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5. Pioneer Corporation Business Report FY ended Mar. 2016

Pioneer Corporation Business Report FY ended Mar. 2016

Factors

1) Sales by product

-Sales in the consumer market increased year-over-year (y/y) due to higher sales in China, although sales were lower in Japan.
-Sales in the OEM market increased y/y due to higher sales in Southeast Asia and China, although sales were lower in Japan and North America.


-Sales in the consumer market decreased y/y especially in emerging countries.
-Sales in the OEM market increased y/y due to higher sales in Japan and North America.

Out of all sales of car electronics products, OEM sales increased from 57% the previous year to 61%.

Awards

-Toyota Motor Corporation announced that it has honored the Company's six suppliers with the Superior Award. Additionally, 42 supplier companies received Awards of Excellence or Special Recognition. The winners include Pioneer Automotive Technologies, Inc. (From a press release on March 16, 2016)

Recent Development Outside Japan

-The Company will produce car speakers in Mexico. This is to deal with large-scale orders in 2018 and beyond, and the Company will utilize its new car electrics products plant in Mexico that will start operations in February 2017. Pioneer regards the Mexican plant as its base to export car speakers to North and South Americas, and intends to raise the local procurement rate of parts. The Company's wholly owned subsidiary's plants in China and Vietnam will also boost the production of car speakers. (From an article in the Nikkan Jidosha Shimbun on March 4, 2016)

-The Company announced that it will establish a new production facility in Mexico. The plant, which will be operational in February 2017, will produce 2 million car electronic units per year for the Americas market. A new company Pioneer Automotive de Mexico S.A. de C.V., to be set up in February 2016 at a capital of USD 250,000 (approx. JPY 30 million), will be located in Bajio region. Mitsutoshi Yamada will assume the post of president and the number of employees will be 450 by 2019. Pioneer expects that the new production facility in Mexico, where an increase in automobile production is anticipated in the coming years, will strengthen its global production structure and expand business in Mexico. (From an article in the Nikkan Jidosha Shimbun on November 13, 2015)

-The Company announced that it will establish a new production facility in Mexico. The new company, Pioneer Automotive de Mexico S.A. de C.V., will manufacture car electronics products. Capitalized at USD 0.25 million, the new company is scheduled to become operational in February 2017. With a production capacity of 2 million units per year, it will hire 450 employees by 2019. (From a press release on November 9, 2015)

Contracts

-The Company and its wholly owned subsidiary, Tohoku Pioneer Corporation in Tendo City, Yamagata, Japan, have received new orders for car speakers totaling around 45 million from major automakers in and outside Japan. The car speakers will be shipped globally over three to five years starting in 2018. The car speakers will be produced at Tohoku Pioneer's plants in China and Vietnam. (From an article in the Nikkan Jidosha Shimbun on October 9, 2015)

Business Partnership

-The Company and Baidu, Inc., the largest Internet-related company in China, will cooperate in the field of in-vehicle telematics in China. Pioneer China Holding Co., Ltd., Pioneer's wholly owned subsidiary, has been certified as the first contract developer and manufacturer of on-board equipment supporting the telematics service "Baidu CarLife." Pioneer China will start shipping the on-board equipment to car manufacturers in China from November 2015. (From an article in the Nikkan Jidosha Shimbun on October 3, 2015)

-The Company has agreed to discuss sharing technologies for autonomous driving applications with HERE, a Nokia company engaged in digital map business in Germany. The two companies will discuss the mutual provision of HERE's mapping data of public roads for advanced driving support and Pioneer's high-performance, compact and low-cost 3D-LiDAR driving space sensor which is currently under development. The Company is also marketing its Smart Loop network system which utilizes probe data, and is accelerating the development of autonomous driving technologies. (From an article in the Nikkan Jidosha Shimbun on September 8, 2015)

-Pioneer China Holding Co., Ltd., a wholly owned subsidiary of Pioneer Corporation, has agreed to collaborate on advanced driver assistance system (ADAS)-related technologies with Suzhou Tsingtech Microvision Electronic Technology Co., Ltd. (Tsingtech Microvision), a venture company and an affiliate of Tsinghua University Suzhou Automotive Research Institute in China. Pioneer and Tsingtech Microvision will jointly develop next-generation in-vehicle equipment incorporating ADAS functions for preventive safety, aiming to commercialize it from 2016 onward. The collaboration enables Pioneer's technologies and expertise concerning in-vehicle equipment to be combined with Tsinghua University's ADAS-related technologies. By utilizing technologies such as fatigue detection systems, smoke and alcohol detection systems, artificial intelligence, and image recognition algorithms, both companies will jointly develop next-generation in-vehicle equipment incorporating ADAS functions. (From an article in the Nikkan Jidosha Shimbun on November 28, 2015)

