Financial Results for the Fiscal Year ended March 31, 2006 April 27, 2006 Oki Electric Industry Co., Ltd. 1 Table of Contents 1. Financial results for the FY March 2006 3. Oki’s Approach to the “Era of Change” 1) Financial Results 1) Recognizing the Environment 2) Profit and Loss 2) Revamping the Business Structure 3) Segment Information - Objective 4) Balance Sheet - Strategy 5) Cash Flows 2. Projections for the FY March 2007 1) Assumptions for FY March 2007 Projections 2) Profit and Loss 3) Projections by Segments 3) Business Target and Strategies - Info-telecom System Business - Semiconductor Business - Printer Business 4. Mid-term Business Target 4) Capital Expenditure and R&D Expenses 5) Cash Flows 2 Consolidated Financial Results Net sales: 680.5 billion yen, 8.0 billion yen (1.2%) decrease on a year-on-year basis. While printers increased, sales from financial institutions and telecom carriers decreased. Operating income: 10.6 billion yen, a 16.6 billion yen decrease on a year-on-year basis due to sales decrease and price drop of major products. While incomes increased from the the Feb.17 projections, net sales decreased by 9.5 billion yen. (Billion yen) FY Mar. 05 (A) FY Mar. 06 (B) Variance (B-A) FY Mar. 06 Feb. 17 proj. (C) Variance (B-C) 688.5 680.5 (8.0) 690.0 (9.5) Operating income 27.2 10.6 (16.6) 10.5 0.1 Recurring income 21.2 7.2 (14.0) 6.5 0.7 Net income 11.2 5.1 (6.1) 4.0 1.1 18.27 yen 8. 27 yen (10.00) yen - - Total assets 608.0 618.9 10.9 - - Shareholders’ equity 124.8 133.9 9.1 - - 204.11 yen 218.96 yen 14.85 yen - - 265.2 268.3 3.1 Net sales Net income per share Shareholders’ equity per share Interest-bearing debt 263.2 5.1 3 Profit and Loss (Billion yen) FY Mar. 06 688.5 680.5 (73.2%) (75.6%) Cost of sales 504.3 514.5 10.2 SG&A 157.0 155.4 (1.6) Operating income 27.2 10.6 (16.6) Other income (6.0) (3.4) 2.6 Extraordinary income/loss (Billion yen) Recurring income 21.2 7.2 (14.0) Mar. Mar. 05 06 4.2 11.0 6.8 6.9 7.6 0.7 18.5 10.6 (7.9) 7.3 5.5 (1.8) 11.2 5.1 (6.1) Net sales (Cost of sales ratio) Extraordinary income Extraordinary loss Income before taxes Income taxes Net income Variance Other income FY Mar. 05 (Billion yen) (8.0) (worsened by 2.4%) Interest & dividends received Mar. Mar. 05 06 1.3 1.8 Gain on currency exchange 0.6 1.4 Others 0.8 1.4 Interest paid 6.7 6.2 Others 2.0 1.8 Gain on sales of securities 3.0 8.0 Gain on sales of fixed assets 1.2 2.1 Others 0.9 Loss on disposal of fixed assets 2.5 1.0 Impairment loss 3.0 Special retirement payments 2.4 1.4 Others 2.0 2.2 4 Segment Information 688.5 680.5 690.0 27.0 31.3 29.0 160.5 163.0 137.7 (Billion yen) Others Printers 150.7 150.7 148.0 Semiconductors Info-Telecom 373.1 338.0 FY Mar. 05 Results 350.0 Feb. 17 proj. FY Mar. 06 (Billion yen) (10.9) (10.2) (10.0) 2.5 2.8 3.0 7.8 Operating income 4.1 4.0 Eliminates Net sales <Year-on-year comparison> For financial market: decreased by 21.1 B yen. Sales decline in bank branch terminals, and delay in security-enhanced ATMs (high gear in FY Mar. 07) For carriers: decreased by 11.0 B yen due to reduced investments for fixed-line systems including broadband IP network and direct collection of fixed-phone Semiconductors: unchanged. While sales of driver LSI for LCD increased, sales for system memory decreased. Printers: increased by 22.8 B yen due to increase in business-use color NIP Operating income Others Printers 12.0 3.0 2.5 Semiconductors 15.8 10.9 11.0 Info-telecom 27.2 10.6 10.5 Total Decreased due to decline in sales of infotelecom, fall of prices in semiconductors and printers Remained profitable in semiconductor segment (Unchanged from Feb.17 projections) 5 Balance Sheet (1) <Balance Sheet: Assets> Inventories increased by 17.6 B yen, due to increase in color printer shipment and foreign currency conversion Investments and other assets increased by 7.9 B yen, due to gain on devaluation of marketable securities Turnover ratio Mar. 05 Mar. 06 Total assets 1.13 1.11 0.02 worsened Notes and accounts receivable 4.57 4.59 0.02 improved Inventories 4.78 4.30 0.48 worsened (Billion yen) 651.5 600 42.4 146.7 400 622.9 608.0 55.4 46.6 34.6 155.3 146.0 150.8 157.4 139.0 149.3 166.9 27.7 30.1 33.1 27.0 136.4 119.7 126.5 125.2 169.9 200 163.8 Cash and deposits Notes and accounts receivable 148.2 31.9 Variance with Mar. 31, 2005 618.9 609.6 27.9 Variance 118.3 103.6 110.1 106.5 114.4 Mar. 31, 2002 Mar. 31, 2003 Mar. 31, 2004 Mar. 31, 2005 Mar. 31, 2006 0 Inventories - 12.0 +4.8 +17.6 Other