Yamaha: At The Back Of The Pack No More

Its profits and stock are soaring, but can it hold its own in Asia's promising markets?

When motorcycle racing superstar Valentino Rossi inked a deal to ride a Yamaha in the 2004 Moto Grand Prix series, some questioned the judgment of the six-time world champion. After all, Yamaha hadn't won a championship in 11 years, while Rossi had won all three of his titles in the MotoGP class riding Hondas. It didn't take the 26-year-old Italian long to prove skeptics wrong. By last October, Rossi had delivered Yamaha a rare title. This year, Rossi has won nine of 12 races and is poised to retain his crown -- all on a Yamaha.

Rossi's exploits are invaluable publicity for Yamaha Motor Co. But the manufacturer of motorcycles, mopeds, and engines for boats, snowmobiles, and jet skis, has a lot more to boast about. It completed a three-year financial restructuring program last December, and that has made it a surprise favorite of Tokyo investors. For the 12 months to Sept. 20, Yamaha's shares rose by 35%, compared with 14% for transport equipment stocks listed on the Tokyo Stock Exchange. "The company is blooming," says Noriyuki Matsushima, an analyst at Nikko Citigroup in Tokyo.

Experts credit Yamaha management for getting a grip on its finances and focusing firmly on profitability -- and on raising the quality of its motorcycles and other products. The company entered the new millennium in a parlous state, losing ground to rivals and weighed down by debt. Today it's leaner than it has been in years. "We realized we had to start trimming the fat if we were going to become a grade-one company," says Takashi Kajikawa, the 36-year Yamaha veteran who took over as president in January.

In the past three years, the company has cut costs by 30% and reduced debt from $2.3 billion to a more manageable $970 million. Those savings have gone right to the bottom line. Four years ago the company posted net profits of $69 million -- less than 1% of sales. By contrast, in July Yamaha raised its earnings forecasts for the year ending Dec. 31 from $422 million to $539 million, on revenues of $11.9 billion.

Some of the company's turnaround was pure good luck. In 2001 a big rival in the outboard motor business, U.S.-based Outboard Marine Corp., went bankrupt. Now, Yamaha's once-struggling marine business is a big profit spinner. It is expected to earn $213 million this year. Yamaha's all-terrain vehicles, the mainstay of the power products division, are delivering double-digit margins.


With finances sound, Yamaha is concentrating on expanding its motorcycle business, which accounts for 60% of sales. Since demand for motorbikes is flat or shrinking in Japan, Europe, and the U.S., the company is targeting emerging markets. In Southeast Asia, Yamaha plans to increase sales from 1.6 million to 3 million by the end of 2007. It will also step up plans to lure first-time customers into its outlets by adding Internet cafés and clothing boutiques to 500 of its motorbike dealerships.

Still, taking on Honda Motor Co. (HMC ) and other rivals will be tougher than beating them on the racetrack. Honda, Suzuki, and Kawasaki are also trying to rev up Asia sales. "Yamaha's success will depend on how much the motorbike business can grow in Asia, but everyone is scrambling for part of the same pie," says Kunihiko Shiohara, an analyst at Goldman, Sachs & Co. (GS ) in Tokyo. On Sept. 18, Valentino Rossi reminded Yamaha it can't always be a winner. Racing in Japan and needing only to finish first or second to take a seventh world title, he crashed.

By Hiroko Tashiro and Ian Rowley in Tokyo

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