Financial Results for the First Quarter of Fiscal Year ending March 31, 2007 July 27, 2006 Oki Electric Industry Co., Ltd. 1 Table of Contents 1. 1st Quarter of FY ending March 2007 1.1 Financial Results Outline 1.2 Profit and Loss 1.3 Segment Information 2. Target for 1st Half of FY ending March 2007 3. Measures in Major Businesses The projections and plans on this material are subject to change depending upon the changes of business environments and other conditions. 2 Q1 Results and H1 Projections Q1 results and H1 projections are as planned Sales and income decreased on a year-onyear as planned Larger sales and income in Q2 and H2 As planned Financial: Recovery in ATM, heavy sales of counter terminals in H2 (heavy in Q1 last year) Telecom: Reduction in legacy networks Public: Forwarded plans in public sectors Enterprises: Forwarded plans In-house venture: Steady business Financial: Increase in security-available and overseas ATMs, Recovery in bank branch terminals, Preparation for privatization of postal services Telecom: Optical network and NGN will expand after H2 Public: Larger sales in H2, preparation for ITS Enterprise: Enhance indirect sales and overseas sales In-house venture: Steady biz. expansion Logic: LCD panel inventory adjustment Memory: Continued price down pressure Foundry: Favorable in high voltage process Logic: Add values, enhance SOS and wireless Memory: Reduce cost, higher-density Foundry: Active deployment focusing on profit Color NIP: Increase in unit, decrease in consumables compared to original plan SIDM: Steady increase Color NIP: Reduced cost, shift to mid and high end, expand sales in Japan market, no threat from Dell SIDM: Introduce low-end new products, expand sales in BRIC markets Printers Semiconductors Overall H1 projections/measures Info-Telecom Systems Q1 3 Q1 Financial Results Outline Results were as planned, while sales and income decreased on year-onyear basis Comparison to previous Q1 ¾ Net sales: Decreased by 5.9 B yen to 130.4 B yen due to reduced investment for fixed-line systems by telecom carriers, and impact from LCD panel inventory adjustment ¾ Operating income: Decreased by 5.1 B yen to 9.0 B yen due to decreased （金額単位：億円） sales and worsened product mix Q1, FY Mar. 06 Net sales Operating income Recurring income Net income Net income per share Total assets Shareholders’ equity Shareholders’ equity per share Interest-bearing debt 136.3 (3.9) (4.5) (4.0) (6.54) yen 595.4 118.0 192.90 yen 279.0 Q1, FY Mar. 07 130.4 (9.0) (10.5) (7.4) (12.04) yen * 617.9 121.0 * 197.90 yen 296.0 * For easier comparison, the amount is calculated based on the previous method before the change of the corporate law 4 Q1 Financial Results Outline (Billion yen) Q1, FY Mar. 06 Q1, FY Mar. 07 136.3 130.4 (76.8%) (78.4%) 104.7 102.2 SG&A 35.5 37.2 Operating income (3.9) (9.0) Other income (0.6) (1.5) Recurring income (4.5) (10.5) 0.1 0.3 Net sales (Cost of sales ratio) Cost of sales Extraordinary income Cost of sales ratio worsened by 1.6 points due to price down and increase in fixed costs Increase in SG&A due to increase in personnel costs, advertisement expenses, and promotion expenses Other income/expense decreased due to worsened currency exchange and decreased dividend received <Currency exchange ratio> 0.6 0.4 Income before taxes (5.0) (10.6) Income taxes (1.0) (3.2) Net income (4.0) (7.4) Extraordinary loss FY end. Mar. 2007 H1 Internal Q1 actual Q2 projections USD 115.0 114.5 115.0 Euro 140.0 143.8 140.0 5 Segment Information: Consolidated basis (Billion yen) Net sales 136.3 7.3 31.8 130.4 35.8 61.4 Q1, FY Mar. 06 8.2 Others 38.3 Printers 33.2 Semiconductors 50.7 Info-Telecom Q1, FY Mar. 07 Income (3.9) (4.0) (9.0) Operating Income (7.4) Though decreased on a year-onyear basis, results were as planned Net sales: Decreased by 5.9 B yen on a year-on-year basis Printer sales increased, particularly in color NIP Sales for the financial market and sales for telecom carriers decreased Operating income: Decreased by 5.1 B yen on a year-on-year basis Reasons include: Sales decrease in Info-Telecom Active investment in printer sales Unit increase in low-end printers Net Income 6 Segment Information: