UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington,

FORM 20-F

[OR] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2001OR

Commission file number 1-7616

PIONEER KABUSHIKI KAISHA
(Exact name of Registrant as specified in its charter)

PIONEER CORPORATION
(Translation of Registrant’s name into English)

JAPAN
(Jurisdiction of incorporation or organization)

4-1, MEGURO 1-CHOME, MEGURO-KU, TOKYO 153-8654, JAPAN
(Address of principal executive offices)

Securities registered pursuant to Section 12(b) of the Act.

TABLE OF CONTENTS

Certain Defined Terms

As used herein, the term “Pioneer” refers to Pioneer Corporation, the registrant, and “we” and “our” refer to Pioneer and its consolidated subsidiaries as a group, unless the context otherwise indicates.

References in this annual report to fiscal years refer to the 12-month periods ended March 31 of each calendar year.

Billion is used in the American sense of one thousand million.

Cautionary Statement with Respect to Forward-Looking Statements

Statements made in this annual report with respect to our current plans, estimates, strategies and beliefs, and other statements that are not historical facts are forward-looking statements about our future performance. Forward-looking statements include but are not limited to those statements using words such as “believe,” “expect,” “plans,“intend,” “strategy,“plan,” “prospects,“aim,” “forecast,” “estimate,” “project,” “anticipate,” “may”“strategy,” “prospects,” “may,” “might” or “might”“will” and words of similar meaning in connection with a discussion of future operations, financial performance, events or financial performance.conditions. From time to time, oral or written forward-looking statements may also be included in other materials released to the public. These statements are based on our management’s assumptions and beliefs in light of the information currently available to it. We caution you that a number of important risks and uncertainties could cause actual results to differ materially from those discussed in the forward-looking statements, and therefore you should not place undue reliance on them. You also should not rely on anybelieve that it is our obligation of ours to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. We disclaim any such obligation. Risks and uncertainties that might affect us include, but are not limited to, (i) general economic conditions in the markets in which we sell our markets,products, particularly levels of consumer spending; (ii) exchange rates, particularly between the yen and the U.S. dollar, euro, and other currencies in which we make significant sales or in which our assets and liabilities are denominated; (iii) our ability to continue to design and develop and win acceptance of our products and services, which are offered in highly competitive markets characterized by continual new product introductions, rapid developmentdevelopments in technology and subjective and changing consumer preferences; (iv) our ability to implement successfully our business strategies; (v) our ability to compete and develop and implement successful sales and distribution strategies in light of technological developments in and affecting our businesses; (vi) our continued ability to devote sufficient resources to research and development, and capital expenditures;expenditure; (vii) our ability to continuously enhance our brand image; (viii) the success of our joint ventures and alliances; and (viii)(ix) the outcome of contingencies.

PART I

Item 1. Identity of Directors, Senior Management and Advisers

          Not applicable

Item 2. Offer Statistics and Expected Timetable

          Not applicable

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Item 3. Key Information

A. Selected financial data

The following table presents selected consolidated financial information for us atdata as of the dates and for the periods indicated. We derived the consolidated statement of income data for each of the three years indicated,in the period ended March 31, 2004 and has been derivedthe consolidated balance sheet data as of March 31, 2003 and 2004 from our audited consolidated financial statements include elsewhere herein. We derived the consolidated statement of income data for each of the two years in the period ended March 31, 2001 and the consolidated balance sheet data as of March 31, 2000, 2001 and 2002 from our audited consolidated financial statements which are not included elsewhere herein, whichherein. Our audited consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), except for segment data which is prepared in accordance with the regulations under the Securities and Exchange Law of Japan.

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Notes:	(1)1.		In fiscal 2000, we changed the reporting ofBasic income from patentscontinuing operations and related expenses, which had been previously presented in “Other income (expenses).” The gross patent revenue is presented as “Royalty revenue” and the related expenses are included in “Selling, general and administrative expenses.” Previously reported amounts have been reclassified to conform to this presentation.
	(2)		Gross profit represents operating revenue minus cost of sales.
	(3)		Basic net income per share of common stock and per ADS hasAmerican Depositary Share (“ADS”) have been computed based on the weighted average number of shares outstanding during each year. Diluted income from continuing operations and net income per share of common stock and ADS hashave been computed on the basis that all dilutive warrants and stock options were exercised. One ADS represents one share of common stock.
	(4)		Employee-related restructuring charges in fiscal 1997, which had been previously reported as non-operating other expenses, have been classified as operating expenses.
	(5)		EBITDA represents net income plus minority interests, equity in earnings, interest expense (net), income taxes, depreciation and amortization. EBITDA is provided because it is a measure commonly used by investors to analyze and compare companies on the basis of operating performance. EBITDA is not a measurement of financial performance under U.S. GAAP and should not be construed as a substitute for operating income, net income or cash flows from operating activities for purposes of analyzing our operating performance, financial position and cash flows. Our EBITDA is not necessarily comparable with similarly titled measures of other companies.

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	(6)		EBITDA as a percentage of operating revenue.
	(7)		Operating income as a percentage of operating revenue.
	(8)		Net income as a percentage of operating revenue.
	(9)	2.	Net income as a percentage of average shareholders’ equity.
	(10)	3.	Net income as a percentage of average total assets.
	(11)	4.	Cash dividends in U.S. dollars are based on the noon buying rate in yen for cable transfers in New York City as certified for customs purposes by the Federal Reserve Bank of New York on the date of the dividend payment.
	5.	In fiscal 2003, we adopted EITF (Emerging Issues Task Force) 01-9 “Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products).” The adoption resulted in a reduction in net sales and a corresponding decrease in selling, general and administrative expenses, with no effect on operating income. Also, starting fiscal 2003, we classified losses on sale and disposal of fixed assets, which were previously included in “Other—net” in “Other income (expense),” into “Selling, general and administrative expenses.” Previously reported amounts have been reclassified accordingly.
	6.	As a result of the sale of subsidiaries in the audio/video software business in fiscal 2004, the gain on such sale, as well as the operating results of the discontinued operations, are presented as a separate line item in consolidated statements of income in accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Previously reported amounts have been reclassified accordingly.

