What are the results of the Service Assurance Business for FY2007, and what is the outlook of the business?

Our "Tier 1 Strategy", which targets major telecom operators has produced good results primarily from the EMEA* region. Thus, sales in this business for FY2007 is expected to be much better than previously predicted. Since the Service Assurance Business is likely to turn profitable in the the second half of FY2007, we expect that the business will continue to be profitable throughout FY2008 and perform even better. We are now offering initial-phase solutions customized to meet specific demands from our individual customers, and the costs for such customized development are being incurred. From now on, revenues in this field is anticipated to improve as we operate the business under more thorough project management.

What is the outlook for the domestic market in FY2008 and beyond?

The results for NGN-related business has so far been somewhat disappointing, but we are expecting Japan market for NGN to grow from the second half of FY2008 with NTT launching its NGN service. With respect to mobile phone-related business, brisk sales in FY2007 associated with the release of NTT DoCoMo's 905i series has leveled off; however, we expect the demand for measuring instruments for next generation LTE (Super3G) to increase from the second half of FY2008. The use of wireless communications technology is now expanding into non-communication fields, such as automobile electronics, information home appliances and video game consoles, and we would like to develop new markets in those broader fields.

LTE is much different from existing communications systems in terms of technology, and consequently you will see new demand for measuring instruments for LTE. What is your prospect?

NTT DoCoMo has maintained a technological lead among its global competitors, and other Japanese manufacturers too are embarking more swiftly onto LTE, compared to handset manufacturers outside Japan. We consider the demand for measuring instruments used for LTE development to be an important factor to the outcome of FY2008. We also have been offering measurement solutions for WiMAX, another standard which has been reported in the media. However, it appears that LTE is more likely to spread because the market seems to have stronger needs for LTE rather than WiMAX. In any case, the introduction of new technologies will give us more opportunities to utilize our technological advantage.

What is the outlook for the performance of your new products in FY2008 and beyond?

We have developed new general-purpose products in the fields of ultra high-speed digital testers and signal analyzers, and continued to add new functions to them to meet demands from our customers. Such functional expansion has been completed for the most part, and we are now beginning to obtain increased orders from our customers. Thus, we expect increased sales of these measuring instruments in FY2008 and beyond, which will be in part boosted by the planned enhancement of our marketing function.

Please provide details for possible improvement in profit through the initiative for organization reform.

The purpose of our initiative for organization reform lies in building a profitable business structure that targets to approach an operating margin of 10%, amid difficulties in achieving annual sales of 120 billion yen in FY2008, as stated in "GLP2008," our mid-term business plan ending FY2008. Please refer to slide 20 for detailed income and expense structure that we aim to build.

Please provide a breakdown for the cost of 3.5 billion yen associated with the initiative for organization reform.

We are going to appropriate 2.5 billion yen as non-operating expense for inventories and remaining 1 billion yen as extraordinary loss. The non-operating expense of 2.5 billion yen mainly consists of loss on disposal of inventories stemming from discontinued sales of low-profit product lines, but it also includes devaluation of inventories due to the spin-off of our Precision Measurement Business.

Please explain about "supply chain reform" and "efficient R&D" in your initiative for organization reform.

As part of our supply chain reform, we will concentrate our manufacturing control and material purchase functions, which are currently managed at our head office in Atsugi, into Tohoku Anritsu Co., Ltd., a manufacturing subsidiary of Anritsu Corporation, in order to improve cost competitiveness. However, this does not mean all of our products will be manufactured by the subsidiary: we are also studying an option of producing outside Japan at lower cost.
Concerning R&D cost, we are going to allocate our development resources on a preferential basis to the development projects which are expected to yield high returns, within our total amount of investment based on the ROI index. This prioritized allocation will improve the development efficiency, leading to reduction in fixed costs in FY2008 and the subsequent fiscal years.

What will be the effect of spin-off of the Precision Measurement Business?

The Precision Measurement Business was slightly in deficit in FY2006, and the business in FY2007 has been so far incurring greater deficit. However, our new type of solder paste inspection system, released in January 2008, utilizes EMS and is cost-competitive. After the spin-off of the business, we will strive for a profitable operation centering on such new products.

If the targets for FY2008 are to be set as 3% year-on-year sales growth and 8% operating margin, that will mean the operating income for FY2008 should be 8.5 billion yen (increase of 3 billion yen from FY2007). What are the expected source of income, besides increased revenues through a reduction in fixed costs?

We forecast a total of approximately 1 billion yen of reduction in fixed costs. This will be made through efficient R&D as mentioned above, and optimum allocation of human resources by integrating and streamlining our organization, along with other measures. In addition, we expect improvement in cost to sales ratio and increased revenues by obsoleting low-profit product lines and cutting costs.