1
Oki Electric Management Strategies
February 7, 2003
Oki Electric Industry Co., Ltd.
http://www.oki.com/
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Table of Contents
1. Consolidated Earning Projections for the FY Ending Mar. 2003
2. The “Third Business Structural Reform Plan”
3. Outline of Businesses3.1 Information Systems3.2 Telecommunications Systems3.3 Electronic Devices
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Consolidated Earning Projections for the FY Ending Mar. 2003
367.4
347.4
345.0
335.0
181.9
113.6
130.0
125.0
144.8
103.2
90.0
85.0
46.1
40.2
55.0
55.0
0 250 500 750
FY endedMar/01
FY endedMar/02
Previousprojections
Currentprojections
Info systems Telecom systemsElectronic devices Others
(Billion yen)
(FY Mar/03)
(FY Mar/03)
(Oct. 31, 02announced)
Consolidated sales to the third party< Sales Projection> Approx. 600 billion yenSlower-than-expected market recovery, Increasing competitionsApprox 20B yen decrease from previously announced 620B yen sales projection
< Operating Income Projection> Gaining profitabilityGaining profitability as previously announced- Electronic devices will achieve operating income for thetotal year.
Negative factor:Reduction in marginal profits due to sales decrease
Positive factors:Reduction in fixed cost and additional cuts in various costsAccelerated conversion of fixed costs to variable costsWeak yen against Euro
< Net Income Projection> Break-evenAs previously announced, excluding write-down loss on marketable securities at the end of March 2003. Sales of assets are proceeding as planned.
Business structure is improved to gain profitability via reforms, though the market recovery is much slower than expected.
Approx. 600.0B yen
620.0B yen
604.5B yen
740.2B yen
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Consolidated Earning Projections by Business Segments
54.235.0
22.023.0
27.032.0
FY Mar/02 FY Mar/03 (proj.)
Enterprise NW
NCC NW
Core NW
103.2 90.0
(announced Oct. 31, 02)
Continued curb in carriers’ investments.
121.0 118.0
114.4 114.0
112.0 113.0
FY Mar/02 FY Mar/03 (proj.)
Printers
Info. systemssolutions
Financial systemssolutions(announced Oct. 31, 02)
347.4 345.0 335.0 billion yen
Favorable sales of low-price color printers.
57.9 70.0
25.029.0
4.0
22.027.08.7
FY Mar/02 FY Mar/03 (proj.)
OpticalcomponentsASDRAMs
System memoriesSystem LSIs,Logics(announced Oct. 31, 02)
113.6 130.0
Info
rmat
ion
Syst
ems
Tel
ecom
Sy
stem
sE
lect
roni
c D
evic
es
Systems for governments and travel industries extend to FY Mar/04. Withdrawal from unprofitable businesses.Financial institutions continue investment suspension. Sales contribution from ATMs for new bank notes.
85.0 billion yenSales reduction due to suspended investments in enterprises. Active inquiries in VoIP-related businesses.
Increased investments in legacy networks
125.0 billion yenContinued deterioration in both domestic and overseas markets. Enlarged operating lossDecrease in sales volume due to focusing on profitability.Favorable sales of P2ROM , etc.
Increased sales in sound generating LSIs and TFT drivers. Decrease in other consumer application LSIs.
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Aug. 20012nd Reform Plan
The “Third Business Structural Reform Plan”
1998 1999 2000 2001 2002 2003 2004 2005
Phoenix 21 Phoenix 21 Sky-HighSept. 1998
1st Reform PlanOct. 2002
“3rd Business Structural Reform Plan”
1. Complete the establishment of business structure flexibly responding to changes in market environment
2. Active investments in businesses with potential growth
Enhance Convergence of Information and Telecom Businesses• Focus on broadband and IP networks• Concentrate resources on financial solution business• Expand new network software and various network service businesses
Focus on system LSI business• Business expansion through alliances
Reform Business Structure• Telecom, Semiconductor, Optical components, Manufacturing Service Company
Implement urgent measures• Headcount reduction acceleration, Asset sales, Conversion of fixed costs to
variable costs
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Progress Status of the “Third Business Reform Plan”
Receive favorable orders for µPLAT. Alliances with Peregrine and THineSystem LSI business
Enhanced IPTPC* deployment, Realized AP@PLAT conceptNW-related software/services
Began support for new bank notes, Smooth promotion of new systems for local banks.Financial solutions business
Actively joining IP telephony projects by mega-carriers, Expand in CTI sales, Alliance with NEC, Expand network service business.
