TFT prices. Is Epson prepared to accede to customer demands without taking profitability into account? What is the company's basic stance in this regard?

• Q8

  I believe that the display business is in the middle of business talks for orders to be fulfilled in the coming fiscal year. How is the outlook for orders? I would also like to know what concrete actions are being taken to reduce costs.

• Q9

  What are current significant issues in terms of corporate management?

• Q10

  You lowered your full-year outlook for depreciation and amortization by about 10-billion yen compared to the revised outlook of July 27. Does this mean that you are essentially downwardly revising your income estimate by the same amount? Or, was it already factored in when you reduced guidance on September 21? Also, I would like to know the breakdown of depreciation and amortization by business segment.

• Q11

  How much operating income you are projecting for the information-related equipment business segment in the third quarter, and how much in the fourth quarter? How about for the electronic device business segment?

• Q12

  Why did your average inventory turnover period increase?

• Q13

  Don't you levy any kind of in-house penalty for the major revisions to the original outlook?

• Q14

  Will we have an opportunity to hear about the process or concrete actions that you are taking to improve the accuracy of your business forecasts?

• Q15

  Your cash flows are sharply down this second quarter and, after a temporary improvement, they have been steadily worsening, despite the story you presented at the time of your IPO about becoming debt free. What are the fundamental causes?

• Q16

  It seems to me that, when earnings were good, Epson had a strong tendency in the past to invest in operations without knowing whether they would become a major stream of revenue and earnings. Do you consider this an accurate statement?

• Q17

  You have 40-billion yen in new loans. How are you planning to use the money?

• Q18

  Since your cash equivalents at the end of the period are shown increasing compared to the year-ago period and are about equal to the amount of new loans, it would appear that you did not need to secure the new loans that you secured at the end of September. Did you renew debt to take advantage of low interest?

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• Q1

  It appears that you are anticipating significant second-half growth in inkjet printer consumables, but what makes you think you can achieve such growth?

• A

  We expect second-half consumables growth to come from sales of new inkjet products. In Europe, where we struggled in the first half, we expect the percentage of genuine Epson consumables to rise as we get the word out about the low cost per print.

• Q2

  You said that Epson is being allocated more shelf space for its inkjet products in the United States. Can we expect a commensurate volume increase?

• A

  Although we can't say that volume will increase commensurately with the additional shelf space, we do expect growth that is at or near double digits.

• Q3

  Epson struggled in the European market in the first half. What kind of measures are you planning to deploy in the second half to get back on track?

• A

  Heading into the year-end shopping season, we are hastening a shift toward high added-value all-in-one machines and direct-print photo printers. On the consumables end, we expect to improve in the second half by increasing the genuine consumables purchasing ratio. We intend to increase the ratio by emphasizing the low cost per print of genuine Epson consumables.

• Q4

  The market for LCD projection televisions is growing slowly compared to that for plasma TVs and direct-view liquid crystal TVs. What action are you going to take to hasten growth? Also, what are you going to do with the high-temperature polysilicon (HTPS) TFT LCD line at Chitose?

• A

  We will continue to sell LCD projection televisions as finished products. The products we currently have on the market cost from 6,000 to 7,000 yen per inch, but the price will decline as we move forward. It is not yet clear which large-screen TV technology—liquid crystal, plasma, or projection—the market will settle on. We will continue to keep our eyes trained on future trends, but we want to commercialize products that leverage the advantages of 3LCD projection systems, such as the ability to deliver a true 1080P HDTV picture, something that is difficult to achieve with plasma technology.
  As for the Chitose Plant, HTPS-TFT panel volumes are expected to grow steadily, so we will take advantage of the efficiencies offered by the Chitose Plant's 12-inch line while considering the production efficiency of our existing line.

• Q5

  You said that LCD projection TVs have competitive advantage in terms of cost, but in the United States the price of LCD projection TVs has not fallen much as compared to the prices of plasma and LCD televisions. Why is that? Also, are you considering focusing more on China than on the U.S. as a market for OEM engines?

• A

  LCD projection TV prices cannot be reduced unless there is a reduction in overall costs, including the cost of digital tuners and other components, not just the cost of high-temperature polysilicon TFT panels. Presently we do not consider the Chinese market to be an attractive one for Epson brand LCD projection TVs.

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• Q6

  I like to know what segments of the semiconductor business you will compete in and whether you have any major structural changes planned.

• A

  When it comes to the future direction of the semiconductor business, the important thing is to identify how we want the structure of sales to look. First, we want inside sales to account for 30%-40% of total sales in the near future. Inside sales would include, for example, drivers for our Micro Piezo print heads, flash memory for our ink cartridges, and LCD drivers for Sanyo Epson Imaging Devices. We would also like 30%-40% of sales to come from segments of the market where we can exploit our unique process technologies in areas such as ultra-low power consumption and mixed-signal (analog/digital) chips. We would like the remainder of sales to come by introducing new technologies to boost sales of the silicon foundry business.

• Q7

  I believe that one of the reasons you downwardly revised your financial outlook was that you gave in to pressure from a major customer to lower amorphous TFT prices. Is Epson prepared to accede to customer demands without taking profitability into account? What is the company's basic stance in this regard?