current assets - 6.1 Property, plant and equipment - 1.3 Investments and other assets +7.9 6 Balance Sheet (2) <Balance Sheet: Liabilities and Shareholders’ Equity> Shareholders’ equity ratio was 21.6%, improved by 1.1 points due to gain of 9.1 billion yen of devaluation of marketable securities. Mar. 05 600 120.1 134.3 400 622.9 116.1 265.2 268.3 3.1 increased Interest-bearing debt ratio (%) 43.6 43.4 0.2 improved Shareholders’ equity ratio (%) 20.5 21.6 1.1 improved 609.6 608.0 618.9 135.8 144.5 141.0 126.0 129.8 135.3 31.1 24.0 209.4 161.7 129.9 37.6 44.5 40.7 109.0 101.3 110.5 28.8 221.4 25.6 Variance Amount of interestbearing debt (B yen) (Billion yen) 651.5 Mar. 06 116.1 18.8 Variance with Mar. 31, 2005 - 3.5 Notes and accounts payable Short-term borrowings - 19.2 Other current liabilities - 5.2 Bond and long-term debts Other fixed liabilities and minority interests Shareholders' equity +22.3 152.2 200 49.5 56.9 124.8 133.9 0 +7.4 +9.1 Mar. 31, 02 Mar. 31, 03 Mar. 31, 04 Mar. 31, 05 Mar. 31, 06 Bonds due within a year and commercial paper are included in long-term debt and short-term borrowings respectively. 7 Cash Flows Increase in working capital worsened free cash flows by 31.4 billion yen on a yearon-year basis (Billion yen) Mar. 05 Mar. 06 Variance Income before income taxes 59.3 18.5 15.0 10.6 Depreciation & amortization 34.2 34.7 0.5 Changes in working capital 11.7 (22.2) (33.9) (5.1) (41.5) (33.9) (8.1) (28.6) (29.2) (3.0) 12.9 4.7 (7.6) 0.6 8.2 17.8 (26.9) 5.0 (13.6) 0.8 (10.0) (31.4) 27.7 (15.0) (31.9) 0 (9.1) 49.4 265.2 12.6 (1.8) (12.8) 38.4 268.3 44.5 (1.8) (3.7) (11.0) 3.1 I. Cash flows from operating activities 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. Payment of dividends Net cash flow (I+II+III) IV. Cash and cash equivalents at the period end V. Interest-bearing debt at the period end (44.3) (7.9) <Changes in working capital> Mar. 05 Mar. 06 Receivables 13.6 (1.4) Inventories (9.0) (15.5) Payables 7.1 (5.3) Total 11.7 22.2 8 1. Financial results for the FY March 2006 3. Oki’s Approach to the “Era of Change” 1) Financial Results 1) Recognizing the Environment 2) Profit and Loss 2) Revamping the Business Structure 3) Segment Information - Objective 4) Balance Sheet - Strategy 5) Cash Flows 2. Projections for the FY March 2007 1) Assumptions for FY March 2007 Projections 2) Profit and Loss 3) Projections by Segments 3) Business Target and Strategies - Info-telecom System Business - Semiconductor Business - Printer Business 4. Mid-term Business Target 4) Capital Expenditure and R&D Expenses 5) Cash Flows 9 Assumptions for FY Mar. 07 Projections <Overall Economy Outlook> Recovery in Japan’s economy, including return in corporate performance and expansion of consumer spending Concerning factors continue with rise in oil price, and price decline in IT industry The affect of the opaque political situation in Japan and overseas to economy is unpredictable <Oki’s operating environment> Info-Telecom: Recovery sign in financial institutions’ investments, including security-enhanced ATM. While telecom carriers’ investment in optical IP telephones increase, investments on broadband IP network peak-out, and NGN moves into high gear in the FY Mar. 08 Semiconductors: Favorable Asian market and expanding digital appliances will pull overall semiconductor market, while price decline continues Printers Color printer market continues to expand, while fiercer price competition in the low-end market <Impact of currency on profits> FY Mar. 06 Actual rate USD Euro 113.3 yen 137.9 yen FY Mar. 07 (upper line is for first half) Sales in foreign currency 740 million 610 million Projected rate Sales in foreign currency Impact on operating profit by 1 yen change 115 yen 360 million 110 million yen 110 yen 430 million 140 million yen 140 yen 300 million 140 million yen 135 yen 400 million 160 million yen 10 Profit and Loss (Billion yen) Full year FY Mar. 06 FY Mar. Results 07 plan First half Variance FY Mar. 06 FY Mar. Results 07 plan Variance 680.5 720.0 39.5 319.1 300.0 (19.1) Operating income 10.6 15.0 4.4 (4.2) (12.0) (7.8) Other income (3.4) (7.0) (3.6) (1.5) (3.5) (2.0) Recurring income 7.2 8.0 0.8 ( 5.7) (15.5) (9.8) Extraordinary income/loss 3.4 (4.0) (7.4) (0.3) (1.5) (1.2) 10.6 4.0 (6.6) (6.0) (17.0) (11.0) Income taxes 5.5 1.5 (4.0) (2.1) (7.5) (5.4) Net income 5.1 2.5 (2.6) (3.9) (9.5) (5.6) Net sales Income before taxes 11 Fluctuation Factors in Operating Income Operating income for FY ending Mar. 