Broadband/IP network business
Convergence of info and communications businesses
Headcount reduction & fixed cost reduction are in progress as planned. Sold assets (Real estates of Shibaura and Koganei areas)Urgent measures implementation
Support new bank notes, Rise of EMS business, Accelerated headcount reduction as planned
Manufacturing service company
Structural reforms including alliances and some business sales in progress.Optical component business
Decoupled manufacturing from design and development.Restore profitability for operating income.Electronic devices business
Smooth progress. Reorganized companies, shifted resources and enhanced skill business.Telecom business
Business structure reforms
StatusItem
*IPTPC: IP Telephony Promotion Center
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New Office Map
To enhance convergence of information and telecom businesses, integrate engineering and SE divisions at Shibaura and Makuhari toWarabi areaDecaying buildings in Shibaura and Koganei increase maintaining costs.
Sell assets of buildings and estate in Shibaura and Koganei for reorganizing office mapAccelerate convergence of info. & telecom, create new business opportunities, and assure capitals for businessImprove cash flows by liquidating assets
Information systems Engineering / SE Div.
Info. Sales / SE DivTelecom. Sales / SE Div.
Telecom systems Engineering / SE Div.
Converged Info & TelecomEngineering / SE Div.Sales / Admin. Div.
Shibaura area Warabi area Makuhari area
Business Center(Shibaura area)
System Center(Warabi area)
Current
After reorganization
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Information Systems Business Strategies
IT market recovery begins in the 1st half of FY Mar/04, and full recovery is expected in the 2nd half of the FY Mar. 04 and beyond. Demands for replacement or recognition unit exchange for ATMs supporting new bank notes concentrate in during the FY ending Mar. 04.
IT market recovery begins in the 1st half of FY Mar/04, and full recovery is expected in the 2nd half of the FY Mar. 04 and beyond. Demands for replacement or recognition unit exchange for ATMs supporting new bank notes concentrate in during the FY ending Mar. 04.
Market
Financial system solutions thoroughly focus on system replacement of local banks and new bank notes related businesses (Smooth response to ATM replacement/recognition unit exchanges).Information system solutions will increase sales by focusing on systems for travel industry, e-government, and security-related businesses.Printer segment has actively begun color printer business. Increase sales and profitability by introducing new products.
Financial system solutions thoroughly focus on system replacement of local banks and new bank notes related businesses (Smooth response to ATM replacement/recognition unit exchanges).Information system solutions will increase sales by focusing on systems for travel industry, e-government, and security-related businesses.Printer segment has actively begun color printer business. Increase sales and profitability by introducing new products.
Focusing businesses
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Information Systems Business: ATMs Supporting New Bank NotesBusiness for ATMs supporting new bank notes has already started.Further accelerate the business in the FY ending Mar. 04. Replace 2K – 4K units/half year and re-model from 10K – 30K units/half year by the end of 1st half of the FY Mar. 05.Increase resources in manufacturing and for re-modeling
1H FY Mar/04
Oki’s plans
New bank notes
1H FY Mar/052H FY Mar/042H FY Mar/03
Dec. 02Start shipment of
supporting hardware
Approx. 800 units
Approx. 7,000 units
Approx 2,000 units
Approx. 10,000 units
3,000 - 4,000 units
20,000 - 30,000 units
3,000 - 4,000 units
10,000 - 20,000 units
New bank notes are to be issued(During the 1st half)
Introduction of supporting software
Note: Above unit numbers include ATMs, terminals at counters (cashers) and cash management terminals.
Replacement
Re-modeling
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Information Systems Business: Focus on Travel Industries
Expect further sales expansion in the FY ending Mar. 04, through ticket-issuing terminal technologies and strong relations with customers.
Increase market share of ticket-issuing terminalsIntroduce new products to existing and new customers
Expect further sales expansion in the FY ending Mar. 04, through ticket-issuing terminal technologies and strong relations with customers.
Increase market share of ticket-issuing terminalsIntroduce new products to existing and new customers
Promote new products including replacement of ticket-reservation terminals for existing large customers, call centers, and the Internet ticket-reservation sites.Provide solutions for e-airport
Promote new products including replacement of ticket-reservation terminals for existing large customers, call centers, and the Internet ticket-reservation sites.Provide solutions for e-airport
For airlines & travel agencies
Extend applications for “Multiple functioned KIOSK,” and expand sales to new customers including retail industry and longdistance bus companies.
Extend applications for “Multiple functioned KIOSK,” and expand sales to new customers including retail industry and longdistance bus companies.
