Consolidated Results for the First Quarter Ended June 30, 2008

Q&A summary

Click on the appropriate question to view the answer.

Information-related equipment

Q1
What were the reasons for the unexpected profitability of inkjet printers in the first quarter?
A
This was mainly due to an increase in consumables sales, although cost-cutting also had an effect.
Q2
Can you give me some background to the temporary spike in sales of inkjet printer consumables?
A
In the first quarter, we benefited from unexpected levels of sell-in to retailers. In North America, large retailers increased the range of products they handled, while in Europe there was an easing of the inventory adjustments carried out by dealers in the previous period (the fourth quarter of FY2007). However, we need to observe carefully to see if this leads to increased sell-through.
Q3
You don't seem so optimistic that these favorable conditions for inkjet consumables will continue for the full year.
A
We are standing by our original forecast that inkjet consumables sales won't pick up significantly until the next fiscal year and beyond. This is the result of our previous strategy of restricting inkjet hardware sales.
Q4
What was the reason for the increase in operating income in the information-related equipment segment compared to the same period the previous fiscal year? It's difficult to understand the increase in profitability by looking at the trends in the number of inkjet printer units sold and consumables net sales.
A
Management is making every effort to return the business to profitability. The forecast for the current year was determined by calculating the effects of the impairments carried out last year, the reductions in fixed costs including overall labor costs, and the introduction of improved and lower cost versions of the products that proved so popular last year. On the other hand, the extent of the recovery of the market for relatively profitable business products remains a risk, and we are making every effort to reduce that risk. Market conditions are extremely tough, but we are hoping our efforts will enable us to break even at the ordinary income level.
Q5
What are the latest competitive situations in the various inkjet markets right now?
A
There is no change in the tough market conditions. However, we don't see any dramatic changes occurring.
Q6
Are there any changes in the inkjet printer or projector markets?
A
We haven't changed our initial opinions about the inkjet printer market. In projectors, we see the home projector market as slightly weaker than expected, but no real changes for business projectors. One of the reasons for the latter is that the large number of education applications for business projectors has meant that the effects of the weakened economy have been limited.
Q7
I notice you have launched some inkjet printers for business. What is the latest situation in this area, and is this an area in which we can anticipate growth going forward?
A
The impact of these products on the overall business is still small, but we have strong expectations.
Q8
Compared to other companies you don't seem to be very aggressive in sales of business inkjet printers. Do you see it as an immature market?
A
We don't take that view.
Q9
Sales in your profitable business systems markets seem to be decelerating. What is the impact on the profitability of this business?
A
We believe the reason behind the decline in net sales is that customers are delaying investments in systems due to the weak economy. We are not losing share to competitors. We'd like to cover the shortfall in sales by cutting fixed costs.

Electronic devices

Q10
Profitability in the display business improved, but why do you see it worsening again from the second quarter onwards?
A
In the first quarter, we improved profitability by covering ASP declines in amorphous silicon TFT by increasing volumes overall, by increasing orders for high-value-added low-temperature polysilicon (LTPS) products, and by cutting costs. However, we are taking a cautious view from the second quarter onwards – especially the fourth quarter – due to the unclear order situation.
As for the other businesses in the segment, we see semiconductors going roughly to plan in the first half, while the challenging situation in quartz device volumes we saw emerging at the end of the previous fiscal year looks likely to continue.
Q11
How is the progress in your restructuring of the display business?
A
Utilization rates were higher and production yields improved in the first quarter, in which profitability was better than expected. We have also seen positive effects in our attempts to change the product portfolio, and the proportion of LCDs for mobile phone handsets has fallen steadily. However, the order situation in the second half – notably the fourth quarter – is still unclear, and we have to be very careful about making assumptions about an improvement such as we saw in the first quarter.
Q12
What non-handset applications are growing in the small- and medium-sized display business?
A
We are seeing improvements in mobile equipment such as personal media players and PDA phones, and in automotive applications. But rather than focus on single applications, it's safer to say that all areas improved.
Q13
Do you have any plans to increase production capacity in small- and medium-sized displays? And how much are you investing in touch panels?
A
We don't have any major plans to raise capacity right now. However, we are considering investments to improve the added value of our LCDs and for maintenance. As for touch panels, we are planning to use our existing facilities as a base, and won't be making any significant investment.

Overall

Q14
What were the effects of foreign exchange fluctuations?
A
For operating profit, we see a positive impact of 1.2 billion yen for every one yen depreciation against the euro, and a negative 100 million yen impact for every one yen depreciation against the US dollar.
Q15
Many companies that operate in the semiconductor, display and business equipment markets have downwardly revised their forecasts. Did Epson not factor in the risks?
A
We fully understand how tough the situation is. However, we don't have information to justify changing the forecast more than we did this time. We'd like to continue the momentum from the successful first quarter.