07 will be 15.0 billion yen, a 4.4 billion yen increase on a year-on-year basis While pricing pressure for main products continue and fixed cost increases, operating income will increase with the sales increase and procurement cost reduction 54.2 B yen sales increase before price drop (year-on-year quantity-base) Price decline +14.4 Operating Income 10.6 B yen Increase in quantity FY March 06 Results (Billion yen) Project price drop in printers and LSIs - 14.7 -13.0 Operating Income 15.0 B yen Others +17.0 Increase in fixed costs +0.7 Reduce Personnel costs (5.2) procurement costs Depreciation (3.4) R&D (4.4) 8% cost reduction for subjected procurement costs FY March 07 Plan 12 Info-Telecom Systems Segment Full year (Billion yen) FY Mar. 06 FY Mar. 07 Variance (results) (plan) Financial market 100.1 121.0 First half Factors FY Mar. 06 FY Mar. 07 (results) (plan) 20.9 Sales increase of security-enhanced and overseas ATMs. Increase in sales due to recovery in banks 51.1 49.0 55.2 31.0 Telecom carriers 98.2 79.0 (19.2) Slow down in carriers’ investments on broadband IP network and direct collection of fixed phone. FY Mar. 2007- year of investment for development Public sectors 54.0 66.0 12.0 Sales increase for wireless systems for local governments and ITS 14.5 14.5 Enterprises 67.2 70.0 2.8 Expansion in IP-based info-telecom systems and enhance in-direct sales 26.0 30.5 Others 18.5 24.0 5.5 8.5 11.0 338.0 360.0 22.0 155.3 136.0 (1.6) (8.0) Net sales Operating income 10.9 12.5 1.6 Increase due to sales growth and cost reduction, though decrease in sales from telecom carriers and overall price decline 13 Semiconductor Business Segment Full year (Billion yen) FY Mar. 06 FY Mar. 07 Variance (results) (plan) Logic 92.5 91.0 (1.5) System memory 36.5 39.0 2.5 Optical device 3.0 3.0 0 Others 18.7 21.0 2.3 Net Sales 150.7 154.0 3.3 Operating income 3.0 5.5 2.5 First half Factors FY Mar. 06 FY Mar. 07 (results) (plan) Increasing driver demand and sales increase for telecom LSIs, though sales decrease in ASIC and price down brings down sales 49.2 41.0 Sales increase due to larger capacity P2ROM and working with ASDRAM customers 18.4 19.0 1.6 1.5 8.4 10.5 77.6 72.0 0.2 0 Sales increase due to high-value added production using differentiating process Increases due to sales increase with drivers and system memories, cost reduction, and high-value added products 14 Printer Business Segment Full year (Billion yen) FY Mar. 06 FY Mar. 07 Variance (results) (plan) Color NIP 83.8 102.0 36.0 44.0 Though SIDM market shrinks, focus on BRIC markets, particularly in China 35.0 32.0 71.0 76.0 1.5 0 70.0 (6.7) Net sales 160.5 172.0 11.5 5.0 FY Mar. 06 FY Mar. 07 (results) (plan) 18.2 76.7 4.1 Factors Increase in shipment, shift from low end model to middle/high-end market Mono, others Operating income First half 0.9 Increases with cost reduction and high value-added products, though sales cost increases due to sales channel update and launch of new products 15 Capital Expenditure and R&D Expenses Invest to develop new products and expand production, mainly on info-telecom systems Capital Expenditure R&D Expenses [Acquisitions of property, plant and equip.] 40.5 (Billion yen) 37.8 33.5 3.5 Others 3.6 6.0 23.1 FY Mar. 06 10.0 26.6 Info-telecom systems 3.1 4.9 FY Mar. 07 (Projections) 24.0 5.2 19.6 3.5 Others 3.1 4.5 Printers 4.3 5.0 Semiconductors 5.1 (Billion yen) [Depreciation] 25.5 (Billion yen) Semiconductors 22.0 17.7 FY Mar. 05 Ratio to net sales Printers 20.0 5.6 (%) 2.9 7.0 3.1 7.1 5.1 3.2 3.3 8.8 30.0 7.1 11.0 Info-telecom systems FY Mar. 05 FY Mar. 06 FY Mar. 07 (Projections) 16 Cash Flows Free cash flow improves by 13.6 billion yen due to working capital reduction, including inventory reduction (Billion yen) I. Cash flows from operating activities Income (loss) before income taxes Depreciation & amortization 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 Bond issuance Redemption of bonds Net cash flow (I+II+III) IV. Cash and cash equivalents at the period end V. Interest-bearing debt at the period end March 06 March 07 Variance (Results) (Projections) 15.0 10.6 34.7 (22.2) (8.1) (28.6) (29.2) 0.6 54.2 4.0 39.0 9.1 2.1 (54.2) (42.1) (12.1) 39.2 (6.6) 4.3 31.3 10.2 (25.6) (12.9) (12.7) (13.6) 0.8 (10.0) 10.8 (12.8) 38.4 268.3 0 (4.8) (20.0) 15.2 (4.8) 33.6 265.3 13.6 (5.6) (10.0) 4.4 8.0 (4.8) (3.0) <Changes in working capital> Mar.06 Mar.07 Receivables (1.4) (14.2) Inventory (15.5) 15.9 Payables (5.3) 7.4 Total (22.2) 9.1 17 