Financial Overview

( in million JPY )

	FY2008	FY2007	Rate of change	Factors
Overall
Sales	181,554	246,806	(26.4)	In the first half of the year, sales in the OEM market in North America were sluggish. Overall, however, sales of non-factory-installed products remained strong, especially in Japan, where the Company sells car navigation systems to auto dealers. In the latter half of the year, however, the economic slowdown forced consumers worldwide to stop buying vehicles, and automakers in and outside Japan to start cutting their production volume. After that, the company's sales volume of optional equipment to car dealers in Japan also decreased, product selling prices in the consumer markets in Japan and other countries decreased, and sales volume dropped. Overall, income decreased.
Operating income	(12,449)	5,465	-	The Company successfully reduced its sales and general administration costs by cutting fixed costs and capital investments, but it ended up reporting a loss because of huge increases in materials prices, a change in its product mix, and a rise in its cost structure, all attributable to auto production curtailments and the resulting need for automakers to control their inventory levels.
Ordinary income	(14,619)	4,986	-	The Company reported a huge loss because of negative currency translation resulting from a sudden appreciation of the yen.
Net income	(19,987)	1,378	-	-
Automotive equipment business
Sales	157,552	217,522	(27.6)	The Company gained new commercial rights in the U.S.A., which contributed to additional sales. In the first half of the year, it increased sales of non-factory-installed products to car dealers in Japan. But due to a downturn in the automotive market, sales decreased.
Operating income	(14,491)	4,330	-	The Company lowered selling prices, needed to curb its production volume, and adjusted its inventory level in response to automakers' lowering their production volumes and to the continued high prices of materials. As a result, it reported a loss.

Merger and Absorption of Xanavi Informatics

The Company and its 100% subsidiary, Xanavi Informatics Corp., announced on Sep. 24, 2008 a basic agreement on their amalgamation as of April 1, 2009. Since approx. 63% of Clarion's shares are owned by Hitachi, Ltd., amalgamating Xanavi seems to be aimed at enhancing Hitachi Group's in-vehicle information device business. The method of this amalgamation is absorption of Xanavi by Clarion as the surviving corporation. Clarion made Xanavi its fully-owned subsidiary in January 2007. They have made efforts to maximize the synergy effects, aiming at growth in the business environment with rapidly advancing in-vehicle information technology and its globally expanding market. Both companies' products and engineering capability will be integrated to develop new markets while maintaining their current markets focused on car navigation systems. According to Clarion, the new company will make efforts in expanding business domains through integrating technologies in ITS (Intelligent Transport Systems) and vehicle control and hard efforts will be made in developing new business in retail and special equipment markets, making full use of technologies in navigation systems, to develop solution related business. (From an article in the Nikkan Jidosha Shimbun on Sep. 25, 2008)

Commercial Agreements

- Mitsubishi Motors

The Company announced in Feb. 2009 that it has supplied the in-vehicle car navigation system compliant with Intelligent Transport System (ITS) to the "i Smartway" that Mitsubishi Motors has developed as an experimental vehicle for ITS, and also the in-vehicle camera system to the "DelicaD:5." The i Smarway was developed by Mitsubishi for a government and private joint experimental project "ITS-Safety 2010." Its car navigation system operates in conjunction with an in-vehicle device based on the Dedicated Short Range Communication (DSRC) system. Driving assistance information is given to a driver by image and voice. In-vehicle CCD cameras and the image processing system are supplied to the DelikcaD:5. CCD cameras with 250,000 pixel are installed at four positions in the front, rear, left and right of the vehicle. The image processing control unit equipped with a function to detect approaching vehicles allows a 3-dimensional overhead image to be displayed on the screen. Technology to detect approaching vehicles at real time was developed by Mitsubishi and incorporated into the control unit by the Company. (From an article in the Nikkan Jidosha Shimbun on Feb. 27, 2009)

- Fuji Heavy Industries

The Company announced that it started supplying car navigation systems to Fuji Heavy Industries Ltd. for the Subaru Forester for China on an OEM basis. The supply started in June with a plan to annually deliver 1,500 2-DIN all-in-one AV navigation systems in fiscal 2008, and 3,000 to 4,000 units in and after fiscal 2009. The unit for the Forester in China will be a 6.5-inch touch screen car navigation system with DVD/CD/MP3 players, which uses a GPS, gyro sensors and vehicle speed sensor to measure position of a vehicle. (From an article in the Nikkan Jidosha Shimbun on Jul. 9, 2008)

