Consolidated Results for the Nine Months Ended December 31, 2005

Q&A summary

Click on the appropriate question to view the answer.

Information-Related Equipment

Electronic Devices


Information-Related Equipment

  • Q1

    How was third-quarter growth in inkjet printer consumables, and what kind of growth do you expect in consumables in the fourth quarter?

  • A

    Third-quarter growth was in the low single digits. Fourth-quarter growth is expected to be in the low teens.

  • Q2

    Is Epson going to stick to its strategy in the inkjet printer business of continuing to add new features and functions to slow the drop in unit prices?

  • A

    Rather than try to slow the drop in printer prices, we are moving toward expanding and filling out those printer lines that encourage users to print more and, conversely, paring down other product lines. Therefore, in addition to our all-in-one lineup, we are moving to bolster our lines of business printers and large-format printer products.

  • Q3

    Are you saying that you will be eliminating some of your non-photo single-function printers?

  • A

    The market for Epson's inkjet printers is nearly worldwide. Accordingly, we will determine the course of action based on consideration of the local product strategy and product lineup in each region.

  • Q4

    Volume growth of consumables in the third quarter was 9%, a slowdown compared to the 15% recorded in the first half. What's actually happening?

  • A

    The volume growth rate was lower than we had initially forecast. There are several reasons for the lower volume growth rate. One is that printer users did not go through as many consumables as was projected, so the replacement buying cycle was longer than anticipated. Another is that growth in genuine Epson consumables is sluggish. However, that does not mean that we are any less competitive. We are starting to see benefits from programs to promote sales of genuine Epson consumables in every region, and growth rates are unlikely to fall any farther.

  • Q5

    Would it be accurate to say that Epson is losing momentum compared to the first half?

  • A

    We do not think we are losing momentum. Third-quarter results were affected by the continued slowdown in Europe, but business remained strong in the markets of Japan and North America.

  • Q6

    Was there any change in the average selling prices and profitability of consumables in the third quarter?

  • A

    Average selling prices were down by the mid single digits compared to the same period last year. However, since volume grew, there was no major change in profitability.

  • Q7

    In explaining the direction of the mid-range strategy, you mentioned "customer preferences" in conjunction with raising the ratio of genuine Epson ink cartridges. Does that mean that you will be reducing ink cartridge prices?

  • A

    No, it does not mean that we will be reducing prices. We are talking about providing ink cartridges with additional advanced features that reflect customer needs and that make them more convenient and easier to use.

  • Q8

    Third-quarter operating income in the information-related equipment business segment came in below plan. The reason given was that costs rose due to the addition of new features and functions on inkjet printers. Weren't these additional costs already factored into your earlier plan?

  • A

    Manufacturing costs were factored into the plan from the beginning. However, average selling prices spiraled down faster than we could reduce manufacturing costs, and that is what impacted operating income. The average selling prices of all-in-ones fell by 10% or more from the time we announced our previous outlook. The average selling prices of single-function printers, on the other hand, held firmer than anticipated.

Printing Solutions

  • Q9

    Projected fourth-quarter operating income in the electronic device business seems on the low side. Is this because of the 38.8 billion yen in restructuring charges?

  • A

    The operating income figure is not due to the restructuring charges. Fourth-quarter demand for electronic devices used in mobile phones is traditionally on the weak side, so we can never count on a strong fourth quarter.

  • Q10

    Aren't you considering recording any impairments in the display business?

  • A

    We are examining all of our electronic device businesses to determine what action should be taken.

  • Q11

    You mentioned consolidating your high-temperature polysilicon TFT panel manufacturing operations at your Chitose Plant. What kind of time frame are you looking at?

  • A

    We are considering consolidating HTPS operations at Chitose in the future, but the timing will be determined by the market situation going forward.


  • Q12

    Why are you waiting until March 16 to provide specifics regarding your reform plan for improving earnings potential?

  • A

    In addition to the 38.8-billion yen fixed-asset restructuring charge that can be reasonably estimated at this stage, additional charges associated with further action are being studied, but the details have yet to be finalized. Therefore, we will wait until March 16 to present the full picture of structural reforms, including these restructuring charges.

