Omron 2007 Annual Report Download - page 25

24
MARKET ENVIRONMENT AND KEY STRATEGY
Promoting Our High Value-Added Module Business
In 2006, Japan’s automobile production reached the
world's top spot, surpassing domestic output in the United
States for the first time in 13 years since 1993. Even though
Japan's domestic automobile market is reaching maturity, pro-
duction increased in 2006 mainly as a result of the growing pop-
ularity of Japan's fuel-efficient automobiles worldwide against
the backdrop of a surge in gasoline prices, triggering a rapid
increase in production of vehicles for export. Automobile pro-
duction is forecast to continue growing steadily on a global
basis, driven by the demand in Asia which is enjoying remarkable
economic growth. Japan’s automobile manufacturers are
responding by moving aggressively to build factories in emerg-
ing countries, focusing particularly on China, prioritizing on local-
ized production and procurement as well as enhanced cost com-
petitiveness. At the same time, intensifying competition to
develop a new generation of automobiles based on the themes
of environmentally friendliness, improved safety and comfort
has set the stage for car electronics demand to expand. AEC
expects the above trend will continue in the automobile industry
for the time being. We are taking advantage of the demand for
car electronic components driven by increased awareness for
automobile safety and environmental conservation by develop-
ing our business for tire pressure monitoring systems and other
high-performance component modules, while operating our fac-
tories in China to their full potential to meet local procurement
needs. Nevertheless, profitability has become an increasingly
significant challenge due to downward pressure on electronic
component prices and surges in raw material costs caused by
soaring silver and copper market prices.
BUSINESS RESULTS AND OUTLOOK FOR FISCAL 2007
Profitability Improvements Will Put Fiscal 2007
into the Black
In fiscal 2006, AEC recorded net sales of ¥93.3 billion (up
20.3% year on year) and an operating loss of ¥1.2 billion.
Despite the small increase in domestic automobile production,
expanded use of AEC products in new automobile models over-
seas enabled sales to exceed expectations made at the begin-
ning of the fiscal year. Particularly noteworthy was North
America, where our new products such as wireless control
equipment and power window switches enjoyed higher sales,
even though the auto sales performance of our main customers
was disappointing. Also, our manufacturing subsidiary in China,
which began full operation in January 2006, made an enor-
mous contribution to AEC's total sales growth. Earnings, how-
ever, were another matter. Although value analysis/value engi-
neering-based cost reductions, the relocation of some compo-
nent production and other emergency measures designed to
improve profitability did help earnings recover in the second
Yoshinori Suzuki, Managing Officer
Company President, Automotive Electronic Components Company
As automobiles make greater use of electronic components and become more sophisticated,
the Automotive Electronic Components Company (AEC) is increasing sales steadily under the
principle of meeting society's need for more secure, safe and environmentally friendly
products. With regard to the challenge of increasing profitability, positive results are being
seen gradually in tandem with a fundamental reform of our cost structure. Our goal is to
expand our business while maintaining a balance between growth and profits.
AUTOMOTIVE ELECTRONIC COMPONENTS BUSINESS (AEC)
Manufacture and sale of electronic components for automobiles