Info-Telecom Systems Net sales (Billion yen) Net sales Financial market: Decreased by 5.5 B yen 61.4 3.9 50.7 8.9 3.9 22.8 21.9 Q1, FY Mar. 06 6.3 Others 9.8 5.5 Enterprises Public sector Recovery trend in ATM Though sales of counter terminals was large in Q1 last year, this year it will be heavy in H2 12.7 Telecom carriers Telecom carriers: Decreased by 10.1 B yen 16.4 Financial market Decline in carriers’ investments on fixednetwork equipment Q1, FY Mar. 07 Income Although sales in both Financial and Telecom carriers decreased, the results remain as planned Operating income: Decreased by (1.6) 3.2 B yen (4.8) Sales decrease in Financial and Telecom carriers reduced marginal profits 7 Segment Information: Semiconductors Net sales 35.8 33.2 3.8 0.5 5.4 8.9 (Billion yen) Foundry, Others Optical 0.6 components 8.1 System memories Net sales Logic: Decreased by 3.5 B yen Major reasons include decrease in driver sales due to inventory adjustment by LCD panel vendors Foundry: Increased by 1.6 B yen 22.6 19.1 Q1, FY Mar. 06 Logic Due to active business deployment riding on the strength of high voltage process Q1, FY Mar. 07 Operating income: Increased by Income 0.4 B yen (0.3) (0.7) Impact of price drops Improvement in profitability for drivers and P2ROM, and currency exchange 8 Segment Information: Printers Net sales (Billion yen) Color NIP: Increased by 3.6 B yen 38.3 31.8 17.7 Net sales Mono NIP, SIDM, others 14.8 Increase in unit shipment and sales for consumables Mono NIP, SIDM, etc.: Increased by 2.9 B yen 20.6 17.0 Q1, FY Mar. 06 Color NIP Sales increase in SIDM and office machines including facsimiles Q1, FY Mar. 07 Operating income: Decreased by Income 2.4 B yen 0.1 Active investment on sales Worsened cost to sales ratio in printer due to volume increase in low-end (2.3) 9 Table of Contents 1. 1st Quarter of FY ending March 2007 1.1 Financial Results Outline 1.2 Profit and Loss 1.3 Segment Information 2. Target for 1st Half of FY ending March 2007 3. Measures in Major Businesses The projections and plans on this material are subject to change depending upon the changes of business environments and other conditions. 10 Target for H1, FY ending March 2007 Net sales: 300.0 B yen Unchanged from the previous announcement on April 27 Sales by segment also remains the same as previously announced Operating income/loss: 12.0 B yen of loss Unchanged from the previous announcement on April 27 Info-telecom: Plan to increase by 2.0 B yen Printers: Plan to decrease by 2.0 B yen Net sales H1, FY Mar. 2007 July 27 plan Operating income <Ref.> H1, FY Mar. 2006 Apr. 27 plan H1, FY Mar. 2007 Apr. 27 plan July 27 plan <Ref.> H1, FY Mar. 2006 136.0 136.0 155.3 (6.0) (8.0) (1.6) Semiconductors 72.0 72.0 77.6 0 0 0.2 Printers 76.0 76.0 71.0 (2.0) 0 1.5 Others 16.0 16.0 15.2 1.0 10 1.1 - - - (5.0) (5.0) (5.4) 300.0 300.0 319.1 (12.0) (12.0) (4.2) Info-Telecom Systems Corp. & elimination Total 11 Table of Contents 1. 1st Quarter of FY ending March 2007 1.1 Financial Results Outline 1.2 Profit and Loss 1.3 Segment Information 2. Target for 1st Half of FY ending March 2007 3. Measures in Major Businesses The projections and plans on this material are subject to change depending upon the changes of business environments and other conditions. 12 Management Target in FY Mar. 2008 Target of net sales and operating income by segment (Billion yen) FY Mar. 2006 (Results) Net sales Operating income FY Mar. 2007 (Plan) Net sales Operating income FY Mar. 2008 (Target) Net sales Financial market 100.1 121.0 130.0 Telecom carriers 98.2 79.0 87.0 Public sectors 54.0 66.0 68.0 Enterprises 67.2 70.0 75.0 Others 18.5 24.0 20.0 Operating income 338.0 10.9 360.0 12.5 380.0 20.0 Semiconductors 150.7 3.0 154.0 5.5 160.0 10.0 Printers 160.5 4.1 172.0 5.0 190.0 10.0 31.3 (7.4) 34.0 (8.0) 30.0 (10.0) 680.5 10.5 720.0 15.0 760.0 30.0 Info-Telecom Systems Others Total 13 Financial System Business Main Measures Enhance profitability in base financial business (ATM, bank branch systems, cash management systems) ¾ Increase in sales by full-scales expansion of security-available ATMs and renewal in ATMs for convenience stores ¾ Expand sales of cash management