- Shanghai GM

The Company began in June to supply in-vehicle cameras for rear-view recognition to Shanghai GM, a major automobile joint venture between GM and Shanghai Automotive Industry, the company announced in July 3.The Company aims to enhance its brand recognition in the Chinese automobile market, as it is making greater efforts to market rear-view recognition cameras, as well as to increase compatibility of cameras with other in-vehicle devices such as the DVD system, targeting Chinese automakers. The Company will supply to Shanghai GM cameras and devices combined with the DVD system, which are expected to amount to about 140,000 during this fiscal year. (From an article in the Nikkan Jidosha Shimbun on Jul. 4, 2008)

Business reorganization initiatives

The Company is set to undertake emergency structural reforms in the face of a changing business environment impacted by the slowdown in automobile sales worldwide, the Company announced in Jan. 2009. While transferring a function of developing established commodities to overseas countries like China, the Company will concentrate its management resources on development of high value-added products so as to strengthen the OEM business. In line with shrinking sales, it will slash the overall global production capacity by 30 percent. The plant in Mito will be consolidated to the plant in Koriyama, turning the number of domestic plants to only one by Dec. 2010. In Thailand, construction of a new plant will be postponed, and existing overseas production facilities will be reorganized or closed. The Company will also adjust its workforce to appropriate levels. As part of reorganization, it will cut the number of employees from the current level of 12,000 to less than 9,000 by the end of Mar. 2010. In addition, wages and compensations for executives and management level staff will be reduced. (From an article in the Nikkan Jidosha Shimbun on Jan. 30, 2009)

Business plans by product

-Automotive audio system with an in-dash display panel

The Company will start marketing an automotive audio system with an in-dash display panel in next fiscal year in North America, where an adoption of legislation to require a rearward visibility standard for all vehicles is now under study. There will be a growing need for a rear vision camera and car audio unit with an integrated display panel, in response to the move for the legislation. It intends to sell the unit with a monitor designed exclusively for the purposes of displaying the vehicle rearview captured by the rear vision cameras and offering a function to visually control the audio unit. By offering the solution with simplified functions at lower cost, the Company intends to expand sales mainly for lower-priced vehicles. The products will be sold directory to automakers on an OEM basis as the car audio units with display panels interface with the rearview cameras. But details about automakers to which the supplier is to deliver the products remains undisclosed. (From an article in the Nikkan Jidosha Shimbun on Nov. 17, 2008)

-CMOS sensor-based camera

The Company will make a full-scale entry into the CMOS sensor-based camera field in the in-vehicle camera business. CMOS sensor cameras can be mass produced and marketed at lower price. The Company currently has in-vehicle camera production lines in Japan and China. It will make the Chinese facilities a center for manufacturing CMOS cameras. While the company will continue to produces CCD cameras in both countries, it will launch production of CMOS cameras, demand for which is expected to increase in Europe, the U.S.A., and other countries, in order to expand the in-vehicle camera business. This strategy is supported by the fact that CMOS cameras are suited for high-quality mass production in emerging countries as well as they can be made at lower cost, because the production process of CMOS cameras is simpler than that of CCD cameras. (From an article in the Nikkan Jidosha Shimbun on Aug.20, 2008)

-Navigation systems

The Company is trying to win a position of the main global supplier of navigation systems to Ford. In this fiscal year, the Japanese supplier has been nominated as the main supplier of navigation systems to Ford for its North American models. And the supplier is now planning to make aggressive presentations of its memory-based stationary car navigation systems with an aim to become the main supplier of systems for Ford's European cars. (From an article in the Nikkan Jidosha Shimbun on Jul. 10, 2008)

The Company plans to increase the global market share of its stationary-type HDD navigation systems to 15% in FY 2010, from approx. 10% at present. This fiscal year, the Company also plans to increase its supply to the current major clients including Nissan, Honda and Suzuki. By expanding its business based on OEM overseas, it aims to develop a stable profit structure on a global basis. Of its OEM products, which currently accounts for approx. 60% of its sales, a half is supplied to Nissan, followed by Honda and Suzuki. Although its OEM supply to Ford has been very limited, the Company expects to increase it to the second largest level after Nissan by becoming Ford's major supplier. It also plans to increase business with Renault. The company aims to make its OEM business big on a global scale in FY 2010 with Nissan, Ford, Honda, Suzuki and Renault. (From an article in the Nikkan Jidosha Shimbun on May 27, 2008)

R&D Expense

( in million JPY )

	FY2008	FY2007	FY2006
Amount	1,596	2,255	975

*They are not classified by division as most of the investment was spent on either development of fundamental technology or on cross-divisional technology covering more than one business segment.