• A

  In the device business, customers may issue purchase orders for a certain per-piece price and certain volume. Such orders are accepted or rejected based on simulations to determine the level of fixed costs that can be recovered. On the one hand we have to avoid situations where the rejection of an order would cause us to be unable to maintain a sufficiently high capacity utilization ratio and thus be unable to recover our fixed costs. On the other hand, we have to run the business such that if we accept an order, we have to consider the delicate balance among capacity utilization ratio, per-piece costs, and fixed costs. Next year, to maximize the profitability of each model, we will have to look even harder at orders to determine which to accept.

• Q8

  I believe that the display business is in the middle of business talks for orders to be fulfilled in the coming fiscal year. How is the outlook for orders? I would also like to know what concrete actions are being taken to reduce costs.

• A

  Next year's mobile phone market is expected to see continued growth in handset demand in countries that lack land-line phone infrastructures, most notably Brazil, India, Russia, and China. The key for next year lies in the extent to which we are able to capture orders from the winners in the fiercely competitive mobile phone market. To reduce amorphous TFT and LTPS costs, we will seek to improve yield and drive down material costs.

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• Q9

  What are current significant issues in terms of corporate management?

• A

  Epson's management team recognizes that it needs to form a clear picture of how the 21st-century business model differs from the 20th-century model, and then quickly implement innovations in management, business positioning, and products to bring the business up to date. A company that continues to follow the 20th century model has no future. Once we have changed the mindset and corporate culture to a 21st century model, we will then reshape our operations and products.

• Q10

  You lowered your full-year outlook for depreciation and amortization by about 10-billion yen compared to the revised outlook of July 27. Does this mean that you are essentially downwardly revising your income estimate by the same amount? Or, was it already factored in when you reduced guidance on September 21? Also, I would like to know the breakdown of depreciation and amortization by business segment.

• A

  Because of the near-term business challenges that we face, we lowered depreciation and amortization expenses by subjecting investments to rigorous screening and revised the timing of other investments. These have been factored into the September 21st downward revision. We do not release segment-by-segment breakdowns.

• Q11

  How much operating income you are projecting for the information-related equipment business segment in the third quarter, and how much in the fourth quarter? How about for the electronic device business segment?

• A

  We do not disclose operating income forecasts by quarter. However, the year-end selling season comes in the third quarter, so the third-quarter numbers are higher in both segments.

• Q12

  Why did your average inventory turnover period increase?

• A

  The increase is largely due to the laying in of inkjet printer inventory in preparation for the year-end shopping season. The turnover period in electronic devices increased principally because MD-TFD display and other orders for the 3Q peak exceeded our production capacity, so we pulled some production forward into 2Q. The startup of operations at Sanyo Epson Imaging Devices also contributed to higher electronic device inventory compared to the year-ago period.

• Q13

  Don't you levy any kind of in-house penalty for the major revisions to the original outlook?

• A

  Levying penalties without taking other action would do nothing but damage employee morale. In our view the important thing is to identify the root cause of erroneous forecasts, to thoroughly scrutinize the forecasting process, and to take action to redress the problems.

• Q14

  Will we have an opportunity to hear about the process or concrete actions that you are taking to improve the accuracy of your business forecasts?

• A

  We hope to have an opportunity in the future to present not so much the process but to explain what the problems were and how we are addressing them.

• Q15

  Your cash flows are sharply down this second quarter and, after a temporary improvement, they have been steadily worsening, despite the story you presented at the time of your IPO about becoming debt free. What are the fundamental causes?

• A

  Cash flows are down as a result of a confluence of many factors, including capital investment and inventory, as well as profit and loss. We had been working to reduce our interest-bearing liabilities over the mid range and had been targeting zero debt, but operating cash flows have worsened as a result of difficult conditions this year. However, we are now re-examining our capital investment plans and are taking action to reduce inventory company-wide. We are moving toward improving profitability and creating free cash flow. We hope to present details at the earliest possible date.

• Q16

  It seems to me that, when earnings were good, Epson had a strong tendency in the past to invest in operations without knowing whether they would become a major stream of revenue and earnings. Do you consider this an accurate statement?

• A

  Certainly, it is true that, in the past, we invested heavily in certain areas, especially in electronic devices, to the detriment of free cash flow. Since we became a publicly traded company, however, we have not made any massive investments, as we have reworked our strategies and are subjecting potential investments to a more rigorous selection process.

• Q17

  You have 40-billion yen in new loans. How are you planning to use the money?

• A

  We remain committed to improvements that will reduce our interest-bearing liabilities. The new loans were borrowed in advance to rollout over the long term loans that will come to maturity date in the second half of the year. The new loans are not earmarked for new capital investment.

• Q18

  Since your cash equivalents at the end of the period are shown increasing compared to the year-ago period and are about equal to the amount of new loans, it would appear that you did not need to secure the new loans that you secured at the end of September. Did you renew debt to take advantage of low interest?

• A

  We watch the interest situation and make decisions based on what we perceive to be the most advantageous interest conditions for the company. We borrowed at the end of September in light of any potential future rise in interest rates and because of the worsening near-term profit picture.

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