equipment to postal service and overseas market (Korea, etc.) Expand new financial business (e-financial systems, networks) ¾ Horizontal deployment of Oki’s strong track record solutions in the Internet banking market to new Internet banks ¾ Expand service and software businesses, including bank branch video surveillance and ATM operation full-consignment Prepare business development targeting privatization of postal services ¾ Established a division dedicated for postal service solutions ¾ Cultivate biz opportunities for counter terminals, cash management equipment, next-gen branch terminals, security (cash management, video surveillance), and service consignment Expand ATM business for the China market ¾ Shift to China localized business, targeting to gain 30% share in the FY Mar. 2009 (5% in the FY Mar. 2006) 14 ATM Business Market Trend Convenience stores enhance security against counterfeit cards and stolen PIN numbers The banknote recycling-type ATM market grows in China, Korea, etc. Financial institutions deploy measures for sound management (biz outsourcing, price-cut request) Business Strategy Enhance security functions of existing products, expand sales of IC card and biometricsavailable ATM-BankIT Enhance outsourcing business: ATM centralized monitoring, total network services, etc. Strengthen ATM business for China (H2: cultivate channels, introduce new ATM dedicated for China) Strengthen ATM business for China 4 large city banks and commercial banks: Deploy business by cultivating new partners following Yihua Middle and small size banks: Gain approvals through establishing new sales channels and OEMing deposit/withdrawal modules Gain 30% share of ATM in operation during FY Mar. 2009 ATM in operation in China & Oki’s target share (%) (K units) 30 40 25 Target share 20 30 15 20 10 Units 5 0 10 0 2004 2005 2006 2007 2008 15 Telecom Carrier Business Main Measures: Targeting NGN (Next Generation Network) - NGN: Next generation network for the ubiquitous society, which realizes all-IP, service layer separation, enhancement of QoS and security, and integration of fixed/wireless infrastructures (mobile/WiMax) Biz. area Oki’s strengths & targets Focus products Applications & Platforms Reflect know-how in development, service and operations of existing various TDM, and world’s largest class carrier-grade switches to new IMS products - Gain businesses of NGN migration from existing VoIP/PSTN - Create SDP (service delivery platform) killer applications, and enter the mobile phone market - CenterStage NX series - SDP products, SIP-AS as a core - OpS (NMS) Core network Introduce products and enter the market via alliances with open-product vendors, utilizing know-how and technologies in large network SI and TDM systems - Strengthen optical and router solutions which realizes GMPLS - Enhance relationship with partners and co-development structure - ADM for multiple services - Routers, switches Access network Reflect development/system technologies and know-how in core LSI and optical components for optical access systems - Enhance line-up of products, xPON as a core, and strengthen marketing and sales structure - Enter the wireless access market - GE-PON/COF/MSAN - Various wireless access products Home network Create products by linking core technologies of “eSound” and “eVideo” with application layer - Provide total solutions from platform to end-end equipment, which offer high quality in voice and video with high competitiveness - VoIP/NGN-TA - Broadband home routers 16 Public Sector Business / Enterprise Business Public Sector: Main Measures Government solutions: Enhance promotion for large projects by government. Deploy Oki’s unique EA solutions through u-Japan promotion team Transportation systems: Enhance DSRC-related business for next version VICS. Increase share in ETC Public systems: Catch demands and increase share for municipal wireless system, which are increasing due to municipal mergers, digitalization, and renewals (Focus on the area of disaster/fire prevention) Enterprises: Main Measures Info-telecom systems for enterprises: Provide triple play communications. Differentiating strategy with Oki’s unique “eSound,” and “eVideo” ¾ Enhance overseas deployment and sales expansion with new products of PBX and KTS ¾ Establish top-brand in contact center market through new the CTstage 5i Transportation & retail systems: Provide infrastructure for “ubiquitous service,” with the network and middle-size mechatronics technologies ¾ Retain renewals of ticket reservation and issuing systems for the existing customers. Enhance line-up of self check-in systems and ATMs and cash management systems for the retail market, and cultivate new customers 17 Semiconductor Business (1) Main Measures (1) Focus on differentiating technologies including high voltage process, low power consumption and non volatile memories Large TFT driver: T-CON ： Timing Controller Drive the industry with high quality, high definition, high-speed and low power consumption technologies. Expand sales and profit by providing high value-added solutions with chipsets including T-CONs P2ROM： ¾ Enhance cost response by an early launch of large capacity P2ROMs using high density cells for games and amusement market at an early stage ¾ Maintain sales and expand profit by providing high value-added products by converging custom logic and security functions Power control: ¾ Expand foundry business utilizing advantages in high voltage process ¾ Increase sales of Oki’s low voltage to high voltage devices 18 Semiconductor Business (2) Main Measures (2) Concentrate on wireless market for system LSIs Differentiate with “wireless technology” including mixed signal, modulation /demodulation and RF, and “low power consumption technology” including SOS PHS Base band: With the technologies cultivated in the Japanese PHS market (No.1 share), Oki will focus on “RF-equipped-singlechip” and maintain sales and increase profit in the Chinese PHS market (currently No.1) Market share in Jan-Mar 2006 (Source: Oki) - Voice terminal in China: 35% (No.1) - Voice terminal in Japan: 100% (No.1) - Data card in Japan: 70% (No.1) SOS: Expand sales with differentiating products: RF front end for mobile phones and mobile terminals (Utilize partnership with Peregrine/ Increase production of in-house fab) WiMax: Deploy business with high value-added products including RF front end utilizing SOS advantages ZigBee: Increase sales with high value-added products including “RF-equipped-single-chip” by converging wireless technology for use in ubiquitous network (sensor, security) ITS: Expand sales with high value added products for automotive systems by converging with wireless technology such as DSRC 19 Printer Business Color NIP: Main Measures Reduce costs: ¾ Review cost measures at all process points ¾ Reduce logistic costs, make efficient sales investments, and review other costs ¾ Reduce costs through new LED head Shift from low-end desktop models to mid and high-end models ¾ Increase street price for low-end models ¾ Maintain advantage of cost to performance for mid and high-end models Enhance profitability for consumables ¾ Increase toner product lineup and ensure appropriate sales route ¾ Launch RFID equipped consumables to maintain sales of genuine products ¾ Enhance consumable sales by developing various applications SIDM: Main Measures Expand market share by launching new low-end products to the BRIC markets 20 Color NIP Market Share HP expands market share with laser tandem model Oki remains No.2 50% 45.9% 12% K-Minolta 40% 38.3% 39.7% 39.6% 10% 37.0% Epson 8.1% 8% 30% HP Xerox Dell Samsung Ricoh 20% OKI Epson K-Minolta Canon Lexmark 7.7% 7.7% 7.1% Xerox Dell 6% Samsung Ricoh 4% 10% OKI 8.3% Canon Lexmark 2% 0% 0% Q1 Q2 Q3 CY2005 Q4 Q1 Q1 CY2006 IDC2006Q1 Printer Tracker Q2 Q3 CY2005 Q4 Q1 CY2006 21 Enhance Offices for the Printer Business Enhance global offices, including sales company in Beijing, to increase sales ability Oki Trading (Beijing) Co., Ltd. July 2006 Sales company Operation of new UK Plant November 2005 Oki Data Dalian Co., Ltd. October 2005 Software company Oki Systems Korea Co., Ltd. October 2005 Sales company Sales office in Dubai November 2005 Oki Systems Taiwan Co., Ltd. July 2006 Sales company FY end. 2006 Sales office in Malaysia March 2006 Oki Customer Adtech Co., Ltd. Merge