Mid-term Business Plan (April 2016 - March 2021)

-Growth strategy with a focus on the consumer market business, OEM business, and map business and autonomous driving field

Consumer market business
-In order to maintain high profitability through sustainable growth in sales and to establish a connected car life as soon as possible, the Company will actively develop value added products like smartphone-linked products and advanced driver assistance systems, release new in-vehicle entertainment systems, expand services for businesses by connecting to the cloud, and enhance the lineup of low cost products targeted at emerging markets.

OEM business
-In order to accommodate a large scale of orders from existing customers, the Company will optimize its business process as a whole. It will also attract new customers by developing and designing products in anticipation of customer needs to improve profitability.

Map Business and Autonomous Driving Field
-In the autonomous driving field, the Company will strive to become an "essential company toward realization of autonomous driving" by making use of its ability to provide both "3D-LiDAR" sensor and high-precision map data, necessary for autonomous driving, and by taking advantage of its alliances.

-The Company announced its plans to increase sales at its car electronics division to JPY 435 billion by the fiscal year ending March 2021 (FY 2020), up 25 percent from the result of FY 2013. By enhancing its R&D efficiency and streamlining its business structure, the Company aims to achieve an operating income margin of 5 percent by FY 2017, which will be a significant rise from the FY 2013 level of 3.6 percent. Furthermore, the target is set at more than 6 percent for FY 2020. From FY 2018 onward, the Company plans to focus on expanding its commercial and telematics service businesses in Japan, while boosting its global sales by introducing low-cost products in emerging markets. By improving its balance sheet, Pioneer intends to appropriate more funds for mergers and acquisitions, joint venture activities and advanced technologies development. (From an article in the Nikkan Jidosha Shimbun on November 11, 2014)

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

-R&D expenditure for FY ending March 2017 is expected to reach JPY 25,000 million

R&D Facilities

R&D activities

(1) 3D-LiDAR sensor
-The Company began in-vehicle testing of 3D-LiDAR (Light Detection and Ranging), a driving space sensor that utilizes optical disc and other technologies
-The 3D-LiDAR sensor is able to precisely detect the distance and width of objects several dozen meters ahead with laser technology, and recognize objects from their shapes. The high-precision location technologies is expected to serve as a key device for realizing automated driving.
-The Company aims to release high-performance and compact 3D-LiDAR sensors at low price.

(2) "Data ecosystem" advanced map
-The Company is working on the establishment and practical application of "data ecosystem" that can efficiently update and utilize advanced map data for autonomous vehicles.
-In May 2016, the Company agreed with HERE, a German digital map maker, to perform verification tests for building a "data ecosystem".

(3) Driver monitoring system
-The Company is aiming to develop a comprehensive driver monitoring system consisting of its own sensors and applications.
-It is developing vital sensors like camera sensors that can monitor the driver's eye levels, facial movement, and posture, as well as handle sensors that can detect cardiac motion, and seat sensors that can measure pulse.
-The Company is developing technology to detect the driver's drowsiness, fatigue, and tension levels behind the wheel.
-In terms of drowsiness detection, the Company is developing systems to precisely detect the drowsiness symptoms from heartbeat and pulse with a focus on automatic nervous system.
-The Company is also developing technology to maintain and improve the driver's physical conditions by utilizing the stimulation of sound and vibration by studying the state of levels that do not cause any discomfort.