Retails and other markets
Railways companies including JR accelerate automation of ticket issuing. Sales of “Online automated ticket-issuing terminals,”started in the FY Mar. 03, is expected to deploy nation wide.
Railways companies including JR accelerate automation of ticket issuing. Sales of “Online automated ticket-issuing terminals,”started in the FY Mar. 03, is expected to deploy nation wide.
For railways companies
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Information Systems Business: Printers
Introduce low-price high printing speed A4-size color page printers
Low price: $999 (street price, approx. 120,000 yen)High speed: 12ppm (color), 20ppm (black & white)Compact: Smallest and lightest in its class
Promote worldwide color printer and accelerate color printer business
Slower-than-expected penetration of color page printers at enterprises and SOHOs.
Major reasons for not using color printers• Expensive• Slow printing speed• Space limitation
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Telecommunications Systems Business Strategies
Real expansion and rapid market growth in IP telephony services
“050” phone number application started. (Sep/02)Market size: 200B yen in 2002
1 trillion yen in 2007
<Business Direction>Keep position of top vendor in IP telephony infrastructure constructionExpand business through VoIP applicationsExtend profitability through VoIP service businessEnhance partnership
<Sales Expansion in Broadband & IP>Enhance alliances both in domestic and overseas marketDevelop a common platform for the mega-carrier, NCC and enterprise markets
0
25
50
75
100
125
FYMar/00
FYMar/01
FYMar/02
FYMar/03
FYMar/06
Legacy phone NWIP NWBroadband (Optical access, xDSL)
(billion yen)
0
20
40
60
80
100
IP + broadband ratio Legacy phone ratio (% )
Sales ratio of broadband & IP
VoIP-linked applications
IP telephony
IP telephony/VoIP-linked Applications Market Projections
(Number of subscribers)
Oki’s calculation based on data from Fuji Chimera Research Institute and Nomura Research Institute.
(Source: Fuji Chimera)
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Telecom Systems Business: Focus on VoIP Applications
20012001 20022002 20032003 20042004 2005 2005 --
FUSION FUSION (Jan/01)(Jan/01)
Transmission type IP telephony service Phone-Phone type IP telephony service
YBB PhoneYBB Phone(Apr/02)(Apr/02)
ASPASP--type type phone modelphone model
IP telephony services
VoIP related technologies
IPv6IPv6
Expansion of services on VoIPRise of IP telephony services
Whenever, wherever, in right formats (ubiquitous)
Net appliance portalsNet appliance portals
New NW New NW communitiescommunities
SecuritySecuritySIPSIP
EntertainmentEntertainmentVoIP related applications and services
Net appliancesNet appliancesEducationEducation
Focus on VoIP applications developmentActive promotion of AP@PLAT
• High value-added services• Various VoIP environment• Ubiquitous network
VoIP expansion
Expand VoIP applied areas
VoIP application service examples
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Telecom Systems Business: Promotion of CTstage
Customer Contact CenterElectronics maker “A” Enhanced CRM by outbound call center constructionOffice supply “B” Established customer center handling 130,000 kinds of questionsShinkin Bank “C” Integrated telemarketing, auto-calling, and tele-bankingAV maker “D” Established knowledge type CRM by integrated call center
Office CommunicationsOffice document “E” Established voice/data integrated messaging system for 6000 employeesTrading “F” Constructed fax mail system, enabling to send fax from emailR&D Center “G” Send cancer related information to specialists by phone, fax, and the
Internet
Improve carriers ServicesCarrier “H” Enhanced mail receiving function of mobile phone on the Internet
service, “Dot i”
Enhance business promotion to expanding call center/multimedia markets
Made an alliance with Microsoft for “.NET” strategy, and enhanced CTI/IP communications business
Customer Examples
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AllianceVoIP solutions with high voice quality and abundant implementation experiences.CTI solutions enabling to provide delicate supports matching customers requirements
Oki’s strengthsOki’s strengthsSystem integration of large-scale voice networks and voice/data integrated networksBroadband wireless solutions
NEC’s strengthsNEC’s strengths
Alliance in IP telephony system mainly for enterprise network area
Joint operation of the IP Telephony Promotion Center (IPTPC)Joint promotion of the interoperability verification and joint development of interface protocol implementation guideMutual supply of VoIP/CTI-related productsJoint development of IT application platform for IP telephony
Telecom Systems Business: Alliance with NEC
