Omron 2007 Annual Report Download - page 14

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A.In the automobile industry the development of
new vehicles has been centered on the themes
of safety and the environment, and the number of
electronic devices used in vehicles is increasing. Following
this trend, the introduction of AEC products in new vehi-
cles is also increasing. As a result, net sales for AEC in fiscal
2006 rose significantly to ¥93.3 billion (up 20.3% over the
previous year). Despite a rapid recovery in operating income
during the second half of the fiscal year, operating income
for the full year finished in the red with a deficit of ¥1.2 bil-
lion (the first half was ¥2 billion in the red, the second half
was ¥0.8 billion in the black).
There were two main factors inhibiting performance at
AEC. One was the squeeze on profits caused by surges in
raw material prices such as silver and copper, and the other
was the delay in improvement in production efficiency at
production bases in North America in both the previous year
and the first half of fiscal 2006. In North America, orders
have been increasing over the past year, but production
plants were unable to cope with increases in production
volume and were unable to fulfill their supply quotas in fis-
cal 2006. Consequently, production plants in Japan had to
cover their shortfall, and the products then had to be air
freighted. This abnormal situation not only resulted in unnec-
essary transport costs and production costs but also result-
ed in productivity at North American plants falling below
projections and a significant rise in fixed production expens-
es. Added to these was the negative effect of the appreci-
ation of the Canadian dollar on results.
To address this situation, AEC put in place emergency
measures to improve earnings. Specifically, we reviewed
product values and the possibilities of changing over to
alternative materials, based on value analysis (VA) and value
engineering (VE), and we undertook efforts to revise prices
of relays where profitability had been seriously impaired by
the surges in silver and copper prices. Furthermore, as for
the production framework, we also transferred production of
some of our products from North America to Japan and
China. In addition, we revised our logistics network infra-
structure and shifted operations from local production to
production in what we deemed to be optimal locations. As
a result of these measures, the operating income of AEC
improved dramatically in the second half of fiscal 2006 and
returned to the black.
Furthermore, to broaden the application of relays to other
areas, such as general consumer electronics and commu-
nications equipment, we launched the Relay Business
Improvement Project: a company-wide initiative under my
direct control that involved IAB as well as ECB. We have
also been promoting improvement in productivity not only in
North America but in other areas as well.
As a result, AEC’s operating income is gradually head-
ing in the direction of improvement in fiscal 2007, and we are
expecting a profit of ¥1.4 billion for the full year. However, in
contrast to AEC’s sales target of ¥100 billion, the level of
operating income is still far too low. I am determined to do
everything within my power, in cooperation with the entire
Omron Group and AEC, in order to improve income in a way
that will result in lifting the operating income margin in
excess of capital cost (about 6%).
Q.2For the past three years, AEC has remained in the red. Could you please
comment on conditions at AEC at present and what you are planning for
future measures to rebuild the segment?