with printer business October 2005 FY end. 2007 22 <Reference> Q1 Cash Flows Issued 30.0 B yen of convertible-bond-type-bonds with stock acquisition rights in June 2006 (Billion yen) Q1, FY Mar.06 Q1, FY Mar.07 Variance (18.7) (5.0) 7.9 (12.6) (9.0) (7.5) (6.6) (10.6) 7.9 6.9 (10.8) (5.6) 12.1 (5.6) 0 19.5 (1.8) 1.9 Purchases of property, plant & equip. (6.2) (4.7) 1.5 Others (1.3) (0.9) 0.4 (26.2) (12.2) 14.0 11.9 26.7 14.8 0 30.0 30.0 (10.0) 0 10.0 21.9 (3.3) (25.2) (14.3) 14.5 28.8 36.3 53.8 17.5 I. Cash flows from operating activities Income before income taxes Depreciation & amortization Changes in working capital Others II. Cash flows from investing activities Free cash flows (I+II) III. Cash flows from financing activities Issuance of bonds Redemption of bonds Changes in other interest bearing debts, etc. Net cash flows (I+II+III) IV. Cash and cash equivalents at the period end Notes <Working capital> Mar.06 Mar.07 Receivables 26.1 39.8 Inventories (25.0) (22.0) (13.7) (10.9) Payables (12.6) 6.9 Total 23 <Reference> Q1 Balance Sheet (1) <Balance Sheet: Assets> Cash and deposits increase by 17.0 B yen on a YoY basis due to increase in cash from issuance of corporate bond (For corporate bond redemption) Inventories increase by 14.7 B yen on a YoY basis due to sales increase in printers, long-term project for the government, and the affect of currency exchange (Billion yen) * For easier comparison, the amount is calculated based on the previous method before the change of the corporate law 600 618.9 617.9 31.5 34.6 48.5 120.6 150.8 112.9 608.0 595.4 46.6 146.0 Variance with Jun. 30, 2005 Cash and deposits + 17.0 149.3 174.4 166.9 Notes and accounts receivable -7.7 1,129 +14.7 189.1 1,891 Other current assets 200 617.7 485 Inventories 400 <After changes> -6.9 33.1 33.4 27.0 26.5 126.5 125.4 125.2 124.1 Propety, plant and equipment -1.3 1,241 106.5 110.1 114.4 116.8 Investments and other +6.7 assets 1,168 Mar. 05 Jun. 05 Mar. 06 Jun. 06 0 263 Jun. 06 24 <Reference> Q1 Balance Sheet (2) <Balance Sheet: Liabilities and Shareholders’ Equity> Issued 30.0 B yen of convertible-bond-type-bonds with stock acquisition rights in June 2006 (Billion yen) * For easier comparison, the amount is calculated based on the previous method before the change of the corporate law 608.0 595.4 618.9 617.9 144.5 120.4 141.0 120.3 600 400 200 135.5 145.7 <After changes> Variance with Jun. 30, 2005 Notes and accounts payable 116.1 18.8 152.2 183.2 24.0 25.2 129.9 133.3 49.5 52.8 56.9 58.0 124.8 118.0 133.9 121.0 0 Jun. 05 Mar. 06 Jun. 06 - 32.9 112.8 Other current liabilities Bond and long-term debts Other fixed liabilities and minority interests Shareholders' equity Mar. 05 617.7 120.3 Short-term borrowings 112.8 22.6 - 0.1 - 2.6 + 49.9 22.6 183.2 51.8 + 5.2 127.0 + 3.0 Bonds due within a year and commercial paper are included in bond and long-term debt, and short-term borrowings respectively. Net assets Mar. 06 25 Glossary P3 NMS Network Management System SI System Integration GMPLS Generalized Multi-Protocol Label Switching ADM Add-Drop Multiplexer PON Passive Optical Network GE-PON Gigabit Ethernet PON COF CDMA over Fiber MSAN Multi Service Access Node TA Terminal Adapter EA Enterprise Architecture VICS ETC Vehicle Information Communication System Dedicated Short Range Communication Electronic Toll Collection PBX KTS Private Branch Exchange Key Telephone System P18 TFT Thin Film Transistor P19 Public Switched Telephone Networks RF PHS Radio Frequency Personal Handy-phone System Operation System LED Light-Emitting Diode ID Identification ATM NGN ITS Automated Teller Machine Next Generation Network Intelligent Transport System LCD Liquid Crystal Display SOS NIP SIDM Silicon on Sapphire Non-Impact Printer Serial Impact Dot Matrix BRIC Brazil, Russia, India, and China P5 SG&A Selling, General and Administrative expense P8 LSI P2ROM PIN Large Scale Integration Production Programmed Read Only Memory Personal Identification Number IC Integrated Circuit OEM IP QoS Original Equipment Manufacturer Internet Protocol Quality of Service TDM Time Division Multiplexing IMS IP Multimedia Subsystem VoIP Voice over IP PSTN OpS P15 P16 P16 P17 DSRC P20 26