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Electronic Devices Business Strategy
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
Q10
1
Q20
1
Q30
1
Q40
1
Q10
2
Q20
2
Q30
2
Q40
2
Q10
3
Q20
3
Q30
3
Q40
3
Worldwide Electronics System Factory Revenue
Source: iSuppli
Silicon Manufacturing Company Business Strategy
Use in-house fab for proprietary and unique products (SOI/SOS, P2ROM, FeRAM)Expand in-house capacity for high value added products (i.e. W-CSP, advance MCP)Effectively use external capacity for wafer fabrication capacity needs
Silicon Solutions Company Business Strategy
Personal and mobile markets (System LSIs)Short TAT (P2ROM), Tailored to customer needs (ASDRAM)Emphasis on software and IP service businesses
Optical Components Company Business Strategy
Recovery of North American telecom market cannot be expected until the FY ending Mar/05 and beyond. Sell part of the business and form alliances by the end of the FY Mar/03
Semiconductor market Market recovery is expected in the 2nd half of
CY03
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Electronic Devices Business: Business Structure ReformDecoupled manufacturing from design and development
and Established two in-house companies (Since Oct. 2002)
Business Structure
Marketing゙Sales
Design
AS-LSIBusiness
System LSIBusiness
Unique technologies,Low cost, Short TAT,
Skills for handling small volume and
wide rage products
Unique products,No.1 in niche market,
Established track records and credibility
Software, IPs,Customer satisfaction,
Services
Silicon Solutions Company (SiSC)
Semiconductor Manufacturing Company (SiMC)
AdvancedGSMC
Capacity ProcessProcurementManufacturing AS-LSI
BusinessFoundryBusiness UMC
Additional
ARM
CADVendors
R&DPartners
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Electronic Devices: Emphasis on Ultra Low Power Consumption Technology
First runner in CMOS development
1990s
Ultra-low power consumption 1970s
2003~Lower power consumption and superior RF characteristicsSOS
Low power consumption
Expand advantage in ultra-low power technology
Ahead in ultra-low power SOI over competition
Additional differentiation technologies to SOI
Application example : Solar powered Atomic Timekeeping Watch
Enhance Oki’s Semiconductor business strategy – “Mobile and Personal”
SOI
CMOS
Partnership with Peregrine Semiconductor on SOS (Silicon On Sapphire) Technology
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Electronic Devices Business: Sound Generator LSIs for Mobile Phones
High quality and natural sound by wave table sound source (record original sound of instruments)175 timbresCompliant with standard MIDI File (SMF) and other various formatsUltra-small W-CSP(Wafer-level Chip Size Package) packaging
Establish business base through an alliance with contents providers
Global mobile phone subscribers
Sound Generator LSI ML 2860/2870
Target the GSM market
0
100
200
300
400
500
2000 2001 2002 2003 2004
OthersGSM3GCDMAPDC
(Million)
CDMA (Japan & Korea): Matured market and unique music formatCDMA (China & US): Market is just about to pick up and Standard MIDI File (SMF) format for music
PDC (Japan): Matured market (all handsets equipped with a sound generator chip)and unique music format
GSM (Japan, US, Europe, Korea, China): • Only 7% of handsets installs sound
generator chip• Standard MIDI File (SMF) format is
mainly used.
Focus
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Glossary
* The projections and plans on this material are subject to change depending upon the changes of business environments and other conditions.
P4 ATM Automated Teller MachineNW NetworkVoIP Voice over Internet ProtocolNCC New Common CarrierASDRAM Application Specific Dynamic
Random Access MemoryP2ROM Production Programmed Read Only
Memory TFT Thin Film Transistor
P5 IP Internet ProtocolLSI Large Scale Integrated circuit
P6 EMS Electronic Manufacturing Services CTI Computer Telephony Integration
P7 SE System EngineerP8 IT Information TechnologyP11 SOHO Small Office Home OfficeP12 xDSL x Digital Subscriber Line P13 ASP Application Service Provider
SIP Session Initiation ProtocolIPv6 Internet Protocol Version 6
P14 CRM Customer Relationship Management
P15 SI System IntegrationP16 SOI Silicon on Insulator
SOS Silicon on Sapphire FeRAM Ferroelectric Random Access Memory W-CSP Wafer level Chip Size PackageMCP Multi Chip PackageWP Wafer Process
P17 TAT Turn Around TimeAS-LSI Application Specific LSI CAD Computer Aided Design UMC United Microelectronics Corporation GSMC Grace Semiconductor Manufacturing
CorporationP18 CMOS Complementary Metal-Oxide
Semiconductor P19 GSM Global System for Mobile
Communications 3G 3rd Generation CDMA Code Division Multiple Access PDC Personal Digital Cellular SMF Standard MIDI File
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