|| With the needs of automobile manufacturers always
in mind, DENSO is putting in place a global network capable
of supplying competitively priced, high-quality systems and
components anywhere in the world. We are achieving this by giving
greater consideration to customer location, the technological
complexity of products, supply chains, logistical costs and
regional laws and regulations. Our ultimate goal is to build
a supply network in which all work is conducted in optimal locations.
During the year under review, DENSO established new manufacturing
facilities in Europe, Asia, and Mexico. These efforts also go
hand in hand with our strategy to grow sales.
PRODUCTS TO MARKET IN JAPAN
|In Japan, as many manufacturing activities move overseas, we are
focusing more on the development and production of advanced on-board
equipment that incorporates complex electronic components, semiconductors
and software. And with rising interest in intelligent transport systems
(ITS) from both the public and private sectors in Japan, we are enhancing
our product development capabilities in this area.
| In the year ended March 31, 2002, we developed and
unveiled a range of ITS-related products. These include a navigation
computer for high-resolution displays (800 x 480 pixels), launched
in October 2001, and NAVISTANT, a product that enables handheld Personal
Digital Assistants (PDAs) to be used as car navigation systems. The
NAVISTANT package, released in April 2002, includes a sensor unit,
global positioning system (GPS) antenna, and software.
| DENSO is also targeting the market for Electronic Toll
Collection (ETC) systems, introduced in Japan in March 2001. Our compact
ETC on-board unit, the smallest in the industry, has been earning
high marks since its launch in March 2001. We added another product
to our ETC unit lineup in May this year, incorporating a new voice
guidance function. This allows more flexibility in mounting the unit.
And we are about to start production of an on-board communication
module that uses a mobile link to download information from external
sources. These are just some examples of how DENSO is channeling resources
into developing a wider range of ITS-related products, initially for
the Japanese market, and then for subsequent rollout on the global
| Reflecting DENSO's increasing focus on these products,
the ITS business division was made independent of the Electronic Systems
Group in January 2002. Our auto-motive business structure has been
revamped and now consists of six key groupsThermal Systems, Powertrain
Systems, Electronic Systems, Electric Systems, Small Motors, and ITS.
|ON THE ROAD TO
HIGHER SALES IN NORTH AMERICA
|In the Americas, our sales expansion strategy in the North American
market and the weakening yen helped to boost regional net sales by
37.6%. This figure represents sales over a 15-month period due to
the change in fiscal year-ends at overseas subsidiaries. But even
on a 12-month basis, sales in the region grew 9.5%. This growth was
also due to efforts to create closer relationships with our major
customers, seen in higher sales to both General Motors Corporation
and Ford Motor Company. Meanwhile, North American customers continued
to recognize DENSO's commitment to producing high-quality and technologically
advanced systems and components: DENSO was awarded the GM Supplier
of the Year Award for the second time and the respected Chairman's
Award from J.D. Power and Associates. DENSO was the first auto-motive
component supplier to receive the latter award.
| In the aftermarket, we are aiming to boost sales of
DENSO's starters and alternators, products that have consistently
held leading global market share, by broadening sales channels in
our remanufacturing business.
SYSTEMS AND DIESEL TECHNOLOGY IN EUROPE
|In Europe, DENSO is ramping up production and enhancing sales with
a focus on air-conditioning and diesel engine management systems.
In air-conditioning systems, the European automotive market has considerable
growth potential. In 2001, around 19 million cars were sold in Europe,
but only about half were equipped with air conditioners. This compares
with the North American market, which is approximately the same size
as the European market. There, almost all cars come fitted with air
conditioners. The figure in Europe is forecast to rise to as much
as 65% by 2005. Until recently, DENSO had primarily focused on air-conditioning
systems for luxury cars. But with this projected rise in demand across
all market segments, we are broadening our range of products, especially
for compact cars, and extending our geographic reach across the continent.
| More specifically, we have set up sales and marketing
bases in Germany and the U.K. to support our existing manufacturing
facilities in the U.K. We are also extending our European manufacturing
network. The Thermal Systems Division of Italian auto-motive components
supplier Magneti Marelli S.p.A., acquired in March 2001, was renamed
DENSO Thermal Systems S.p.A. (DNTS), in August 2001. With the European
automotive market heavily tilted toward compact cars, the rationale
behind this move is to use DNTS' expertise in compact-car air-conditioning
systems to strengthen our manufacturing capabilities and boost sales
in this important product category. In another initiative, in July
2001, we established DENSO Manufacturing Czech s.r.o. in the Czech
Republic, to manufacture car air-conditioning systems. These steps,
aimed at augmenting our supply network in the European market and
the reputation for technological leadership associated with the DENSO
name, are seeing resultswe have already inked a deal to supply
Volkswagen AG with air-conditioning systems for its Passat. Also,
thanks to aggressive efforts to foster our customer base, we have
captured an 18% share of the market for car air-conditioning systems
in Europe. Our work doesn't stop there; we plan to boost this to 28%
| Compared to other regions, the popularity of fuel-efficient
diesel passenger cars is high in Europe35% of cars on European
roads have diesel engines. This figure is projected to climb to 45%
by 2006. The automotive industry in Europe is currently gearing up
for the EURO 4 emission regulations that come into force in 2005.
In response, DENSO has developed a 1,800-bar common rail system to
reduce harmful emissions from diesel cars. Deals have already been
signed to use the system in vehicles manufactured by several automobile
manufacturers. Full-scale production of components for the system
will start in Hungary, at DENSO Manufacturing Hungary Ltd., in 2003.
Hungary has also been chosen as a base for the production of components
for gasoline engines. These moves mark a concerted effort by DENSO
to increase sales of components for both diesel and gasoline engines
to automobile manufacturers in Europe.
ENHANCING ENGINE MANAGEMENT PRODUCTS IN ASIA
|In our flagship air-conditioner product category in Asia, we are
within sight of completing a manufacturing network to respond to expected
growth in demand. Plants in Thailand, Indonesia, Malaysia, India,
the Philippines, China, and Taiwan, have been completed. We have also
bolstered our production capabilities in engine management systems,
establishing a manufacturing facility in Vietnam, DENSO Manufacturing
Vietnam Co., Ltd., in October 2001, and another in Thailand, Siam
DENSO Manufacturing Co., Ltd. (SDM), in February 2002. SDM will start
full-scale production of diesel common rail systems in 2004. These
steps in Thailand follow close on the heels of moves by global automobile
manufacturers to ramp up local production of pickup trucks in the
Thai market, and will ensure DENSO stays one step ahead of its rivals
in the region. We also plan to start production of components for
gasoline engines in both the Thai and Vietnamese markets.
| We are, of course, keeping an ever-watchful eye on
the Chinese market, as we believe this country is crucial to DENSO's
future. In April 2002, we established an office in Shanghai, our fifth
in the country. This move further bolsters our manufacturing presence
in the marketfive facilities producing a wide range of components,
including alternators, starters, and air-conditioning systems.
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