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Exchange rates (yen per U.S. dollar)

The exchange rate between the yen and the U.S. dollar, based upon the noon buying rate in yen for cable transfers in New York City as certified for customs purposes by the Federal Reserve Bank of New York, was ¥117.32¥110.60 = US $1.00US$1.00 on September 18, 2001.

Additionally, our operations may be indirectly affected by the economic conditions of regions where our competitors manufacture their products. For example, if a competitor enjoys lower local labor costs, it may be able to offer similar products at a lower price. As a result, our sales may be adversely affected. Also, a decrease in the value of the local currency in a region that produces parts and raw materials may lead to a decrease in production costs (on a yen or a U.S. dollar basis) not only to us but to other manufacturers as well. Such a trend may in turn bring about vigorous export competition and price-cutting, both of which could adversely affect our business results and financial condition.

Fluctuations in foreign currency exchange rates may adversely affect our business results and financial condition

Our operations involve the global production and distribution of products. Revenue and expense items that are denominated in local currency, such as sales, expenses and assets in each region, are translated into yen in preparing our consolidated financial statements. Depending on the rate of exchange at the time of currency translation, the values of such items in yen may be affected, even if their value has not changed in their original currency. Therefore,Also, fluctuations in foreign currency exchange rates may affect the local prices of our products and negatively impact their competitiveness in local markets. Generally, an appreciation of the yen against other currencies, particularly the yen against the U.S. dollar and the euro, in which we make significant sales, may adversely affect our business results and financial condition and business results.condition.

An increase in the value of currencies in regions where we operate and produce may lead to an increase in the costs of manufacturing and procurement in those regions. Such an increase could accordingly adversely affect our profit margins and reduce our price competitiveness, thereby adversely affecting our business results. We engage in currency hedging transactions to attempt to minimize the negative effects of short-term fluctuations of foreign exchange rates among major currencies such as the U.S. dollar, euro and yen. However, as a result of mid-to-long-term exchange rate volatility, we cannot execute planned procurement, production, logistics, and sales activities with any certainty and, consequently, fluctuations in exchange rates may adversely affect our business results and financial condition.

If we are unable to innovate and to develop attractive new products, our future growth and profitability may be adversely affected

We derive a substantial portion of our revenues from sales of innovative new products. We expect that sales of our new products — products—currently including DVD-related products, plasma and organic light-emitting diode (“OLED”) displays and car navigation systems — will continue to account for a substantial portion of our revenues, and we expect our future growth to rely primarily on the continued development and sale of innovative new products.

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While we believe that we are capable of continuing to develop innovative and attractive new products, the industry in which we operate is characterized by rapid changes, including technological changes. The process of developing and marketing new products is inherently complex and uncertain, and there are a number of risks, including the following:

•		We cannot assure youThere can be no assurance that we will have adequate funding and resources necessary for investments in new products and technologies.
•		We cannot assure youThere can be no assurance that our long-term investments and commitment of significant resources will result in successful new products or technologies. For example, we have invested substantial resources in the expansion of our production capacity at our Shizuoka plantfor plasma display panels (“PDPs”) to meet anticipated demand, for plasma display panels, but such demand may not materialize.
•		We cannot assure youThere can be no assurance that we can anticipate successfully the new products and technologies

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		which will gain market acceptance and that such products can be successfully marketed.
•		We cannot assure youThere can be no assurance that our newly developed products or technologies can be successfully protected as proprietary intellectual property rights.
•		Our products may become obsolete due to rapid advancements in technology and changes in consumer preferences.
•		A delay in commercializing new technologies now under development may prevent us from keeping up with market demand. For example, if we lag behind our competitors in the commercialization of active-matrix full-color OLED displays, which are now under development in our affiliated company, ELDis, Inc., we may not secure significant portions of this market.

Our failure to anticipate adequately changes in the industry and the market, and to develop attractive new products, including any of the risks described above, may reduce our future growth and profitability and may adversely affect our business results and financial condition.

Benefits may not be gained from the acquisition of the shares in NEC Plasma Display Corporation (“NPD”), the subsidiary of NEC Corporation (“NEC”), and related intellectual property rights held by NEC

On July 1, 2004, Pioneer and NEC concluded the stock transfer agreement under which NEC will transfer to Pioneer 100% of the issued share capital of its subsidiary, NPD, and the intellectual property rights relating to plasma displays held by NEC. See “Item 4.A. History and development of the Company—Principal capital expenditures, investments and divestitures.”

The expected acquisition of the shares in NPD and related intellectual property right held by NEC may not yield expected benefits to us. Achieving these benefits depends on the timely, efficient and successful execution of a number of post-acquisition events, including integrating the business of NPD into our operations, distribution networks, marketing programs and information systems. Our ability to integrate the operations of NPD may be adversely affected by many factors, including information system integration and employee relations. In addition, NPD may not perform as we expect.

Furthermore, a significant portion of NPD’s customers for original equipment manufacturer (“OEM”) products are major players in the electronics industry who are in direct competition with us. There can be no assurance that such customers will not cease to utilize NPD’s services.

Any failure to realize the benefits expected from the acquisition, or the failure of NPD to perform as we anticipate, could have a material adverse effect on our business results and financial condition.

As our exposure to the PDP market as a result of the acquisition of NPD will increase significantly, lack of growth in the PDP market may adversely affect our business results and financial condition

The acquisition of NPD will increase our production capacity significantly. In addition, we are focusing on the plasma display business to establish it as a core of our business. If the plasma display market does not grow as we anticipate, such increased production capacity may not be used efficiently or in a cost-effective manner. There can be no assurance that the PDP market will continue to grow. Any such lack of growth may adversely affect our business results and financial condition.

Competition generally, and especially on price and standardization of products, may adversely affect our business results and financial condition

The electronics industry, including the audio, video and car electronics industry, is intensely competitive. We expect to face increased competition in the various product and geographic markets in which we

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operate. Our competitors include manufacturers and distributors, some of which have greater capital resources available for research, development, production and marketing. In addition, as new technology develops and as new electronics products gain increased market acceptance, it is possible that new competitors or alliances among existing competitors may emerge and rapidly acquire significant market share. While we believe we are aone of the leading global manufacturerinnovators of advanced, high-quality and value-added electronics products, we cannot assure youthere can be no assurance that we will be able to compete effectively in the future. Pricing pressures or loss of potential customers resulting from our failure to compete effectively may adversely affect our business results and financial condition.