1. Financial results for the FY March 2006 3. Oki’s Approach to the “Era of Change” 1) Financial Results 1) Recognizing the Environment 2) Profit and Loss 2) Revamping the Business Structure 3) Segment Information - Objective 4) Balance Sheet - Strategy 5) Cash Flows 2. Projections for the FY March 2007 1) Assumptions for FY March 2007 Projections 2) Profit and Loss 3) Projections by Segments 3) Business Target and Strategies - Info-telecom System Business - Semiconductor Business - Printer Business 4. Mid-term Business Target 4) Capital Expenditure and R&D Expenses 5) Cash Flows 18 [Recognizing the Environment] Transformation of Form of Services Services provisioned through face-to-face shifts to ubiquitous service via broadband ubiquitous network Network infrastructure becomes broadband as digitalization and open standard progress Customers can obtain their desired information in a affordable price, in a desired time, and a timely matter Changes in society (diversification, speeding-up) Environmental changes -Environment -Depopulation -Aging -Wealthy aged Ubiquitous services From fixed networks to global mobile networks Infrastructure changes Expansion of remote services Conventional face-to-face service Now, “era of change” User-centric services Middle and young age Expansion of personalized services M&A, restructuring, and oligopoly Deregulations - Spread of broadband -Ubiquitous network -Globalization -Digitalization, open standards Expansion of customer-centric services New vendors, Changing competitors! Conventional face-to-face service to global ubiquitous service Whenever, wherever, with whomever Required information in the desired style Securely, reliably and appropriately-priced Changes in customer (inexpensive, high quality, increasing users)19 [Recognizing the Environment] Era of Changes: Shift to New Business Structure Changes in users, significantly change our customers’ business environment Volume Conventional business structure New business structure Info-telecom Shift to a new business model and new competition structure Software/ SI Consultation Total service Semiconductors/ electronics/ mechatronics Sensor network Ad-hoc network TV conference eSound/ triple-play Internet auction AP@PLAT Auto-contract Video monitoring system e-trade e-finance e-reservation Ticket issuing Telephones, PCs system Deposit Security Home network Internet banking CD/ATM systems Conventional: Face-to-face service New: Ubiquitous Service Ubiquitous network= Fixed network + mobile network 2006 Time 20 [Recognizing the Environment] Oki’s Approach to the “Era of Change” Oki aims to achieve “e-Society,” where ubiquitous service is offered via ubiquitous network 1 [Oki’s approach] To become a key player in the “e-Society” by revamping the business structure as “Oki, Networks Solutions for a Global Society,” and become a company with stable profitability in the “Era of Change” 2 3 Ubiquitous Service= Enabling customers to obtain services that include their desired information and products in desired formats, securely, reliably in appropriate prices Oki’s Network Solution 1. “Whenever, wherever, with whomever Enable individuals to engage in activities freely beyond time and space 2. Required information in the desired style Provide accurate information to individuals via convenient services and content 3. Securely, reliably and appropriately-priced Provide satisfaction to individuals with high-quality networks Keywords for Ubiquitous Service Whenever, wherever, with whomever Required information in the desired style Securely, reliably and appropriately-priced 21 Aim to Revamp the Business Structure The new trend is the shift from face-to-face service to ubiquitous service This trend will progress faster than Oki’s previous reform business plan Oki revamps business structure as the finish of Phoenix 21 Sky-high to become a company with stable profitability 1998 1999 – 2001 Phoenix 21 2002- 2005 2006 2007 Phoenix 21 Sky-high Revamp Business Structures Second phase Company with stable profitability Oct. ‘02 Aug. ‘01 Sept. ’98 nd st 3rd reform 2 reform 1 reform (Urgent measure) (Sky-high preparation) (Shift & enhance quality) Biz structure reform First phase 2008 22 Strategies to Revamp the Business Structure Establish a strong business structure, responding speedily and flexibly to customers’ business environment changes Aim to become a key player in the e-society (ubiquitous network + ubiquitous service) Flexible and speedy