Alpine Electronics, Inc. Business report FY2006

Business Highlights

Financial overview
In million JPY FY2006 FY2005 Rate of Change Factors
Sales 265,054 253,983 4.4% Positive currency translation due to the weaker yen and other factors contributed to the increase in sales and income.
Operating income 10,110 9,671 4.5%
Ordinary income 12,015 10,355 16.0%
Current net income 5,729 6,175 (7.2)% The Company posted a 1.7 billion JPY extraordinary loss for a loss the Company incurred the previous year connected to aftermarket products. It also posted a 600 million JPY extraordinary loss it paid in making a transfer price adjustment for income tax penalties; and for other loss items.
Audio systems division
Sales 130,090 129,742 0.2% -Despite decreased sales in Europe, sales to automakers in general remained favorable due to strong sales of "CD audio systems" for Japanese automakers' strategic vehicles marketed globally and "DVD audio" equipment that is compatible with new types of media.
-Many vehicles are being equipped with in-vehicle information communication system these days. This is causing the auto industry to switch from standard car audio systems to multi-functional systems in which car-navigation systems are the central component.
Operating income 9,961 8,258 20.6%
Information/communication systems division
Sales 136,108 126,371 7.7% -Though sales to US automakers decreased, those to Japanese automakers remained strong.
-Greater sales of products being equipped on new car models that were launched in the second half of the year contributed to the sales increase.
Operating income 8,856 9,217 (3.9%)

Performance by region

Sales of mainly car navigation systems destined for export increased.

Sales of car navigation systems to Chinese automakers remained strong. Sales also increased at production subsidiaries in Thailand and China.

<North America>
Though sales for US automakers decreased, those for Japanese and European automakers remained strong.

Though the sales of CD players to automakers decreased due to vehicle model changes, income increased because of the favorable sales of information displays and car navigation systems. However, the overall operating income decreased because of depressed prices as a result of severer price competition.

Production structure
The Company increased the number of personnel as well as the amount of capital investments it made in its production facilities in Dalian and Taicang, China; as well as in Hungary, and Mexico. It is working to enhance its development capabilities through investment as well as improve its income and cost structures.

Challenges for FY2007

- To continue active investment in the area of information/communication systems, especially navigation systems, of which the market is expanding. In addition, to improve efficiencies in the area of R&D by strengthening its software development facility in China.
- To boost its product quality aimed at a level more than ten times the current one in order to achieve a higher level of customer satisfaction. Also, to improve the Company's profit and cost structure in order to create a more solid management base.


Out of the total amount (28,723 million JPY), 7,017million JPY was spent for the Audio System Division and 21,706million JPY for the Information/communication System Division.

R&D Structure

The Company and Information-technology Promotion Agency, Japan (SEC) have launched a joint research on methods of developing software embedded in car navigation systems more efficiently. As navigation systems are becoming increasingly sophisticated, software development process is becoming more and more complex requiring many man-hours. The Company and SEC aim to standardize the development method in order to prevent programming glitches and reduce development lead-time. (From an article in the Nikkan Jidosha Shimbun on Oct.7, 2006)

R&D Achievements
Information/communication System Division.
-The Company worked on research and development activities on AVNCDA systems which integrate the following individual components: an audio visual system (AV), a navigation system (N) , an information communication system (C), and a drive assist system (DA).
-The Company is working to develop fully commercial AVNC systems. These systems are planned to be gradually introduced into the market starting from Spring of 2007.

In the "Drive Assist (DA)" business that deals with driver-support systems, the Company is working to develop systems that further reduce the load on drivers. These include systems that display information about the vehicle's surrounding environment, information communicated among vehicles; and information communicated between vehicles and roadway infrastructure facilities, providing a product interface that makes it easier on drivers. In these areas, the Company will speed up product development work and market launches by conducting joint research activities with automakers as well as building a driving course to test and evaluate new DA systems.

Licensing Agreement (as of March 2007)
Contract signed with Country Contract details Contract period
Laboratories Licensing Corporation
U.S.A. Licensing of patent rights related to noise reduction devices for tape recorders etc.
From Jan. 1, 1977 until the termination of patent period
Koninklijke Philips Electronics NV.
Netherlands Licensing of patent rights related to DVD players
From Oct. 12, 1999
To Oct. 11, 2009
Thomson S.A.
France Licensing of patent rights related to DVD players
From Oct. 1, 2000
To Sep. 30, 2005
After that, renewed every 5 years automatically.
Toshiba Corporation
Japan Licensing of patent rights related to DVD players
From Dec. 31, 2000
To Dec. 31, 2007

U.S.A. Licensing of patent rights related to DVD players
From Jan. 1, 2002
To Dec. 31, 2010

Investment Activities

Total capital investment in FY2006 was 12,619 million JPY.

Audio Systems Division
- Capital investment in FY2006 was 7,316million JPY.
The Company invested 2,142 million JPY for tangible fixed assets, mainly dies; and 1,687million JPY to develop software.
The Company invested 1,024 million JPY for production facilities in Hungary to strengthen its product supply structure. This included changing to direct delivery to automakers.
Invested 235 million JPY for production facilities in North America to reinforce production functions such as starting in-house production of nose pieces.
The Company invested 294 million JPY in its production facility in Thailand, Alpine Technology Manufacturing (Thailand) Co., Ltd., to install new equipment that enables the Company to increase its production volume. The investments made in Thailand will also be used to improve the environment.
Invested 728 million JPY in its Chinese production facility, Taicang Alpine Electronics Co., Ltd., to acquire production facilities to handle production increases.

Information/communication Systems Division
- Capital investment in FY2006 was 5,303million JPY.
- Development of new products, expansion and rationalization of production:2,017 million JPY.
- Construction of the information network within the Company: 1,589 million JPY.
- Reinforcement of production capacity in North America: 443 million JPY.

New Facility
Type of facility Planned investment amount (million JPY) Starting date Planned completion
Alpine Electronics, Inc.
Iwaki Plant (Iwaki city, Fukushima Pref.) buildings
631 Apr. 2007 Mar. 2008
machinery/ apparatus 712
Industrial tools, equipment, and dies 3,977
Alpine Electronics manufacturing of America Inc.
Head office & plant
(Torrance, USA)
Industrial tools, equipment, and dies 201 Apr. 2007 Mar. 2008
Alpine Electronics Manufacturing of Europe LTD.
Head office & plant (Biatorbagy, Hungary) machinery/ apparatus 513 Apr. 2007 Mar. 2008
Alpine Electronics (Dalian) Co. Ltd.
Head office & plant
(Dalian, China)
machinery/ apparatus 1,132 Apr. 2007 Mar. 2008
Taicang Alpine Electronics Co., Ltd.
Head office & plant
(Taicang, China)
machinery/ apparatus 686 Apr. 2007 Mar. 2008