Recent developments

(1) The Company worked on developing parking and driving assist systems that incorporate onboard cameras.

Also, the Company developed technology to process images displayed overhead, naming this technology ASIC (Application Specific Integrated Circuit) for overhead view monitors (OVMs).

The Company is developing new in-vehicle cameras, which are capable of capturing images that cover an area of more than 190 degrees wide. In addition, the Company is developing technology to detect approaching objects in order to support safer driving at blind corners.

In the future, the Company will make its in-vehicle cameras: (1) CMOS sensor-based, (2) more compact, and (3) lower cost. It plans to combine these features with image recognition technology developed by Hitachi, so as to enhance its technological capabilities in the area of ITS and assist vehicle parking and promote safer driving.

(2) For superior sound in onboard devices, the Company is developing the following:

-Automatic volume control, which automatically sets the optimal volume of sound.

-Technology to improve and correct sound quality when compressed audio sources are played.

-Technology to tune the volume and frequency of sound, so as to provide higher quality sound that best matches the properties of the speakers being used and the auditory perception of the human ear.

(3) Development and commercialization of audio system with visual display

In the fiscal year ending in March 2010, the Company will introduce a new audio system with visual display in the market. The new system, which will be equipped with an LCD panel, is capable of playing compressed audio sound bytes on CDs and receiving digital radio waves. It can be connected to several types of portable audio players and USB memories while accepting images from in-vehicle cameras.

(4) Mobile Internet Navigation Device

The Company introduced its Clarion MiND (Mobile Internet Navigation Device) in 2008 in the North American consumer market. This device will seamlessly link the outside and inside of vehicles. The Company will launch it in the European consumer market in the future.

R&D highlights (as of March 2009)

The Company made clear that the new 2009 spring models of its car navigation systems will conform to probe information. The Company, which is in the Hitachi Group, is using probe information being collected by Hitachi Ltd. for its car navigation systems. Applicable systems will be not only new models, but also those capable of using service by way of the Internet. The service is expected to be expanded. It will be the second car navigation maker next to Pioneer to expand the model lineup compatible with probe information. (From an article in the Nikkan Jidosha Shimbun on Feb. 23, 2009)

The Company plans to launch in fiscal year 2010 a new car navigation system it is jointly developing with Xanavi Informatics Corporation (Zama City, Kanagawa Prefecture). Based on a merger plan under which it will absorb Xanavi effective April 1 this year, the Group will accelerate development of the navigation device by riding on the resulting synergies. The new navigation product will fall into a new category of mass-production model available at lower price. The navigation uses solid state drive (SSD) flash memory system and runs on the widely used Windows Automotive operating system, which will make introduction to the overseas markets easier. With an aim of developing the new navigation system as one of its global strategic products to generate solid profits, the company will work on reducing development costs and improving its competitive edge. (From an article in the Nikkan Jidosha Shimbun on Feb. 18, 2008)

Technology Licensed-in (As of Mar. 2009)

Partner	Country	Outline of tie-ups	Contract period
Discovision Associate	U.S.A.	licensed patent on manufacturing optical disc players	Dec. 1, 1994 to the patent expiry date
Koninklijke Philips Electronics NV	Netherlands	licensed patent on DVD products	Apr, 1, 2003 - Mar. 31, 2008
Vehicle Information and Communication System Center	Japan	license on the use of VICS technical information	Nov. 28, 1995 - expiry date agreed by two parties

Capital Expenditure

( in million JPY )

(in millions JPY)	FY2008	FY2007	FY2006
Investment	5,796	6,855	6,074
Automotive equipment	5,487	6,352	5,666

Investment in FY2008(Auto parts business)

-Installing additional equipment to increase production capacity; and purchasing new dies to cope with model changes at its plant in China.

Investment activities outside Japan

-Thailand

The Company announced a plan to build a new car audiovisual product manufacturing plant in Rayong, Thailand, and start its operations in December 2009. The construction of the new plant will allow the company to expect to acquire new business in ASEAN countries, where automotive markets and demands for OEM products are growing. It is also looking to diversify risks effectively by lowering concentration of overseas production in China. The new plant will annually produce and sell approximately 1 million sets of products, mostly automotive audiovisual devices, for the domestic market in Thailand, as well as export markets in India and other countries. SIAM CM Electronics Co., Ltd. (SCE), its local production and sales company, will place new issues. Then the Company will take up all the new shares to raise its ownership to 80%, from 45%, and make the equity method affiliate its new subsidiary. (From an article in the Nikkan Jidosha Shimbun on Aug.1, 2008)