Oki Electric Financial Results for the First Quarter of FY ending March 31, 2005 July 28, 2004 Oki Electric Industry Co., Ltd. 1 Table of Contents 1. Financial Result Overview for Q1 of FY ending Mar. 2005 2. Segment Information 3. Full Year Projections for the FY ending Mar. 2005 * The projections and plans on this material are subject to change depending upon the changes of business environments and other conditions. 2 Q1 Financial Result Overview Business Environment Net sales (consolidated) <Economy> (Billion yen) + 30.2 B yen (27.0%) z Stable economy: Favorable business performances led improvement in individual consumption and employment situation. <Oki’s Business> z Sales growth thanks to increase of system investments by financial institutions, growth of color printer demands, expansion of IP networks by telecom carriers, and continuous favorable demands for semiconductors 97.0 111.8 142.0 Q1, Mar. 03 Q1, Mar. 04 Q1, Mar. 05 Operating income (consolidated) (15.0) (13.1) (2.1) + 11.0 B yen Net income (consolidated) z Operating income and net income improved substantially due to sales growth, business structural reforms, and procurement cost reduction. (12.4) (11.1) (2.6) + 8.5 B yen 3 Q1 Profit and Loss Outline Comparison of consolidated P/L Q1 of FY Mar.04 Net sales (Cost of sales ratio) Cost of sales SG&A Operating income Other income Recurring income Extraordinary income Extraordinary loss (Billion yen) Q1 of FY Mar.05 Variance 111.8 142.0 30.2 (80.2%) (75.4%) (+4.8 %) 89.7 35.2 107.1 37.0 17.4 1.8 (13.1) (2.1) 11.0 (1.0) (1.0) 0 (14.1) (3.1) 11.0 0 0.1 0.1 1.5 1.3 (0.2) Income taxes (15.6) (4.5) (4.3) (1.7) 11.3 2.8 Net income (11.1) (2.6) 8.5 Income before taxes z Despite the yen appreciation, sales and income increased in all segments. Consolidated net sales Q1, FY Mar. 04 Info sys. Telecom Devices Others 57.6 16.6 27.2 10.4 (Billion yen) Q1, FY Mar. 05 Variance 67.6 23.0 37.6 13.8 10.0 6.4 10.4 3.4 Consolidated operating income Q1, FY Mar. 04 (Billion yen) Q1, FY Mar. 05 Variance Others (2.6) (2.8) (4.8) (0.3) (0.9) (0.2) 1.2 0.4 1.7 2.6 6.0 0.7 Corp. & eliminates (2.6) (2.6) 0.0 Info sys. Telecom Devices Average currency exchange rate Actual rate Q1, FY Q1, FY Mar. 04 Mar. 05 Plan FY Mar. 05 USD 118.5 109.8 105 Euro 134.7 132.3 130 4 Q1 Balance Sheet Outline (1) (Times) <Balance Sheet: Assets> z Total assets decreased due to reduction of accounts receivable. z Major turnover ratios improved substantially. Turnover ratio Q1, FY Q1, FY Mar. 04 Mar. 05 Total assets 0.73 0.95 0.22 improvement Notes and accounts receivable 3.04 4.19 1.15 improvement Inventory 2.65 3.90 1.25 improvement (Billion yen) 26.2 B yen reduction 622.9 600 27.9 169.9 606.4 28.5 609.6 55.4 Variance Variance with Mar. 31, 2004 583.4 46.6 Cash and deposits - 8.8 124.7 155.3 115.7 139.0 152.3 Notes and accounts receivable - 39.6 400 200 157.4 180.1 27.7 33.1 30.1 33.3 136.4 133.7 119.7 120.1 103.6 106.3 110.1 Jun. 30, 03 Mar. 31, 04 + 13.3 Other current assets + 3.2 Propety, plant and equipment + 0.4 Investments and other assets + 5.3 115.4 0 Mar. 31, 03 Inventories Jun. 30, 04 5 Q1 Balance Sheet Outline (2) <Balance Sheet: Liabilities and Shareholders’ Equity> z Interest bearing debt decreased by 