business operation ¾ Enhance network-based company management (in-house full/venture companies + partners) Changes in base business structure: Establish a strong biz structure unique to Oki ¾ Clarify focusing areas ¾ Enhance skills on planning and development for technologies and products ¾ Strengthen in-direct sales Expand new businesses ¾ Expand service and software businesses ¾ Enhance China and other overseas businesses ¾ Accelerate to create new businesses through company-wide projects 23 Flexible and Speedy Business Operation Enhance network-based company management (In-house full/venture companies+ partners) ¾ Flexible and speedy company-oriented business operations based on corporate strategies ¾ Accelerate synergy effect among in-house companies and affiliated companies ¾ Accelerate the creation of new businesses by doubling in-house venture companies and venture units ¾ Accelerate business operations through collaboration with global partnership dynamically (M&A, collaboration, investing in venture companies) Partners Affiliated companies In-house venture companies Shared-center Corporate Unify Management Strategies In-house venture units Semiconductor Business Group In-house venture companies In-house venture units Printer Business Group Affiliated companies Oki Data Corp. Affiliated companies In-house full companies In-house In-house venture companies venture units Info-telecom Business Group Affiliated companies In-house full companies Shared-center: Sharing and outsourcing group common functions including HR, accounting, finance and IT 24 Changes in Base Business Structure Establish a strong business structure unique to Oki ¾ Clarify focusing areas 9 Select businesses and concentrate resources 9 Review business process (Clarify strengths and enhance partnerships) ¾ Enhance skills on planning and development for technologies and products 9 Develop core technologies, platforms and products as the key player in the esociety 9 Enhance product planning and development : Financial system, telecom carrier, and semiconductor business ¾ Strengthen marketing and sales capabilities 9 Strengthen marketing and sales capabilities: Financial, telecom carriers and printer businesses 9 Expand in-direct sales channel for strong products (mechatronics, triple-play) e-society End user Oki’s customers Joint development through alliances to complement technologies and products Financial Institutions Telecom carriers Governments Enterprises Enable customers to focus on their business Ubiquitous network/ ubiquitous service Provide advanced, Oki-like technologies, platforms and AP@PLAT µPLAT products as a eSound eVideo Mechatronics High voltage LED Printer key player Payment Security Triple-play Low power consumption Technologies, platforms and products that support ubiquitous network and ubiquitous service 25 [Expand New Businesses] Expand Service and Software Businesses Expand service and software businesses by offering Oki’s technologies, knowledge, know-how and assets to enable customers to concentrate on their main business ¾ Software and its related services: Expand as the new focusing business ¾ Operation service business: Continue business expansion of JBO and Payment First*¹ ¾ Newly establish division for service and software businesses to promote group-wide businesses ¾ Double the software and service-related sales by the FY March 2011 (from FY March 2006) Increase market share Deploy overseas Expand ¾Provide SOA/OSS-base system ¾Embedded software for IP business ¾Printing solutions, etc. Software development consignment Hardware ATM, Network systems, printers *1: JBO (Japan Business Operations) and Payment First Co. are Oki group affiliated companies Software maintenance Expand Software-related services, operation services Software ¾Network/ security service ¾Outsourcing service Hardware related service Construction, Installation, etc. SOA: Service Oriented Architecture 26 OSS: Open Source Software [Expand New Businesses] Expand Business in China and other Overseas Business Target overseas sales ratio of 50% by FY end. 2011 Shift from a Japan-controlled overseas business to a locally controlled business, particularly in China Deploy business with strong products and technologies as core competence FY Mar. 07: Enhance skills for business development, product planning, and to support existing businesses FY Mar. 08-09: Implement consistent activities from business development, plan, proposal, design, manufacturing through