For example, competitors in the plasma display market may substantially increase their production capabilities or introduce alternative products at a lower price and in advance of our products.cause market competition to intensify further. Moreover, due to standardization and the relative ease of imitation of products such as DVD players, competition from manufacturers in emerging markets may also continue to intensify. Our research into the development of new products generally requires large costs that competitive imitators may not need to incur. In an aggressive price-cutting environment we may find it difficult to maintain or increase our market share or remain profitable against low-cost and low-budget competitors.

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Failure of our DVD-recorder format to gain broad market acceptance may adversely affect our business results and financial condition

Currently, there are a number of competing recording formats for digital versatile discs (DVDs)(“DVDs”): the DVD-RW, format commercialized by us, Sony, Sharp and others, the DVD-RAM, format commercialized by Matsushita, Hitachi and Toshiba and the DVD+RW, format commercialized by Philips.as rewritable formats, and the DVD-R and the DVD+R, as write-once formats. Each of the recording disc formats makes use of its own distinct technology and is generally incompatible with other formats.

Our DVD recorders for home-use adopt DVD-RW and DVD-R formats, while our recordable DVD drives for PCs support DVD-RW/+RW and DVD-R/+R format recording and DVD-RAM format playback.

The question of which format will prevail as the industry standard is not yet settled. Should the DVD-RW formatour adopted formats fail to be accepted as thede facto industry standard, or otherwise fails to gain wide acceptance, our business results and financial condition wouldwill be adversely affected.

AsSubstantial decline in our royalty revenue as a result of the expiration of our existing patents relating to laser optical disc technologies may adversely affect our royalty revenue is expected to decline substantially, starting in fiscal 2003business results and financial condition

OurThe licensing of our patent license and other intellectual property rights make a significant contribution to our net income. Although less than five percent2% of our revenue isin fiscal 2004 was generated by our worldwide patents relating to laser optical disc technologies, these rights were responsible for between approximately 60%-80%26% of our operating income in the last three fiscal years.2004. The legal protections afforded these rights have a limited duration under applicable laws, and the length of protection varies from country to country or region. In addition,A significant portion of such patents will expirepatent rights have expired in Europe and Japan starting induring fiscal 2003.2003 and 2004. As a result, our royalty revenue is expectedhas declined substantially from previous years and may continue to decline substantially. Whilein the future. This decline in royalty revenue may in turn have an adverse impact on our business results. At the same time, we are tryingworking to develop newacquire patents owned by third parties and acquire third party patent rights, welicensing such patents. We do not expect that the revenue, if any, from such new patents will be sufficient to offset the decrease in royalty revenue resulting from the expiration of our existing patents. Royalty revenue from patent licensing also depends to a material degree on the sales of patented products by our licensees, making it hard for us to predict actual royalty revenue amounts. For a discussion of our patent licensing business, see “Item 4.B. Business overview–overview—Nature of operations.operations.”

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If we are unable to manage successfully the risks inherent in our international activities and our overseas expansion, our business results and financial condition could be adversely affected

A substantial portion of our manufacturing and marketing activity is conducted outside Japan, including in the United States, Europe, and in developing and emerging markets in Asia. There are a number of risks inherent in doing business in such overseas markets, including the following:

•		unexpectedUnexpected legal or regulatory changes;
•		unfavorableUnfavorable political or economic factors;
•		difficultiesDifficulties in recruiting and retaining personnel;
•		lessLabor disputes including strikes;
•		Less developed technological infrastructure, which can affect our production or other activities or result in lower customer acceptance of our products and services;
•		Potentially adverse tax consequences; and
•		potentially adverse tax consequences.Social, political or economic turmoil due to terrorism, war, or other factors.

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In order to produce our products competitively and to reduce costs, we areaim to continue expanding our production and parts procurement in the processShanghai and Guang Dong areas of establishing new production facilities in the People’s Republic of China (China)(“China”). We plan to invest a total of ¥10 billion by fiscal 2003 to build production capacities for various products, including DVD-related components and car stereo products, in the Shanghai and Dongguan areas. In addition, we intend to rely significantly on electronics manufacturing services (EMS) arrangements in China to help minimize our plant investments and parts inventories. In opening a new manufacturing facility, however, it typically takes time to achieve success in production. Therefore, there is no guarantee that cost savings will be realized in the immediate term, if at all. Furthermore,Nevertheless, we may experience difficulties in managing a production facility and entering into business arrangements in China in light of unexpected events, including political or legal change,changes, labor shortages or strikes or changes in economic conditions in China. Furthermore, the outbreaks of epidemics such as SARS (“Severe Acute Respiratory Syndrome”) or avian influenza in China may, depending on how they develop, adversely impact our operations in China, including delays in production due to travel restrictions on employees, as well as disruptions in parts procurement and factory operations. Accordingly, such incidents could have an adverse impact on our business results and financial condition. For more information on our China plants, see “Item 4.B. Business overview–Production.4.A. History and development of the Company—Principal capital expenditures, investments and divestitures.”

Our dependence on certain third-party manufacturers and suppliers for parts and components could adversely affect our business results and financial condition

While we strive to produce key components and parts internally, we are dependent on a number of outside manufacturers and suppliers. Third parties manufacture some of our most important components and parts, including semiconductors. Our arrangements with third-party manufacturers and suppliers are generally on a renewable short-term basis. While we have sought to assure supply where necessary through strategic alliances and other measures, we cannot assure youthere can be no assurance that we will not face shortages of key components from time to time. See “Item 4.B. Business overview–overview—Raw materials and sources of supply”supply” for a discussion of our outside manufacturers and suppliers. If we are forced to change contractour contracted manufacturers and suppliers, this could result in a reduction in the availability of components and parts essential to us or in an increase of our costs. In addition, in periods of high demand for consumer electronics products and aswhen new components such as next generation semiconductors are improved,introduced, producers of components and parts may not be able to produce enough components to satisfymeet our demand on a timely basis. We may also experience shortages or other material disruptions in our supply of components and parts due to natural disasters or other events beyond our control. Shortages of key components could result in increases in their prices, insufficient supply and quality control problems, and could adversely affect our business results and financial condition, as well as lead to strained relationships with our original equipment manufacturing (OEM)OEM customers.

