Kenwood 2005 Annual Report Download - page 15

Profit base reforms
Aim for profitable growth by reforming profit
structure for the growth business and overlaying it
on top of that of the base business฀
฀
We aim for profitable growth by expanding the stable profit base of the car
electronics consumer (audio) business and wireless radio business and to attain
excellence through profit structural reforms to aid dramatic growth in the two
business areas of car electronics OEM business and car multimedia (consumer)
business.฀
฀

1Independence of Car Multimedia Division
Taking action to reform profit structure
The Car Multimedia Division gained independence from the Car Electronics
Consumer Division as of April 1, 2005, following the car electronics OEM
business, which expanded business operations beyond the scope of the plan
during the past term ended March 2005. As a result, the Car Electronics Consumer
Division will concentrate on the consumer car audio business and make an effort
to maintain this stable key business to sustain and increase profits. The Car
Multimedia Division will take steps toward profit structure reforms by fully
implementing new car navigation systems with proprietary developments and
enhancing activities relating to multimedia products including visual products,
which are growing on a global scale, and products that are compatible with
digital broadcasting, which are expected to become popular in the future.

2Innovation of profit structure in the Car Electronics OEM Business
Complete additional construction of the Shanghai Factory and
make improvements to increase production
and promote cost
reductions through vertical integration
We are proceeding with improving the foundation for enhancing market
responsive capabilities and reducing costs in the car electronics OEM business,
which is growing at a pace vastly exceeding the plan, by promoting a vertical
integration of the Nagano factory and Shanghai factory in order to satisfy the
requirements of OEM customers in all aspects of the supply chain, including
quality and cost.
Prospects exist for increasing orders in the future particularly in the field of
components for car electronics, which include DVD mechanisms and others. In
order to respond to such increases, we started transferring production lines from
the Nagano factory to the Shanghai factory, while construction of a new
building was completed at the Shanghai factory in July 2005. We are seeking to
improve profitability by increasing production and reducing costs to proceed
with our reforms on profit structure, in addition to the rapid growth of the car
electronics OEM business.

3Restructuring of Home Electronics Business
Restructure business operations and profit structures to reflect
market changes and digital media innovations
With prices falling continuously in the home theater systems market due to a
reduction in market scale and the intensifying competition, we are seeing the
emergence and sustained rapid growth of “digital media” in the home
electronics market, such as flash memory and hard disks, replacing CDs and
MDs, due to innovations with music media.
At the Kenwood Group, we see such a popularization of new media as a big
business opportunity. Our MD player has been evaluated positively as a “Return
to Made in Japan” model, which was then followed by the introduction of our
flash memory audio system. Continuing with such efforts to capture business
opportunities, we commercialized our HDD audio system, which has been
achieving strong growth since being introduced to the market in June 2005.
On the other hand, we will be concentrating on a highly value-added strategy
in the existing home theater field, while in the pure audio field, we will be
preparing a lineup of highly cost-competitive products by utilizing a high quality
sound technology. We will seek to reform our profit structure through the
aforementioned efforts, as well as through the promotion of product
developments by taking preemptive action for the innovation of digital media.
In the future, we intend to pioneer into new realms of “Entertainment of
Sound” that is appropriate for the digital and network era as the only
manufacturer dedicated to sound that is involved in the three business areas of
home electronics, car electronics and communications equipment.
Billions of yen
200
0
50
100
150
2004/3 2005/3
100.8
50.4
24.0
104.8
178.7
2006/3 Forecast
180
18.9
55.1
181.1
Consolidated Sales
Others
Home Electronics Business
Car Electronics Business Communications Equipment Business
OthersHome Electronics Business
Car Electronics Business Communications Equipment Business
Billions of yen
2004/3 2005/3 2006/3 Forecast
0
20
40
60
80
100
120
Car Electronics Consumer Business
Car Multimedia Business
Breakdown of Car Electronics Sales
Car Electronics Consumer (Audio) Business
Car Electronics OEM Business
Car Electronics Consumer Business
Car Multimedia Business
Breakdown of Car Electronics
Operating Profit
Car Electronics Consumer (Audio) Business
Car Electronics OEM Business
Billions of yen
2005/32004/3
2006/3 Forecast
-4
-2
0
2
4
6
Billions of yen
 5
0
5
15
10
2006/3 Forecast
-1.9
2.2
-0.1
6.8
7.1
-1.2
6.9
-0.1
7.0
12.6
10.0
Consolidated Operating Profit
2004/3 2005/3
15
Kenwood Corporation Annual Report 2005