to sales in China Info-telecom System Business ATM: Aim 30% market share (FY Mar. 2011) in China by developing relationship with agents, and working with OEM vendors following Yihua IP-PBX/CTstage: Expand business by developing channels through alliances and M&As Semiconductor Business Enhance local support by utilizing marketing/sales company in Shanghai to: ¾ Increase sales in China by 50% on a year-on-year basis in FY Mar. 07 ¾ Continue to sell PHS base band LSIs and P2ROMs used for dictionaries and toys New products: Large TFT driver, large-capacity P2ROM, multifunctional sound generator LSI, power control LSI, etc. Printer Business Target for FY Mar 2007: Increase sales in China by 40% year-on-year basis Enhance sales structure by establishing sales office in Beijing SIDM: Expand market share by launching low-end products Color NIP: Increase dealers for high-end products by enhancing solutions for China market 27 Info-telecom: Business Target Basic Direction Deploy business in the ubiquitous network and ubiquitous service area Create and enhance sales with AP@PLAT-based info-telecom converged solutions for different industries Create world-class products to expand sales in Japan and overseas, such products are ATMs, e-financial systems, network systems for telecom carriers, broadband home networks, network products for enterprises Enhance product competition and sales skills through alliances Target 373.1 21.5 67.6 52.6 110.2 121.2 FY Mar.05 Operating income/ratio Net sales (Billion yen) 5.3 380.0 338.0 18.5 67.2 360.0 24.0 70.0 54.0 66.0 Public 98.2 79.0 Telecom Carriers Financial 100.1 121.0 FY Mar.06 FY Mar.07 FY Mar.08 (Projections) (Target) Others 4.2 3.2 3.5 (Billion yen) Enterprise (%) 15.8 20.0 10.9 FY Mar.05 FY Mar.06 12.5 FY Mar.07 FY Mar.08 (Projections) (Target) 28 [Financial Systems] Market Trend and Business Strategy [Market trend] Recovery in city banks, course of recovery in local and cooperative banks, increase in IT investment from privatization of postal offices and rising banks Expanding needs for systems for diversifying channels, new products, CRM, and compliance Increase in security needs against forged cards and stolen PIN numbers Higher demand of ATMs in Asia, mainly in China [Business strategy] Establish new division to create and obtain business opportunities for postal privatization Base financial business (ATM, branch office, back office concentration system): Enhance product and sales skills New financial business (e-financial sys., networks, outsourcing): Expand service and software business Ex: Deploy office monitoring systems and biometric identification solutions Expand ATM market share in China: Shift from Japan oriented operation to China-based local activities Back yard systems Internet Broadband Network Outsourcing ATM e-finance system Call centers, payment, security,etc. Oki’s focusing areas for financial system business Enterprise Enterprise Household Household 30% 30% Oki’s market share 20 Remote channel ATM Units installed ニーズに対応した Oki’s units installed 小型ATMの開発 Mobile phone IP-VPN Develop small ATM responding to market 40% needs (Thousand) 30 20% 11% 10 Outsourcing 0.4 0 6.5 8% 10% 0.8 0% 2010 2005 2006 : Base financial business : New financial business ATM sales and market share target in China (Source: Oki’s estimation) Oki market share Outsourcing Branch office terminal, External affair support system e-financial system Various Various industries industries Network Integrated image processing system Branch office systems ATM business in China Financial Financial Institution Institution [Telecom Carrier] Market Trend and Business Strategy [Market trends] Investments for broadband IP completes first stage. Investments shift to new services including optical phones Full-scale rise of next generation networks and fixed mobile convergence (FMC) begins in FY Mar. 2008 Fiercer competition in the mobile phone market with new comers [Business strategy] New focusing businesses: Focus in growing markets in applications/platforms (broadband application, new service control, FMC), and edge nodes Develop competitive products: Concentrate resources to develop competitive products Enhance business structure: Restructure organization to develop technologies and products efficiently, and to deploy appropriate customer strategies Major telecom carrier capital investments (projections) Capital Investment Amount Existing NW/NW migration Optical Access/ BB home network APL/PF