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Our performance in the OEM business is substantially dependent on the performance of our customers’ business

We caterprovide our OEM business to automobile manufacturers, electronics manufacturers, personal computer (PC)(“PC”) makers, the broadcasting industry and other large-scale businesses worldwide. The products we supply include car stereo products, car navigation systems, DVD-R/RW drives, settopDVD-ROM drives, set-top boxes for cable TVcable-TV and digital satellite broadcast and organic electroluminescent (OEL) displays for cellular phones.OLED displays. Sales to business customers in these areas are significantly affected by the respective customers’ business results and by factors that are beyond our control. Further, price cuttingprice-cutting to meet customer demands may cause a reduction in our profit margin. The under-performance of a customers’ business, the unexpected termination of contracts, changes in the purchasing practices of our OEM customers or aggressive price cuttingprice-cutting to satisfy a large business customer’s demands may adversely affect our business results and financial condition.

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Because our products and technologies are dependent on the service of capable engineers and other key personnel, difficulty in recruitingand developing key personnel could have an adverse impact on our future growth, business results and financial condition

Our products and technologies are complex, and our future growth and success depend to a significant extent on the service of capable engineers and other key personnel, and hiring and training additional highly-skilled engineers and other competent personnel are important for our success.

Failure to recruit and develop key personnel may adversely affect our future growth, business results and financial condition. On the other hand, aggressive hiring of, among others, capable engineers who are experienced with the latest technology, may increase, sometimes substantially, both recruiting and actual labor costs. In addition, continued re-training of currently employed personnel, which may introduce higher costs, might also be necessary to maintain a superior level of innovation and technological advance. Such increased costs could have an adverse impact on our business results and financial condition.

Limits on intellectual property protection may make us vulnerable to competition from third parties that use our technology and expertise

While we have developed technology and expertise which differentiate our products from those of our competitors, some of our unique technology and expertise is either not fully capable of being protected by intellectual property rights or protected only to a limited extent pursuant to legal limitations in certain jurisdictions. Accordingly,Although we have the ability to diminish illegal imports of such products into certain jurisdictions through exercise of our legal rights, we may be unable to effectively to prevent third parties from using our intellectual property rights to produce products similar to ours. In addition, we may be unable to prevent third parties from developing technologies that are similar or superior to our technology, or from designing around or reverse engineering our patents and trade secrets. Moreover, our future products and technology might later be found to infringe upon a third party’s intellectual property rights.

Product defects resulting in a large-scale product recall or successful products liability claimclaims against us could result in a significant cost or impact on our reputation and adversely affect our business results and financial condition

We manufacture various products at our plants worldwide in accordance with internationally accepted quality controlquality-control standards. We cannot be certain, however, that all of our products are defect-free and may not be recalled at some later date. Furthermore, although we maintain insurance against product liability claims, we cannot be certain that such insurance can adequately satisfy the liabilities ultimately incurred. In addition, insurance may not continue to be available on terms acceptable to us. A large-scalelarge-

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scale product recall or a successful products liability claim against us could result in a significant costcosts or have a negative impact on our reputation, which may in turn lead to a decrease in sales, adversely affecting our business results and financial condition.

Failure to achieve the goals of collaborations, tie-ups, and joint ventures with third parties may adversely affect our business results and financial condition

As part of our technological development process, we conduct many joint activities with other companies in the form of collaborations, technological tie-ups, or joint ventures intended to optimize management resources and utilize the synergy of combined technologies. We expect to continue to adopt an active approach to exploiting these opportunities. If differences arise among the participants of these joint activities due to managerial, financial or other reasons, we may not achieve the goals of these development projects, which may in turn adversely affect our business results and financial condition.

Governmental regulation may limit our activities or increase our costs of operations

Various regulations by governmentsPioneer’s business and operations are subject to various forms of government regulation in countries in which we do business, such asincluding required business/investment approvals, as well as export regulations based on national security or other reasons and other export/import regulations such as tariffs, apply to us.tariffs. In addition, commercial, antitrust, patent, consumer, taxation, exchange control and environment/recycling laws and regulations also apply. If we are unable to comply with these regulations, they can serve to limit our activities. In addition, even if we are able to comply,compliance with these regulations could result in increased costs. Accordingly, these regulations could adversely affect our business results and financial condition. See “Item 4.B. Business overview–overview—Governmental regulation”regulation” for a discussion of certain government regulations applicable to us.

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DamagesDamage to our Shizuoka plantproduction facilities as a result of disasters, power outages or similar events may significantly reduce our production capacity, and adversely affect our business results and financial condition

OurWe periodically carry out disaster prevention checks and facility maintenance at all of our facilities to minimize potential negative impact caused by disruptions on our manufacturing lines. There can be no assurance, however, that we can completely prevent or mitigate the effect of a disaster, outage or other disruption at our production facilities. For example, our plasma display products are currently manufactured mainly at our Shizuoka plant,and Yamanashi plants, and we are in the process of further expanding our manufacturing lines at Shizuoka. We expect to continue to manufacture our plasma display panels there. Accordingly, our plasma display panel production capacity could be significantly reduced in the event of a major earthquake or other disruption of operations at the Shizuoka plant. We periodically carryand Yamanashi plants.

Employee retirement benefit costs and obligations may adversely affect our business results and financial condition

Pioneer is obligated to pay certain employee retirement benefit costs and obligations to qualifying employees upon their retirement. The amount of such employee retirement benefit costs and obligations are dependent on assumptions used in the relevant actuarial calculations. These assumptions include discount rates, future compensation levels, return on assets, retirement rates and mortality rates, which are based upon current statistical data, as well as long-term returns on pension plan assets and other factors. If actual results differ from the assumptions or assumptions are changed, the resulting effects are accumulated and systematically recognized over future periods and, therefore, generally affect recognized expense and recorded obligations in future periods. Our pension benefit costs have been increasing in recent fiscal years due to declining discount rates and negative returns on pension plan assets, and further

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declines of discount rates and lower returns on pension plan assets may adversely affect our business results and financial condition. In connection with the return to the Japanese government of responsibility for pension obligations under the governmental welfare component of our pension plan, we will transfer some of our pension plan assets to the Japanese government. Such transfer will be accounted for upon completion of the transfer to the government in accordance with U.S. GAAP and may result in a negative impact on our business results and financial condition. The impact of the transfer depends on pension plan assets to be transferred.