8.0 B yen from Mar. 04, due to improvement in cash flows. Interest-bearing debt ratio Shareholders’ equity ratio (%) Jun. 03 Jun. 04 Variance 56.2 48.6 7.6 improvement 15.2 18.9 3.7 improvement (Billion yen) 622.9 606.4 609.6 99.9 135.8 600 116.1 126.0 141.9 400 25.6 27.1 Variance with Mar. 31, 2004 583.4 118.1 Notes and accounts payable - 17.7 Short-term borrowings + 1.8 30.6 Other current liabilities - 0.5 - 9.9 129.8 131.6 31.1 209.4 198.8 161.7 151.8 Long-term debt 44.5 46.2 40.7 40.8 101.3 92.5 110.5 110.5 Other fixed liabilities and minority + 0.1 interests 200 Shareholders' equity 0 Mar. 31, 03 Jun. 30, 03 Mar. 31, 04 +0 Jun. 30, 04 Bonds due within a year and commercial paper are included in long-term debt and short-term borrowings respectively. 6 Conditions of Cash Flows z Reduction of net loss and working capital improved free cash flow by 5.4 B yen. z Continue reduction of interest-bearing debt (Billion yen) Q1, FY Mar. 04 Q1, FY Mar. 05 Variance (1.0) 10.4 11.4 (15.6) (4.3) 11.3 7.8 7.3 (0.5) Changes in operating assets & liabilities 13.9 17.2 3.3 Others (7.1) (9.8) (2.7) (3.0) (9.0) (6.0) (3.1) (6.7) (3.6) 0.1 (2.3) (2.4) (4.0) 1.4 5.4 4.8 (8.4) (13.2) Redemption of bonds (7.7) 0 7.7 Changes in other interest bearing debts, etc. 12.5 (8.4) (20.9) 0.8 (7.0) (7.8) 30.3 51.4 21.1 I. Cash flows from operating activities Income (loss) before income taxes Notes <Operating assets & liabilities details> (Q1/FY 04) (Q1/FY 05) Depreciation & amortization II. Cash flows from investing activities Purchases of property, plant & equipment Others Free cash flows (I+II) III. Cash flows from financing activities Net cash flow (I+II+III) IV. Cash and cash equivalents at the period end Receivables 46.0 Inventories (21.9) Payables (10.2) Total 13.9 40.3 (13.2) ( 9.9) 17.2 7 Q1 Results & 1st Half Projections z Both sales and profits for the 1st half are expected to increase from the previous projections. <Results for Q1, FY ending Mar. 05 > (Billion yen) Net sales 111.8 10.4 27.2 281.3 Net sales 310.0 290.0 25.2 27.0 60.0 68.0 (Billion yen) 142.0 13.8 <Projections for the 1st Half, FY Mar. 05> Others Electronic devices 37.6 27.0 75.0 23.0 Telecom systems 44.5 45.0 50.0 67.6 Information systems 151.6 150.0 158.0 1H, FY Mar. 04 Apr. 27 July 28 16.6 57.6 Q1, FY Mar. Q1, FY Mar. 04 05 Operating & net incomes Telecom systems Information systems 1H, FY Mar. 05 projections Operating & net incomes (Billion yen) (Billion yen) (2.1) (2.6) (13.1)(11.1) Others Electronic devices Operating income (2.0) (3.9) (6.0) Net income (10.5) 0.0 (6.0) Operating income Net income 8 Info Systems: Q1 Results & 1st Half Projections z Sales is expected to increase from the previous projection. z Operating income is unchanged from the previous projection due to development cost increase. <Results for Q1, FY ending Mar. 05 > Net sales (Billion yen) (Billion yen) 67.6 57.6 <Projections for the 1st Half, FY Mar. 05> 158.0 151.6 150.0 61.5 57.5 64.5 Financial system solutions 30.6 30.5 30.5 Information solutions 59.5 62.0 63.0 Printers 1H, FY Mar. 04 Apr. 27 Financial system solutions 28.0 • Sales increase in branch terminals for financial institutions and ATMs for convenience stores 10.1 Information solutions 23.7 8.2 • Sales increase in systems for governments 29.5 25.7 Printers • Favorable sales in color NIP printers Q1, FY Mar. 04 Q1, FY Mar. 05 Operating income (Billion yen) (0.9) (2.6) Net sales July 28 1H, FY Mar. 05 projections Operating income • Operating income increased by 1.7 B yen due to sales growth (Billion yen) • Increase in investment for development and free charge maintenance related to new banknote 5.1 2.0 2.0 9 Financial System Solutions Demand related to new banknote finishes in the 1st half of FY Mar. 05, followed by increasing investment for retail channel enhancement and back office operation efficiency. Focus on sales expansion of solutions for bank branches and back office operation concentrations, and solutions for information and telecommunication convergence ¾Solutions for bank branches and back office operation concentrations: “ConsulStation”, individual identification, and sales support systems “NokiNavigation” ¾Solutions for info and telecom convergence: IP network, call center “CTstage 4i,” and IP telephony transfer solutions Favorable sales in ATMs for convenience stores, unattended response system for financial institutions “RT21,” and unified cash management system “CM21” Sales transition (Billion yen) 87.5 70.3 62.5 60.0 43.0 42.0 2H, FY Mar 03 Financial IT solutions 64.5 61.5 40.5 29.8 ATM 19.5 1H, FY Mar 04 27.5 21.5 2H, FY Mar 04 1H, FY Mar 05 29.0 33.5 2H, FY Mar 05 (Projection) (Projection) ATM remodeling and replacement units (Thousand units) 33.4 Replace Remodeling 8.5 11.6 9.2 1.1 2H, FY 1H, FY Mar 03 Mar 04 2H, FY 1H, FY 2H, FY Mar 04 Mar 05 Mar 05 (Projection) (Projection) 10 Printer Business 1st half projections ¾ Sales of color NIP increases by 22% on year-on-year basis. ¾ Despite the shrink in the SIDM and monochrome NIP markets, Oki keeps sales equivalent to the previous 1st half by increasing its share. Sales by segment and color NIP ratio 40 35 ¾ New York Times (July 1, 2004) evaluates Oki highly for its printing quality and easy set-up 6. IBM Infoprint 1354 7. Xerox Phaser 7300 8. Brother HL-4200 9. Xerox Phaser 6250 10. Oki C5100 50 (%) 75.0 56.9 59.5 65.3 63.0 51.1 Others ¾ 3 models of Oki printer was ranked in the top 10 color business printers by PC World magazine (May 2004) 1. Oki C7300 2. HP LaserJet 5500 3. Oki C9500 4. HP LaserJet 3700 5. Lexmark C752 46 22 (Billion yen) Topics 44 SIDM Mono NIP Color NIP 1H, FY Mar 03 2H, FY Mar 03 1H, FY Mar 04 2H, FY 1H, FY 2H, FY Mar 04 Ma. 05 Mar 05 (Projection)(Projection) 11 Printer Business: Color NIP z Oki’s shipment in Europe and North America increased by 10 folds in units and by 4 folds in share within 2 years and half. Color NIP units of shipment and share by manufacturers (Europe + N. America) <Units of shipment> <Share by shipped units> (Thousand units) 300 60% 280.8 66.8 189.5 200 127.5 105.8 100 28.2 24.1 20.8 6.1 18.3 3.6 21.9 11.7 48 50.5 HP 30.4 Others 36.5 36.8 Xerox 20.2 17.7 41.3 OKI 40% 37.6% Konica Minolta 20% 14.7% 39.3 75.8 105.5 Konica Minolta HP 10.8% Xerox 0% 0 CY 01/Q3 13.1% OKI Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 1Q 02/Q1 03/Q1 04/1Q CY 01 02 03 04 (Source: IDC, May 04) 12 Telecom Systems: Q1 Results & 1st Half Projections z The telecom market, especially