  • Q13

    The financial objective stated in your mid-range business plan is ordinary income of 100 billion yen or more in fiscal 2008. Is this just pie in the sky or does it truly reflect management's commitment to taking tough action, including further restructuring actions?

  • A

    Once we have further broken down the actions that we are preparing to take, we need to tie them to concrete plans of action and move to the execution phase. Management is firmly committed to taking concrete action to improve earnings. This concrete action will be woven into the mid-range business plan.

  • Q14

    You stated that you will record extraordinary losses totaling slightly less than 50 billion yen, but about how far do you expect to lower your fixed costs in fiscal 2006?

  • A

    We expect to reduce fixed costs by more than about 10 billion yen.

  • Q15

    What kind of benefit do you expect to see next year from your cost reduction efforts?

  • A

    Our efforts will translate into 150 billion yen over three years, but the savings will accelerate by year rather than be a steady 50 billion yen each year, so the effect in the first fiscal year will be less than 50 billion yen. We will provide a more detailed picture of the numbers when we announce our mid-range business plan on March 16.

  • Q16

    Can we assume that fiscal 2006 operating income will be in the range of 40 billion yen to 50 billion yen?

  • A

    We cannot disclose projected operating income figures at this time, but we do hope to multiply this year's income by some factor by restructuring our fixed costs, by increasing income in the information-related equipment business, and by restoring profitability in the electronic device business.

  • Q17

    Your competitors in displays and inkjet printers have far higher margins. Are you benchmarking?

  • A

    In the area of inkjet printers, we are benchmarking by, for example, analyzing the products of other companies in the industry on the parts level. However, in the case of displays, it is very difficult to determine what sort of purchasing policies our competitors are taking, since the purchase rate of material is as high as 80%.

  • Q18

    The overall tone of your presentation is quite positive, but looking at the actual numbers, I feel a sense of crisis. Is there a sense of crisis in the company?

  • A

    There is a fairly high sense of crisis due to the disparity between our initial projections and the actuality. Our task now is to tie this sense of crisis into concrete employee action.

  • Q19

    Isn't the reason behind the downward revision of your outlook more a problem in the positioning and structure of the entire company rather than a problem with the individual businesses?

  • A

    It is true that the fast pace of marketplace change has kept us on the defensive and that we have been slow to react. We intend to strengthen the structure of our operations and improve our position.

  • Q20

    Hasn't your organization become too rigid? Haven't your reform and improvement actions ended without being driven through to completion?

  • A

    Up to this point our improvement actions have not been tied closely enough to specific plans. To achieve numerical targets, we have to specify what action we expect employees to take. We also have to develop a corporate culture in which sustained implementation of improvement actions become a routine part of the job.

  • Q21

    Your lack of accuracy in estimating financial results has been pointed out repeatedly. What will you be doing in terms of your management system to rectify the situation?

  • A

    In analyzing where we have gone wrong, we have come to the conclusion that (1) we have been overconfident in our own abilities; (2) we have misread the magnitude of changes brought about by marketplace competition; and (3) we have not been properly positioned in terms of cost competitiveness and our ability to improve earnings. We will rectify these and other shortcomings and strive for improvement in 2006.

  • Q22

    Aren't you being somewhat overoptimistic in your assumptions with regard to the market conditions on which your mid-range business plan will be based?

  • A

    Our cost targets are based on some fairly difficult assumptions. Accurately assessing and verifying these assumptions is critical, so we will be taking a very close look at them from a management standpoint, as well.

  • Q23

    Depending on the outcome of reforms, it seems likely that further additional action of some kind will have to be taken.

  • A

    First, we will go forward with the integration and closure of certain sites as part of the business reorganization outlined in the reform plan. Dynamically reorganizing and revamping the parts of the organization that are central to earnings is the key, so that is where we intend to start, immediately.

  • Q24

    Will you be paying a dividend even though operations are in the red?

  • A

    As we stated at last year's general meeting of shareholders, we will again be paying a steady dividend this year. We have already set aside the funds for that purpose. We will be disbursing a half-year dividend of 16 yen per share and a full-year dividend of 32 yen per share, as planned.