Changes in business or economic conditions or other uncertain or unforeseen factors may make it difficult for us to achieve strategic aims and targets

Consistent with the strategies set out disaster prevention checksin “Item 4.B. Business overview—Strategy,” we announced in fiscal 1999 our “Pioneer Group Vision,” a medium-term initiative, with the intent of revitalizing us and facility maintenanceour business through the achievement of two financial targets by the end of March 2006, as well as four business targets. See “Item 4.B. Business overview—Strategic Focus—‘Pioneer Group Vision’.” However, changes in business or economic conditions or other uncertain or unforeseen factors, including (but not limited to) the risks and uncertainties set out inCautionary Statement with Respect to Forward-Looking Statements, may make it difficult for us to achieve our aims or meet the targets that have been set in time or at all, of our facilitiesor to minimize potential negative impact caused by disruptions at the manufacturing lines. We cannot assure you, however,maintain such aims or targets. There can be no assurance that we can completely preventwill be successful in achieving our strategic aims or mitigatemeeting the effect of a disaster, outagequantitative or other disruption atqualitative targets set out in “Pioneer Group Vision” or that our major facilities, includingmanagement will not change such aims or targets in the Shizuoka plant.future.

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Principal capital expenditures, investments and divestitures

In fiscal 1999, 20002002, 2003 and 2001,2004, our capital expenditures consisted principally of facilities for production and molds for production and totaled ¥33,070¥46,909 million, ¥25,458¥40,493 million and ¥42,183¥57,978 million, respectively. Capital expendituresThey were paid for principally out of our internally generated working capital. The facilities for production comprised those for OELOLED displays and DVD pickups, and plants and machinery for plasma displays. See the table in “Item 4.D. Property, plants and equipment,” for a list of our principal plants.

In fiscal 2001,2004, in order to meet fast-growing demand for DVD recorders and recordable DVD drives, we commenced installation of ainvested ¥1.3 billion in building the second manufacturing line for optical pickups, which are key parts of DVD recorders and recordable DVD drives, at Guang Dong Plant in China. This line started its operation in November 2003 and our plant in Shizuoka, Japan, to respond to potential increasedoverall production capacity for optical pickups reached one million units per month.

To address expanding demand for plasma displays.displays, in fiscal 2004, we invested ¥22 billion in building a more efficient production system, including the building of new manufacturing lines at our plants in Shizuoka and Yamanashi, in Japan. Our overall production capacity increased about 67% to 250 thousand units annually through the expansion of the Shizuoka Plant, which was completed in August 2003. The Shizuoka plantongoing building of a new line of the Yamanashi Plant is expected to beginbe completed by fall of 2004 and increase our total production capacity to 600 thousand units annually. In fiscal 2005, we plan to spend approximately ¥30 billion, including ¥6.2 billion paid by June 30, 2004, in October 2001. Whenrelation to PDP-related capital expenditure not including investment related to the acquisition of NPD as described below.

On July 1, 2004, Pioneer and NEC concluded the stock transfer agreement under which NEC will transfer to Pioneer 100% of the issued share capital of its plasma display manufacturing subsidiary, NPD, and the intellectual property rights relating to plasma displays held by NEC. We expect to invest approximately ¥40 billion in the acquisition of NPD and NEC’s intellectual property rights in fiscal 2005. This acquisition is expected to be completed by September 30, 2004. With this acquisition and the new line of the Yamanashi Plant as described above, our total capacity is expected to be increased from 50,000 at present toadd up to 150,000more than one million units pera year. In order to carry out this investment, on March 5, 2004 we issued the aggregate principal amount of ¥60,000 million of its Euro Yen Zero Coupon Convertible Bonds due 2011. See “Item 4.B. Business overview—Strategic Focus—‘Pioneer Group Vision’.”

To furtherIn order to improve cost competitivenessmanagement efficiency by concentrating resources in strategic businesses, in July 2003 we reached agreements to sell 100% of our shares in two of its wholly-owned subsidiaries, Pioneer LDC, Inc. (“PLDC”) and Pioneer Entertainment (USA) Inc. (“PEUSA”), to reallocate a major portionDentsu Inc. (“Dentsu”), Japan’s largest comprehensive advertising agency. These subsidiaries were engaged in the AV software businesses in Tokyo, Japan and in California, U.S.A., respectively. The transfer of production to China, Pioneer established two production subsidiaries in China inall the shares of PLDC, and 90% of the shares of PEUSA owned by us was completed by fiscal 2001. These plants2004. The remaining shares of PEUSA owned by us are expected to be operationaltransferred to Dentsu by September 30, 2006.

In March 2004, Q-Tec, Inc., which was a 99.26% owned subsidiary of Pioneer, became an independent company through a Management Buyout after it acquired all of the shares owned by Pioneer, forming a business alliance with Vision Capital Corporation and Memory-Tech Corporation. Q-Tech, Inc. is one of the largest manufacturers in the fallJapanese postproduction industry which offers high-quality total services including editing of 2001,video and audio products such as animation, movies, commercials, and broadcast programs, DVD encoding/authoring and pressing.

The amount paid to us in respect of these sales of subsidiaries that are mainly for DVD pickups, DVD-R/RW drives and car electronics products. See “Item 4.B. Business overview–Production.” In addition, Pioneer established a holding companyengaged in the first half ofaudio/video business was ¥4.9 billion in fiscal 2002, which coordinates the activities of Pioneer’s local subsidiaries and affiliates2004. See Note 3 in China“Notes to raise their operating efficiency.Consolidated Financial Statements.”