IP networks, shows recovery. z Both sales and operating income are expected to increase from the previous projections. <Results for Q1, FY ending Mar. 05 > <Projections for the 1st Half, FY Mar. 05> Net sales Net sales (Billion yen) (Billion yen) 23.0 5.5 16.6 Enterprise networks • Strong business inquiries in SS9100 4.7 17.5 Carrier networks • Substantial sales increase led by expansion of local IP networks 11.9 Q1, FY Mar. 04 50.0 Q1, FY Mar. 05 44.5 11.5 12.0 33.0 33.0 1H, FY Mar. 04 Apr. 27 Operating income (Billion yen) (0.2) (2.8) 45.0 12.0 Enterprise networks 38.0 Carrier networks July 28 1H, FY Mar. 05 projections Operating income • Operating income increased by 2.6 B yen due to sales growth and fixed cost reduction (Billion yen) 0.5 0.0 (1.6) 13 IP Networks Carrier market Sales of broadband IP and its ratio Telecom carriers, including NTT-G and KDDI, focus on expansion of broadband IP networks. Improvement of local IP networks and FTTH, investment for IPv6, construction of CDN, switching FOMA to IP, etc. Enterprise market Objective of enterprises’ investment to IP telephony shifts from communication cost reduction to enhancement of business efficiency via issue-solving applications. Increase of expectation for IT and IP convergence ¾ Convergence of IP telephony and e-mail/ group ware/e-commerce ¾ Integration of voice and video communications to business processes applications IP CONVERGENCE® Server SS9100 (Billion yen) 80 Broadband IP related Legacy Broadband IP ratio 68.1 71.5 68.1% 60 52.2 65.1% 60.9% 40 36.5 33.5 33.5 20 0 FY Mar. 03 FY Mar. 04 FY Mar. 05 (Projections) 14 Electronic Devices: Q1 Results & 1st Half Projections z Both sales and operating income are expected to increase from the previous projections. <Results for Q1, FY ending Mar. 05 > <Projections for the 1st Half, FY Mar. 05> Net sales Net sales (Billion yen) (Billion yen) 37.6 Optical components 27.2 25.2 60.0 1.0 System LSIs & Logic LSIs 6.5 System memories 4.6 3.4 5.5 DRAMs Q1, FY Mar. 04 Q1, FY Mar. 05 10.0 6.6 1H, FY Mar. 04 Operating income 1.2 (4.8) Optical components 49.0 System LSIs & Logic LSIs 13.0 15.0 8.0 10.0 System memories DRAMs Apr. 27 July 28 46.0 42.4 18.8 (Billion yen) 68.0 1.0 75.0 1.0 1H, FY Mar. 05 projections Operating income • Despite the yen appreciation, operating income increased due to sales growth and fixed cost reduction. (Billion yen) 1.5 3.0 (2.1) 15 Semiconductor Business Status Oki’s unique LSIs Sales composition by products Focus on system LSIs and logic LSIs Deploy unique memory business including P2ROM (Billion yen) 160 120 130.3 Foundry 116.0 105.0 DRAM 100 80 System Memory 60 • Expand share in China and Taiwan (Currently 30%) • Target to be world top share in LSIs for PHS Sound generator LSIs 147.5 140 PHS base band LSIs • Expand share of sound generator LSIs for GSM with strengths including high sound quality, W-CSP, and standard format compliance (Currently 50%) Driver LSIs • Top share in driver LSIs used for rapidly-growing large-scale LCD TVs • Expand product line-up used for mobile phones, digital cameras, automobiles, and organic ELs Logic LSI 40 P2ROMs (system memories) 20 System LSI 0 FY Mar. 02 FY Mar. 03 FY Mar. 04 FY Mar. 05 (Projections) • Expand