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5. Alps Alpine Co., Ltd. (Formerly Alps Electric Co., Ltd.) Business Report FY ended Mar. 2018

Alps Alpine Co., Ltd. (Formerly Alps Electric Co., Ltd.) Business Report FY ended Mar. 2018

Factors

1)Electronic Components - Automotive market
-In the fiscal year ended in March 2018, sales in the electronic component segment were JPY 514,031 million, a 17.4% year-over-year (y/y). In the automotive market, companies strengthened their CASE-related development activities and this led to greater need for electronic parts. Overall, sales of modules including electronic shifters and door modules, high-frequency products for communication such as Bluetooth, W-LAN and LTE, and various in-vehicle devices such as sensors were strong. Sales of automotive components increased 10.6% y/y to JPY 283,200 million.

ｰThe target in the eighth mid-term management plan were achieved during the fiscal year ending in March 2018.
Target: "GT510"（Sales of JPY 500 billion and operating profit ratio of 10%)

2)In-vehicle information devices business (Alpine)
-In the fiscal year ended in March 2018, sales in this business segment were JPY 267,638 million, up 10.5% y/y, with operating profit of JPY 13,735 million (up 144.2% y/y). In the car electronics market, collaboration is growing between the two main areas, i.e., the in-vehicle information segment, in which infomainment systems form the core product range; and new business areas such as automotive electrification, autonomous driving and artificial intelligence (AI), as examples. However, competition in this business segment is heating up, going beyond only the kinds of business areas and business models. Faced with this situation, this business segment advanced structural reform to establish its business foundation. Specifically, the Company absorbed a domestic technology development subsidiary under the 14th mid-term business plan for the three years from April 2017, and made efforts to improve productivity of three domestic production subsidiaries it merged at the start of the fiscal year.
ｰThe Company strengthened capital and business tie-ups with C's Lab Co., Ltd., with the aim of enhancing performance and quality of software, making C's Lab its subsidiary. The Company started joint development of HUDs using three-dimentional AR (augmented reality) technology developed by Konica Minolta, Inc. aiming at commercial production.
ｰThe Company started sales of Alpine Style customized cars as a new business.
ｰSales of Alpine brand products designed for each vehicle model in the domestic comercial market increased; and sales of genuine products for European automakers increased in China.
-Japanese yen was weaker than the initial forecast at the beginning of the fiscal year. Sales exceeded the initial expectations.

Medium and Long-term Management Strategies

Eighth Mid-term Management Plan (April 2017-March 2019)
-Aiming to become a "Company with Sustainable Growth", the Company will focus on three sectors: automotive, mobile and EHII (Energy, Healthcare, Industry and IoT).

In the automotive market, the Company will develop component sensors including input modules of operations around the cockpit, various communication modules for connected cars and other sensors to reduce fuel consumption and improve safety. In order to secure sources of profit, the Company will improve profitability of automotive products business in addition to its mainstay smartphone-related products.

＜In-vehicle Information Devices＞
ｰDesignating the three years from April 2017 as the period for corporate restructuring to achieve Vision 2020, the Company has worked out the following strategies:
1. While continuing investments in the R&D of information and communication devices business, focusing on new fields such as the products connected to smartphones and new HMIs
2. Improving quality and enhancing price competitiveness through reforms on the product structure, design process and production management
3. Optimizing the development, procurement, production and sales globally

Business Integration with Alpine Electronics

ｰThe Company announced it will advance business integration with Alpine Electronics, Inc. to deal with the trend of CASE. The two companies will be integrated in January 2019 under the corporate name Alps Alpine Co., Ltd.
Alps Electric's sensing device and communication device technologies and Alpine Electronics' software technology will be integrated to provide total solution of in-vehicle information systems.

-The Company announced it will integrate its operations with Alpine Electronics, Inc. (Alpine). The Company will turn Alpine into a wholly-owned subsidiary through an exchange of shares. Alps Electric will shift to a holding company structure in April 2019. As a result of the business integration, the Alps Electric Group will have sales at a level of JPY 1 trillion. Amid the increased electrification of automobiles in recent years, the two companies' automotive businesses have increasingly overlapped. Because of this, Alps Electric and Alpine will integrate their operations to strengthen their automotive business and improve operational efficiency. Alpine's common shares are scheduled to be delisted from the stock market at the end of 2018. (From an article in the Nikkan Jidosha Shimbun on July 28, 2017)

ｰAlps Electric Co., Ltd. and Alpine Electronics, Inc. announced On February 27 that they will change their business integration scheme. While the two companies previously announced their plan to conduct business integration under a holding company structure, they decided to establish an operating holding company and an in-house company system. The date of the merger was moved up from April 1, 2019 to January 1, since the business environment faced by the automotive and other industries is changing significantly. Alps Electric's trade name will be changed to Alps Alpine Co., Ltd. (Alps Alpine). The two companies' common functions like administration, global business planning, and other strategic and planning functions will be integrated in Alps Electric (Alps Alpine). New in-house companies that will be established are Alps Company for electronic component business, and Alpine Company for automotive information equipment business. (From an article in the Nikkan Jidosha Shimbun on February 28, 2018)

>>>Financial Forecast for the Next Fiscal Year (Sales, Operating Income etc.)

R&D Activities

Electronic Components - Automotive market

-The Company develops products using HMI (Human Machine Interface) technology and sensing technology, including harmonized vehicle interior design using natural materials, a haptic touchpad operable by a gloved hand, and an electrostatic steering wheel switch.

ｰUltra short-range millimeter radar

-Aiming to realize autonomous vehicles using ADAS (advanced driver assistance system), the Company develops and started mass production of the V2X (Vehicle to X) using high frequency circuit technology, and intends to increase production going forward.

Product Development

Tact Switch
- It has started volume production of new SKTQ Series automotive tact switches. The company adopted a unique internal mechanism for the compact tact switch that offers reliable operability and quietness. The new tact switches are expected to be used for steering switches, console panels, and navigation systems. Alps Electric has already received orders from European high-grade vehicle makers. The size of the new products is 5.3 mm x 5.4 mm (same as the existing SKSU Series). The new SKTQ Series offers high operating force of 5 Newtons (N) that is suitable for automobiles, and definite clicking feel. Alps Electric will consider new additions of 3.5 N, 4 N, and 4.5 N versions. The company produces the SKTQ Series at its Kakuda Plant and the planned output for February is 2 million units. (From an article in the Nikkan Jidosha Shinbun on January 23, 2018)

Electrostatic capacitive input device
-The Company has developed an input device that can increase flexibility of automotive interior design. The new electrostatic capacitive input device is highly sensitive, and users can control it using gestures from 10 cm away. The device can be placed under fabric and other cover materials so that the design of interior parts like armrests and door trims is not impaired, and used to control air conditioning and audio systems. Alps Electric started to offer the device to automakers and is aiming to win orders for vehicle models that will be launched around 2020. The device is offered with application-specific integrated circuits that enable accurate detection of gestures, and original design algorithms that link gestures and commands. (From an article in the Nikkan Jidosha Shinbun on January 31, 2018)

Electronic components
-In the fiscal year ending in March 2018, the Company invested in the development of and manufacturing facilities for actuators for smartphone cameras, tact switches, sensors and other components.

Automotive Infotainment
-In the fiscal year ending in March 2018, the Company made capital investments in machinery and equipment to update and rationalize production facilities and in the dies for new products.
-Outside Japan, the Company invested in the production facilities of its European production base Alpine Electronics Manufacturing of Europe, Ltd. and other locations.