In fiscal 2001, Tohoku Pioneer Corporation, Pioneer’s majority-owned subsidiary, started a joint venture company with Semiconductor Energy Laboratory Co., Ltd. and Sharp Corporation. The joint venture plans to start manufacturing and marketing continuous grain (CG) silicon thin-film transistor (TFT) substrates for use in active-matrix full-color OEL displays in the fall of 2002.16

In fiscal 2000, we recorded an impairment loss of ¥2,100 million on real property of an LD plant in Japan closed during the year. The expected net realizable value and, thus, the carrying amount of the facility at the end of fiscal 2000 was ¥2,341 million.

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B. Business overview

Industry overview

The electronics industry is currently experiencing a major shift from analog technology to digital technology in many communications and consumer entertainment applications. Digital technology is a means of transmitting, processing and storing data by converting it into binary code, as opposed to the conventional analog method, which uses a direct and variable electrical current. Digital technology is generally more resistant to interference or loss of quality, providing enhanced sound and clearer and sharper pictures (for example, music and video on CDs and DVDs). Together with its compression/decompression technologies, digitalization speeds data transmission and allows networks to handle far greater amounts of data efficiently. The proliferation of digital technologies in telecommunications has been a key element in the convergence of communications and computing technologies.

Digital technologies have led to a revolution in consumer electronics, with analog LPs being replaced by digital CDs, analog prerecorded video cassettes and LDs being replaced by DVDs, and analog TV broadcast signals likely being replaced by digital TV broadcast signals.

Product standardization and intense competition among leading manufacturers has led to declining product prices and shorter product life. Digitalization and the convergence of consumer electronics, telecommunications and computing technologies provide those companies with technological expertise in the storage, transmission and display of digital data with the opportunity to introduce innovative and differentiated applications and products.

We believe we have always been at the forefront of digital technology. Our expertise in digital storage and retrieval has led to developments in some of the digital products, including car CD players and DVD recorders, both of which were the first to be mass-marketed.

Strategy

We aim to be a leading provider of advanced, high quality,high-quality, value-added AV electronics products worldwide for consumer and business use. Our corporate philosophy is to “Move the Heart and Touch the Soul,” with products that are designed to bring joyincrease satisfaction, comfort and entertainment toconvenience in everyday life.

To achieve our goals, we are pursuing the following strategies:

	•		Developdevelop innovative, technologically-advanced products that meet and stimulate market demanddemand;
	•		Enhanceenhance our brand equityrecognition and promote customer satisfactionsatisfaction;
	•		Leverageleverage our leadership position in the car electronics businessbusiness;
	•		Focusfocus on our strategic products targeting global marketsmarkets; and
	•		Adoptadopt optimal production methods to maximize profitability and streamline our administrative and service functionsprofitability.

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Develop innovative, technologically-advanced products that meet and stimulate market demand

We believe our core strength is our ability to innovate. Throughout our history, we have focused on the development of unique products, and have attempted to be the front-runner and market leader in our product areas. Such areas have included dynamic speakers, car audio, LD and car navigation systems. We intend to continue to take advantage of such strategy and gain consumer confidence by introducing differentiated products into the market ahead of our competitors.

Consistent with our strategy, we have recently introduced into the market several newcutting-edge products, such as plasma displays and digital broadcast settop boxes.DVD products. In the DVD market, we were the first to commercialize a DVD recorder. We were also the first to introduce a four-color OELOLED display to the market. We intend to continue to take advantage of this strategy and attract customers by introducing differentiated products into the market ahead of our competitors.

Enhance our brand equityrecognition and promote customer satisfaction

The cornerstone of our business foundation lies in the quality of our products and consumers’ confidence in our products.their ability to inspire consumer confidence. Accordingly, we focus on the enhancement of our brand image and customer satisfaction. In addition to the extensive quality control and assurance measures on the production side, we invest in various marketing campaigns to maintain and enhance the value of our brand. Combined with our new worldwide brand slogan of “Sound. Vision. Soul,“sound. vision. soul,” we aim to establish Pioneer as a brand driven by innovation and clearly differentiating ourselves from our competitors. We believe customer satisfaction is based not only on reliability and technology, but also on the impact of the quality of sound or vision delivered by our products.

Leverage our leadership position in the car electronics business

We believe one of our strengths lies in our core business segment, the car electronics business. We leadare one of the leading manufacturers in the world consumer market for car audio products.products and car navigation systems. We were the first in the industry to introduce car navigation systems to the Japanese consumer market in fiscal 1991 and have been maintainingmaintained a leading position by offering affordably priced and easy-to-operate DVD-ROM typeand advanced HDD-equipped models. To further strengthen this product line,In addition, in November 2002 we introducedreleased in Japan in June 2001 a newthe consumer market the world’s first car navigation system incorporatingthat incorporates a hard disk drive (HDD), which has substantially fasterdata communication module for access times than those ofto the existing DVD-ROM drive models.

latest map data. Sales in this category are gradually shifting from the consumer market to the OEM market as automobile manufacturers place greater emphasis on differentiation of their cars, and we intend to further expand our market share by increasing OEM sales.

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Focus on our strategic products targeting global markets

We focus on our strategic products where we canare more likely to secure the “first-mover advantage” oras a means of establishing market leadership. As part of our efforts to secure these leading market positions, we strive to play a major role in setting product standards. For example, we are currently promoting the DVD-RW format used forin DVD recorders and DVD-R/RWrecordable DVD drives. This format has already gained support from other major consumer electronics companies such as Sony Corporation and Sharp.Sharp Corporation (“Sharp”). We also aim to differentiate ourselves by introducing to targeted markets innovative plasma displays, OELOLED displays and HDD car navigation systems. We market these strategic products on a global basis. Although certain technological customization is required, most of our key products are currently sold in virtually all major economies in the world.