Core/edge Mobile (base stations/ core) Focusing business APL/PF (BB-AP, new service control, FMC) Focusing business Optical access, Broadband home network Edge node (Oki products) Focusing business Core/edge (Non-Oki products) Network migration 01 02 03 04 05 06 07 08 Source: Oki’s estimation based on CIAJ and Fuji Chimera Research Institute’s data [Enterprise Business] Market Trends and Business Strategy [Market trends] Japan’s PBX and key telephone systems market (including IP replacement) remains flat, being a mature market IP-PBX shifts to a growth stage supported by demands for mobile phone extensions Signs of changes in working style with triple-play (convergence of information and telecom) [Business strategy] Provide info-telecom converged products that achieve ubiquitous service Enhance in-direct sales in Japan: Expand market share by enhancing channel support and obtaining new channels Overseas deployment: Build foundation for overseas business focusing in China Enhance product competitiveness: Develop new products for ubiquitous service (i.e. FMC, triple-play) PBX market projections in Japan 1000 Key Tel. System Mid/small PBX Large-scale PBX Growth in Japan (Source: Oki’s estimation based on CIAJ data) 130% PBX market projections in China [US$] 400 750 90% 500 70% Growth 110% 300 (Source: Oki’s estimation based on data from Frost&Sullivan) IP-PBX Key Tel. System Legacy PBX Growth in China 300 250 200 150 200 Growth (Billion yen) 100 250 50% 100 50 0 30% FY Mar.05 FY Mar.06 FY Mar.07 FY Mar.08 FY Mar.09 0 0 FY Mar.05 FY Mar.06 FY Mar.07 FY Mar.08 FY Mar.09 31 Semiconductors: Management Target Basic Direction Deploy high value-added business such as system LSIs focusing on personal and mobile markets Enhance creation of world-class products, developing speed and manufacturing flexibility through fab-free (combining fabless and vertical integration) and partnership strategies Expand Oki-unique differentiating technologies (low power consumption, high voltage process, SOI/SOS, digital/analog mix) Target Operating income/ratio Net sales (Billion yen) 6.3 8.0 150.7 150.7 154.0 160.0 21.0 17.0 2.3 18.7 3.0 3.0 36.5 39.0 48.1 (%) Others 3.6 Optical device 2.0 (Billion yen) System memory Logic 83.3 92.5 91.0 12.0 10.0 3.0 FY Mar.05 FY Mar.06 FY Mar.07 FY Mar.08 (Projections) (Target) 5.5 FY Mar.05 FY Mar.06 FY Mar.07 FY Mar.08 (Projections) (Target) 32 Semiconductor Business Strategy Shift Shiftto toaastructure structurewith withstable stableprofits profits by byenhancing enhancingdifferentiated differentiatedtechnologies technologiesand andproduct productplanning planningcapabilities capabilities 1998-: Withdraw from DRAM (shift to system LSI/ logic) 2002-: Separate design and development from production (“fab-free”) 2006-: Enhance differentiated technologies, and marketing and product planning capabilities Concentrate resources to strong areas – businesses that bring out Oki’s strengths and businesses where stable sales and profit are expected Deploy business based on competitive edge through product-based organization FY Mar. 06 Sales FY Mar. 07 Sales div. Sales div. Planning Business div. Development Design div. Organization by function Biz. structure by product groups Telecom & in-vehicle system biz div. System memory biz div. Common technology div. Custom biz div. Display driver biz div. <Target for reorganization> • Accelerate business selection and concentration (withdraw from unprofitable businesses) • Enhance product planning by unifying sales, planning and development • Business management focusing on speed and profitability 33 Strong Areas, Focusing Products and Differentiating Technologies ◆ System LSI differentiated by “wireless” technology including “mixed signals” “modulating/demodulating technologies” and “RF” ◆ Products differentiated by “processing and circuit” technologies including high voltage processing, low power consumption, and nonvolatile memory High Å - FP-LVDS: Flat Panel LVDS（Low Voltage Differential Signaling） Low power consumption - T-CON: Timing Controller Software support - DSRC: Dedicated Short Range Communication RF on a single chip Low power consumption Low power consumption In-vehicle+wireless technology (DSRC) Software support RF on a single chip High definition (13bit/8200 gray-scale) ITS Low power consumption PHS ZigBee High-speed I/F（500MHz FP-LVDS） Propose chipset with T-CON New focus area Value added Multi-bit P2ROM (high-density cell) Secure P2ROM High voltage foundry