Consolidated Results for the Nine Months ended December 31, 2007

Q&A summary

Click on the appropriate question to view the answer.

Information-related equipment

Q1
There were significant macroeconomic fluctuations in the third quarter, especially towards the year end in North America. Did you see any significant effects on sales of inkjet printers or inventories?
A
Our understanding is that the year-end selling season proceeded relatively smoothly.
Q2
Why weren't you affected by the macroeconomic changes in the 3rd quarter? Is this because printers have not been affected by the economic uncertainty? Or are you simply expecting the effects to become apparent from now on?
A
Last fiscal year, we emphasized profitability and strategically reduced the number of units sold in the inkjet printer business. This year, we have switched to a strategy of balancing profitability with an aggressive program aimed at boosting sales volume. As a result, we have increased volume over the same period the previous fiscal year, and have not felt the effects of the prevailing economic trends. It's difficult to predict what will happen going forward though.
Q3
Prices in the inkjet printer market didn't decline as much as you expected. Do you expect price competition to intensify going forward?
A
It has become increasingly difficult for consumers to distinguish among the inkjet printers on the market. Price has therefore become an important distinguishing factor, and we can't afford to become complacent.
Q4
In the inkjet printer business it seems as though you have changed from your past ways by increasing sales of lower priced models while also increasing profitability. Is this because you have a stronger business structure now? Or is it because of external factors such as foreign exchange or price trends?
A
Profit increased in the third quarter due to the combined effects of both external and internal factors including the benefits of foreign exchange, cost-cutting that exceeded plan, and the introduction of competitive new products. In the next fiscal year and beyond, we hope to secure profits by boosting consumables sales in line with the increases in hardware volume, and ongoing cost cutting efforts.
Q5
You say that price declines in the Japanese market have been limited, but what about the United States?
A
Because of our policy this fiscal year of expanding sales volume we had been expecting a certain level of ASP decline. However, even in the US market the level of price erosion was largely within our expectations.
Q6
By how much did you beat your forecast in the third quarter? And how much of that was contributed by inkjet printers?
A
We can't give detailed figures as we don't disclose our quarterly forecasts. Roughly speaking, though, total operating profit beat our forecast by 10 billion yen of which information-related equipment accounted for more than 5 billion yen, and electronic devices improved by a few billion yen. The majority of the improvement in information-related equipment was from inkjet printers.
Q7
How did inkjet printer consumables do compared to the third quarter in the previous fiscal year? How do you see the fourth quarter proceeding?
A
In the third quarter, consumables volume increased by 6% and net sales by a few percent year over year. We expect a solid performance in the fourth quarter against last year too.
Q8
Net sales in the printer business (inkjet printers) are not growing. What is your scenario to increase revenue?
A
The market for consumer-oriented inkjet printers has matured, and we believe it will be difficult to achieve significant growth. We would like to continue to grow share by promoting our competitive products. To do this, we understand that ASPs will probably decline, and we will have to cut costs in order to ensure that profitability is not affected. Using this as a base, we would like to boost net sales of printers for business and industrial applications.
Q9
Was the failure of business systems to achieve plan the result of macroeconomic changes? How do you see this business faring next fiscal year?
A
Results in business systems are always the result of the accumulation of a large number of individual deals. Some parts of the business exceeded plan, and some failed to achieve target with the net result that we did not achieve our overall targets. However, we don't think this is the result of macroeconomic factors. Next fiscal year, we believe we can continue to achieve steady profitability in this business.

Electronic devices

Q10
There have been new alliances and various upheavals in the display industry recently. Do you think Epson has been left behind?
A
No we don't think so. Our first priorities are to expand sales for non-handset applications to lower our dependence on mobile phones, to continue with our efforts to transfer staff to other businesses, and proceed with the structural reforms based on the scenario announced last year. The recovery in this business was slow in the first and second quarters, but we started to see the effects of our measures as we entered the third quarter. However, we are still not satisfied with the situation, and continue to consider various options as we seek to reform the business.
Q11
To what level would you like to reduce your ratio of sales in the displays business for mobile phone handset applications?
A
We haven't come up with an ideal figure for this yet. We have recently increased sales for applications such as portable media players, PDA phones, and digital cameras, and the ratio of sales for handset applications is falling. We would like to continue to expand sales for the applications I just mentioned.
Q12
It seems that there is strong demand for seven-inch class medium-sized LCD panels, including non-customized models. Are you considering expanding sales in this business?
A
We know there is growing demand for medium-sized panels for use in digital photo frames and in automotive applications. We are carefully considering the situation in these markets.
Q13
Are you compiling your companywide forecasts for next fiscal year on the premise that the display business will generate a profit?
A
Recent trends suggest positive factors such as an increase in the ratio of non-handset applications and a slowdown in price erosion. However, the business environment remains severe, and we cannot afford to become complacent. There is also the fact that it is very difficult for a business that is expected to post a heavy loss this year to make a profit next year. We are presently looking at market trends and are compiling our forecasts for the next fiscal year, so please wait until April when we will announce our detailed forecasts along with our full-year financial results.

General

Q14
You basically achieved your full-year targets in the third quarter and have said that recent trends point to an ongoing solid performance. You also haven't changed your full-year forecasts. Isn't your fourth quarter forecast unrealistic?
A
The fourth quarter is still difficult to read as there is still a lot of uncertainty due to factors such as the sub-prime loan problem. We would like to set the bar low for the fourth quarter with the current forecast, and see what we can do to clear our targets.
Q15
You have booked a large extraordinary loss in the fourth quarter of the previous two fiscal years. Are you anticipating a similar loss this year?
A
We are not anticipating a significant extraordinary loss this year, and have not built any such loss into our forecast. The reason we are being so cautious with our full-year forecast is that we have anticipated increased costs such as those associated with boosting sales of inkjet printer units.
Q16
What was the impact of foreign exchange on operating income?
A
Over the full year, we forecast the effect on operating income of a one yen depreciation against the US dollar to be minus 100 million yen, and plus 1.3 billion yen against the euro.