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Adopt optimal production methods to maximize profitability and streamline our administrative and service functions

We strive to adopt ideal production methods catered to each type of product and market demand. While we focus on reducing manufacturing and operating costs, our goal is to achieve overall efficiency in production by, for example, taking into account the proximity of the end-market, production facilities and labor costs. Consequently, amongwe have increased the proportion of our strategic productsproduction in China. To meet the fast-growing demand for plasma displays, we have built a more efficient production system at our plasma display panel manufacturing subsidiary. We are in the process of establishingbuilding our fourth production facilitiesline in China for certain DVD products, andJapan, which is expected to start operation by fall of 2004. Moreover, the acquisition of NPD is expected to be completed by September 2004. Following these measures, we plan to produceestablish in fall 2004 an increased volumeoverall production system capable of plasma displays in our expanded facility in Shizuoka, Japan. Moreover, we plan to make use of electronics manufacturing services (EMS) in China for outsourcing to help reduce further capital investment and investment in inventories.yielding more than one million panels annually. To enhance cost competitiveness and achieve economies of scale, we sell our key products on an OEM basis to other manufacturers. We are also streamlining our administrative and service functionsIn addition, we introduced supply chain management to promoteoptimize efficiency and cut costs. Accounting, payroll,of inventory management and other administrative functions which were previously undertaken by our local offices in Japan, were consolidated in fiscal 2001 and are now carried out by Pioneer Shared Services Japan Corporation, a wholly-owned Pioneer subsidiary. Similarly, we have established an internal shared services company in the U.S. in order to economize our corporate support system. We believe that reducing overall costs is imperative to maintain our competitiveness and increase product penetration in the markets.control worldwide.

Strategic Focus—“Vision 2005”Pioneer Group Vision”

Consistent with the strategies described above, in fiscal 1999 we announced “Vision 2005,“Pioneer Group Vision,” a medium-term initiative. As partinitiative, with the intent of “Vision 2005,” we setrevitalizing Pioneer and its business through the achievement of two financial targets by the end of ¥1,200 billion of consolidated operating revenue and return on equity (ROE) of 10% byMarch 2006, as well as four business targets. They are as follows.

Financial targets for the fiscal 2006 (corresponding figures for fiscal 2001 were ¥647 billion and 5.63%, respectively), and established the following business-related objectives:year ending March 2006:

•		¥1.2 trillion of consolidated operating revenue
•		ROE (Return on Equity) in excess of 10%

Business targets

(i) to become a leaderNo. 1 in the DVD industryworldwide

We believe the DVD format will becomeremain the dominant high-density, high-capacity medium for sound, video and data recording, storage and playback.playback for the foreseeable future. As a leaderone of the leaders in the LD format, the precursor to the DVD,this field, we have been well-positioned as a resultintroduced attractive models of our accumulated expertise through development of LDs to help establish the standardization of the DVD format and innovate new products such asconsumer-use DVD recorders, based on the DVD-RW format for consumer use and DVD-R/RWDVD home theater systems, DVD car navigation systems as well as recordable DVD drives for PC use. WithPioneer believes that these DVD products have a competitive edge in design, function and price, contributing to the introductionexpansion of theits DVD recorder in December 1999 in Japan and our plan to introduce it by the end of 2001 in the United States, we expect our DVD business to undergo further expansion.business.

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(ii) to establishEstablishing a business foundation for plasma displays and OELOLED displays

We believe large-screen plasma displays offer significant advantages over cathode ray tubes (CRTs)(“CRTs”) and liquid crystal displays (“LCDs”). Among other advantages, it is technically easier to enlarge plasma displays are thinnerthan CRTs and lighter than CRTs.LCDs. Thus, we expect that plasma display panels in the future will capture a substantial portion of the larger-screen TV market, in which currently CRTsis expanding with the advent of high-quality pictures such as DVD and projection TVs are dominant.digital TV broadcast. Since introducing the first plasma displays in fiscal 1998, we have established a solid presence both in consumer and commercial markets worldwide as a result of our highexcellent reputation for the large-screen high-resolution images of our plasma displays. To meet the expected rising demand, we will expand our production capacity in October 2001 through the establishment of a second line at our Shizuoka plant in Japan.

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OELOLED display is another type of display, which we have beenare promoting aggressively. OLEDs are particularly well-suited for small size displays, such as cellular phone displays. In fiscal 1998, we became the first in the world to market car electronics products equipped with an OELOLED display, and in fiscal 2000 we were the first and currentlyin the only companyworld to mass-produce four-color OELOLED displays. OELs are particularly well-suited for small size displays, and in fiscal 2001 we commenced deliveries of OEL displays for use in cellular phones of a major U.S. cellular phone maker. To further strengthen our market position, in fiscal 2001, Tohoku Pioneer Corporation, Pioneer’s majority-owned subsidiary, established a joint venture company, ELDis, Inc., in fiscal 2001 with Semiconductor Energy Laboratory Co., Ltd. and Sharp Corporation to manufacture continuous grain (CG) silicon TFT substrates for active-matrix full-color OEL displays.

(iii) to develop and strengthen lines of network-related productsmanufacture active-matrix full-color OLED displays.

(iii) From stand-alone to network

Our current approach is to develop network-related products drawing upon our strength as an AVa consumer- and business-use electronics product manufacturer. We believe we have a competitive advantage in the interface function, where information is delivered to users. We believe we have an excellent brand image, as well as many years of experience in analog/digital cable-TV and digital broadcast markets through the sale of our settopset-top boxes. We are strengthening the synergy of digital home network-linkage of entertainment/information systems, such as AV components, DVD players, DVD recorders, plasma displays and settopset-top boxes.

(iv) to expand our key deviceToward the key-device, key-technologies business and develop our key technologies

To keep up with the accelerated pace of change in the electronics industry, it is important for us to promote key technologies and key devices, collaborating with third parties when beneficial. We believe such collaboration generates synergies that can create new advances in our key technologies and optimizes the use of our resources.

We believe that a producer of key devices is better able to develop and offer broader product differentiation and to influence the direction of market trends than a company that merely assembles products. Our strategically important key devices are DVD pickups, plasma display panel modules, speaker units, CD mechanisms for car manufacturers and OELOLED display panels for mobile phone companies.

Nature of operations

We develop, design, manufacture and sell electronics products such as audio, video and car electronics on a global scale, as well as plan, produce and distribute AV software.scale. We are one of the leading innovators of differentiated DVD products and plasma displays. We are also haveone of the largest worldwide market shareleading manufactures of car electronicsaudio products such asand car navigation systems and arein the leading producer of OEL displays.consumer market.