Low power consumption RF front-end Power control P2ROM Large TFT drivers New focus area Size of circle represents sales size Market growth rate (2006) SOS New focus area Æ high 34 Printers: Management Target Basic Direction Continued growth in color NIP business ¾ Expand color NIP business as the market continues to grow Enhance SIDM and mono NIP markets as the base of profit ¾ SIDM: Enhance profitability by launching low-end products to emerging BRIC markets ¾ Mono NIP: Improve lineup by utilizing outside sources Target Operating income/ratio Net sales (Billion yen) 160.5 172.0 190.0 137.7 76.7 70.0 (%) 5.7 5.3 Mono/Others 2.6 2.9 Color NIP (Billion yen) 74.5 63.2 83.8 102.0 FY Mar.05 FY Mar.06 FY Mar.07 FY Mar.08 (Projections) (Target) 10.0 7.8 4.1 5.0 FY Mar.05 FY Mar.06 FY Mar.07 FY Mar.08 (Projections) (Target) 35 Strategy for Products and Consumables [Market trend] Color NIP market: While market expands by 30% annually, price for low-end models decline over 20% Mono NIP market: While market expands by 3% annually with increasing low-end models, prices decline by 16% SIDM market: Though market shrinks by 5%, prices maintained. Low-end models grow, especially in the BRIC markets [Business strategy] Color NIP: Increase market share with high-function, high resolution printing by shifting to middle/high-end models ÆImprove profitability by increasing consumables for middle/high-end models Thorough cost reduction SIDM: Launch low-end models to provide in BRIC markets, particularly in China Sales in Japan: Enhance A3 color printer line-up by developing OE channels and large SIs, and strengthening existing large channels. Increase market share. Oki’s color NIP market share in Japan Oki’s color NIP sales Desktop model (low-end model) 500,000 400,000 (Source: 01-05 based on IDC data) 20% Non desktop models Desktop models 15% 300,000 10% 200,000 5% 100,000 0 Increase market share in Japan 5.7% Æ 10% or more 01 02 03 04 05 06 0% 01 02 03 04 05 06 36 1. Financial results for the FY March 2006 3. Oki’s Approach to the “Era of Change” 1) Financial Results 1) Recognizing the Environment 2) Profit and Loss 2) Revamping the Business Structure 3) Segment Information - Objective 4) Balance Sheet - Strategy 5) Cash Flows 3) Business Target and Strategies - Info-telecom System Business 2. Projections for the FY March 2007 1) Assumptions for FY March 2007 Projections - Semiconductor Business - Printer Business 2) Profit and Loss 3) Projections by Segments 4. Mid-term Business Target 4) Capital Expenditure and R&D Expenses 5) Cash Flows 37 Mid-term Business Target <Sales and operating income ratio> 4.0 3.9 2.1 1.6 760.0 or more (billion yen) 688.5 680.5 720.0 Others 31.3 160.5 34.0 172.0 30.0 190.0 150.7 154.0 160.0 373.1 338.0 360.0 380.0 FY Mar. 05 FY Mar. 06 FY Mar. 07 FY Mar. 08 27.0 137.7 150.7 (%) Printers Semiconductors (Projections) FY Mar. 05 FY Mar. 06 Info-telecom systems (Target) FY Mar. 07 (Projections) FY Mar. 08 (Target) 688.5 B yen 680.5 B yen Operating income 27.2 B yen 10.6 B yen 15.0 B yen 30.0 B yen or more Net income 11.2 B yen 5.1 B yen 2.5 B yen 12 B yen or more 9.0 % 3.8 % 1.9 % 8.4% or more 1.7 times 1.7 times 1.7 times 1.5 times or less Net Sales ROE D/E ratio (net) 720.0 B yen 760.0 B yen or more Glossary SI System Integration CD Cash Dispenser P24 HR Human Resources P27 OEM Original Equipment Manufacturer Large Scale Integration PBX Private Branch Exchange LCD Liquid Crystal Display PHS Personal Handy-phone System NIP Non-Impact Printer TFT Thin Film Transistor P10 NGN Next Generation Network CRM Customer Relationship Management P12 R&D Research and Development PIN Personal Identification Number P13 ITS Intelligent Transport System VPN Virtual Private Network P14 ASIC Application Specific Integrated Circuit APL/PF Application Platform P2ROM Production Programmed Read Only BB-AP Broadband Application CIAJ Communications and Information P4 SG&A Selling, General and Administrative expense P5 ATM Automated Teller Machine FY Fiscal Year IP Internet Protocol LSI Memory ASDRAM Application Specific Dynamic Random Access Memory P15 SIDM Serial Impact Dot Matrix BRIC Brazil, Russia, India, and China P.19 M&A Merge and Acquisition P20 P28 P30 P31 network Association of Japan P32 SOI Silicon on Insulator SOS Silicon on Sapphire P34 RF Radio Frequency P36 OE Office Equipment * The projections and plans on this material are subject to change depending upon the changes of business environments and other conditions. 39