share of LSIs used for games, electronic dictionaries and printers with strengths such as short TAT and low cost (Currently 30% of ROM market) • Accelerate development of next generation large capacity P2ROMs (512M or more) 16 Full Year Projections for the FY ending Mar. 2005 z Due to uncertainty of the semiconductor market in the 2nd half, full year projections will be reviewed when establishing the detail business plan. Net sales (Billion yen) 604.6 40.3 113.7 585.5 654.2 50.2 119.2 103.2 85.7 347.4 680.0 65.0 57.1 132.2 150.0 Others 104.6 105.0 Electronic devices 360.3 330.4 360.0 Telecom systems Info systems FY Mar. 02 (Billion yen) FY Mar. 03 FY Mar. 04 FY Mar. 05 (Apr. 27 projections) Operating & net incomes 29.0 21.6 10.0 1.4 1.3 (6.6) Operating income Net income (27.2) (34.1) 17 P/L Projections for the 1st Half of FY ending Mar. 2005 (Reference) 1H, FY Mar. 05 1H, FY Mar. 04 (result) 1H, FY Mar. 05 281.3 310.0 (76.0%) (- %) 213.8 - - - SG&A 71.4 - - - Operating income (3.9) 0 3.9 (2.0) Other income (4.3) (4.5) (0.2) (4.5) Recurring income (8.2) (4.5) 3.7 (6.5) Extraordinary income (loss) (6.5) (3.5) 3.0 (1.5) (14.7) (8.0) 6.7 (8.0) (4.2) (2.0) 2.2 (2.0) (10.5) (6.0) 4.5 (6.0) Net sales (Cost to sales ration) Cost of sales Income before taxes Income taxes Net income (Jul. 28 projections) Variance (Apr. 27 projections) 28.7 290.0 (-%) 18 Cash Flows Projections z Free cash flows for the 1st half will improve by 5.0 B yen from the Apr. 27 projections due to working capital reduction. z Full year projections will be reviewed when establishing the detail business plan. FY Mar. 05 FY Mar. 04 Full year Income (loss) before income taxes 92.3 2.3 55.0 18.0 13.0 (8.0) Depreciation & amortization 33.6 36.0 17.0 0 1.0 (40.0) 3.0 1.0 (23.0) (24.0) (31.0) (15.0) 4.8 (9.0) (8.0) 73.1 15.0 (10.0) (43.6) (39.9) (3.7) 29.5 58.1 291.4 (25.0) (15.0) (10.0) (10.0) 48.1 266.4 (13.0) (10.0) (3.0) (23.0) 35.1 278.4 (Billion yen) I. Cash flows from operating activities Changes in operating assets & liabilities Others II. Cash flows from investing activities Purchases of property, plant & equipment Others Free cash flows (I+II) III. Cash flows from financing activities Redemption of bonds Changes in other interest bearing debts, etc. Net cash flow (I+II+III) IV. Cash and cash equivalents at the period end V. Interest-bearing debts at the period end (*1) 40.1 16.3 (19.2) (*2) 1st Half Notes <Operating assets & liabilities details> (*1, *2) (Mar.04) (Mar.05) Receivables 10.1 (17.0) Inventories 17.1 8.0 Payables 12.9 9.0 Total 40.1 0 19 Glossary P3 P9 P10 P11 P14 P15 P16 NIP IP ATM LED IT SIDM FTTH IPv6 CDN BB-IP DRAM P2ROM PHS W-CSP GSM EL ROM Non-Impact Printer Internet Protocol Automated Teller Machine Light Emitting Diode Information Technology Serial Impact Dot Matrix Fiber To The Home Internet Protocol Version 6 Content Delivery Network Broadband IP Dynamic Random Access Memory Production Programmed Read Only Memory Personal Handy-phone System Wafer level Chip Size Package Global System for Mobile Communications Electro-Luminescence Read Only Memory * The projections and plans on this material are subject to change depending upon the changes of business environments and other conditions. 20