Enhancing development of 3D-LiDAR
-The Company will bolster its development capacity for the 3D-LiDAR driving space sensors. The Company organized a development team in January. Moving forward, development is to be sped up through increasing the staff on the team, including personnel in related departments, but with a focus on dedicated engineers, to a total of 100 people. The 3D-LiDAR sensor is able to precisely detect the distance and width of objects several dozen meters ahead, and recognize objects from their shapes. A prototype of the new sensor, which is slated for completion in early 2017, will be implemented in mapping vehicles used by Increment P Corporation, a subsidiary of Pioneer. The prototype will also be provided to automakers. Pioneer plans to commercialize the 3D-LiDAR for business use in 2017 and for private passenger vehicles from 2018. In addition to enhancing performance, the Company will look to accomplish its original plan without delays by striving to create a more compact and low-cost version, which is indispensable for implementation in private passenger vehicles. The Company is aiming to build a "data ecosystem" in the future that will update advanced map data using information on the surrounding environment automatically collected from vehicles equipped with 3D-LiDAR. (From an article in the Nikkan Jidosha Shimbun on February 23, 2016)

Transparent OLED lighting
-The Company will market its newly developed transparent organic light emitting diode (OLED) lighting for automobiles. The Company has developed a "transparent high mount stop lamp" that emits light only from the surface seen from the outside of the vehicle and secures the rear view of drivers. The Company will work toward the adoption of the new lamp to vehicles that will appear on the market in 2019. The lamp provides visibility even when it is turned off, and the Company intends to offer different types of OLED lamps that are integral with the sunroof glass. The Company also considers the application of the OLED lamp to autonomous vehicles to notify the existence of the vehicle to persons outside the vehicle. (From an article in the Nikkan Jidosha Shimbun on December 17, 2015)

Telematics solution
-The Company announced that it has developed a new automotive telematics solution that uses in-vehicle beacon terminal equipment with smartphone connectivity, the first of its kind in the industry. The beacon terminal will monitor the driver's situations such as entering the vehicle, driving the vehicle, and having exited the vehicle. Such information will be transmitted to the driver's smartphone, and will help application service providers offer the most timely information to the driver. The service called "Kuruma (car) de beacon service platform" was adopted by Tokio Marine & Nichido Fire Insurance Co., Ltd. in its new emergency call service for its auto insurance holders. In case of an accident, the driver's smartphone detects the impact from the collision, while the beacon terminal monitors whether the driver has exited the vehicle. The service will allow the driver to contact an insurance agent or a call center immediately with a tap of a smartphone. (From an article in the Nikkan Jidosha Shimbun on September 1, 2015)

Maps for autonomous driving
-Increment P Corporation, located in Kawasaki, Japan, and Kanazawa University have jointly begun developing maps for autonomous driving. In February 2015, a research team at Kanazawa University conducted Japan's first test of an autonomous car in an urban area with an aim to support mobility for the elderly. The tests for the maps fitted on an autonomous vehicle will be conducted on public roads, and will highlight the use of autonomous vehicles in underpopulated and aging areas. The autonomous car used for the test will feature an advanced manned driving system to reach a preset destination without operations by the driver. The system will coordinate control of the autonomous vehicle by using advanced map information as the vehicle searches for routes, changes lanes, makes turns at intersections, and starts or stops at traffic signals. (From an article in the Nikkan Jidosha Shimbun on August 11, 2015)

New products

Terahertz scanner
-The Company is developing a new terahertz scanner for use in vehicle assembly plants. Terahertz scanners use terahertz radiation to inspect an object's internal structure. The new terahertz scanner will be used to measure the thickness and unevenness of coatings to improve the coating quality. The Company intends to receive and implement customer feedback provided at exhibitions and other opportunities for their prototype scanner. (From an article in the Nikkan Jidosha Shimbun on July 29, 2015)

Rearview-mirror-shaped telematics
-The Company announced that it will launch a new rearview-mirror-shaped telematics device in July 2015. The device has an LTE communication module and is for use in next-generation fleet management solutions. It also works with the Company's Vehicle Assist fleet management service. The unit is always connected to a high-speed, large-capacity, low-delay LTE mobile network. This allows fleet managers, through cloud services, to give work instructions to drivers and to monitor vehicles' behavior in real time. The unit also comes with a built-in front-view camera with wide-angle lens and functions as a driving recorder. In addition, various driving support services are offered by the unit. It utilizes a proprietary image-sensing technology to provide the driver with alerts when he/she unexpectedly departs a lane, or when a vehicle in front starts moving. The vehicle can be located via GNSS (Global Navigation Satellite System), and a built-in sensor detects unsafe driving. (From a press release on June 17, 2015)

-In FY ended March 2016, the Company invested mainly in embedded software, dies, and manufacturing equipment.
-In FY ending March 2017, the Company plans to invest JPY 27,800 million in plants and equipment