Our principal production activities are carried out in Japan and Asia.Asia, including Japan. Our products are generally sold under our own brand names, principally “Pioneer.” Our primary markets are Japan, North America, Europe and Asia. WeAsia and we sell our products to customers in consumer and business markets through sales

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offices in Japan, and through sales subsidiaries of Pioneer and independent distributors outside of Japan. In addition, on an OEM basis, we market certain products, such as car electronics products, DVD-R/RWrecordable DVD drives, digital broadcast set-top boxes and broadcast settop boxes,OLED displays to other companies.

18As a result of the sale of subsidiaries in the audio/video software business in fiscal 2004, the gain from such sale, as well as the operating results of the discontinued operations, are presented net of tax as a separate line item in the consolidated statement of income in accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”

We classifyAlso, in fiscal 2004, we changed our business groups into three segments: “Electronics,segment classification for certain businesses. Results related to DVD drives for PCs have been moved from “Others” to “Home Electronics,” “AV Software” and “Patent Licensing.” We further break down our “Electronics” segment into three product groups: “Audio/Video,” “Carresults related to plasma displays for business use have been moved from “Home Electronics” andto “Others.” Operating revenue consists of net salesCorresponding figures for both “Electronics” and “AV Software,” plus royalty revenue from “Patent Licensing.”the previous fiscal years have been restated accordingly. (The consolidated financial statements included in this annual report and the financial information below are prepared in accordance with U.S. GAAP, except for segment data which is prepared in accordance with therelevant regulations under the Securities and Exchange Law of Japan. Specifically, such segment information is required to be reported by reportable industrial segment, whereas segment information is required to be reported by reportable operating segment under U.S. GAAP.)

The profit margins in the “Patent Licensing” segment are substantially higher than those in the other twothree segments, since costs related to patent licensing are limited principally to amortization of patent rights and expenses for licensing activities.

The following table sets forth our operating revenue from unaffiliated customers by business segment for the respective periods indicated:

Operating Revenue from Unaffiliated Customers by Business SegmentSegments
(In millions of yen, except for percentage amounts)

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ElectronicsHome Electronics:

Audio/Video:

This groupsegment includes stereo systems, receivers, amplifiers, tuners, CD players, CD recorders, minidisc (MD) systems, cassette tape decks, speaker systems, DVD players, DVD recorders, LD players, online karaoke systems,recordable DVD drives, DVD-ROM drives, home-use plasma displays, projection TVs, stereo systems, individual stereo components, equipment for cable-TV systems, digital broadcast set-top boxes and multiscreen video systems.telephones.

Sales by product for fiscal 2001 in the Audio/Video group is as follows:Recordable DVD players, which were initially introduced in fiscal 1997, have grown to accountdrives accounted for the largest sales in this group. Stereo systems also accountedsegment for a significant portion of sales. Sales of ourfiscal 2004. In addition, home-use plasma displays which were first introduced in fiscal 1998, mainly for business use, are rapidly growing for both business and (in the form of TV screens) household purchases, contributing substantiallycontributed significantly to sales in this group. In North America, both projection TVs and AV receivers accounted for a material portion ofsegment. Moreover, DVD recorders contributed significantly to sales in this group.segment reflecting a large increase in sales during fiscal 2004.

We believe the traditional home audio markets of Japan, North America and Europe have matured and accordingly, price competition in these markets is strong. We do not expect the traditional home audio markets in these regions to grow substantially. We believe growth will come from new products, such as DVD-related products and plasma displays. In our DVD business, we are shifting the emphasis from price-competitive DVD players to higher value-added DVD recorders and DVD home theater systems which merge audiosystems. Moreover, our DVD-related products as computer peripherals have shifted from DVD-ROM drives to recordable DVD drives. In our plasma display business, we continue to promote vigorously 50- and video technologies, and43-inch models of high-definition plasma displays.

DVD is a unified format for high density digital storage media of audio and video such as movies/video clips/concerts, as well as of computer data. The market for DVD players has been expanding dramatically worldwide. JEITA (Japandisplays in the worldwide market. Japan Electronics and Information Technology Industry Association)Association (“JEITA”) forecasts an approximately 50%37% increase in consumer DVD player and DVD recorder sales worldwide, from 1662 million units in 20002003 to 2585 million in 2001. In the2008, and strong growth in recordable DVD player market, we have introduced unique value-added products, such as DVD home theater systems and slim design (2.2 inchdrives from 23 million units in height) DVD players. The DVD recorder based on the DVD-RW format2003 to 88 million units in 2006 worldwide. It also forecasts that we are vigorously promoting can record high-quality audio/video content from a varietysales of sources, such as TV and direct-broadcasting satellite programs, repeatedly about 1,000 times onto a rewritable DVD. In fiscal 2000, we began marketing the DVD recorder as video recording/editing equipment for household consumers, for the first time in the industry. The recorder introduced subsequently in fiscal 2001 can also record onto more affordable write-once DVD-R discs with DVD-R format. In July 2001, we further launched a new model with lower prices in Japan, and plan to do so in North America and Europe in fiscal 2002. We have begun mass-producing DVD recorders using the DVD-RW format, thereby striving to further lower retail prices and seeking to set thede facto industry standard.

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Plasma displays are another product that we believe to have commercial potential. In comparison with conventional CRTs and projection TVs, plasma displays feature a screen which is larger yet very slim, only about 4.9 inches in depth. These displays are lighter than CRTs and projection TVs and have wider viewing angles than projection TVs. We expect that these characteristics will help plasma displays capture a substantial portion of the larger-screen TV market in the near future, in which CRTs and projection TVs currently are dominant. Our plasma displays have achieved a high reputation both in the consumer and business markets for their high-resolution, high-quality pictures since the introduction of the first model to the market in fiscal 1998. Our plasma displays are currently used mainly at shopping malls, airports, train stations, and other public and commercial venues. They also increasingly meet household demand for large-screen enjoyment of high-quality pictures from DVDs and other sources. We introduced new plasma displays for business use to the Japanese market in August 2001. Our 50-inch XGA plasma display has improved peak brightness by 60% and bright area contrast by 80% compared with our previous models, realized sharper high-definition images even when viewed under bright light conditions, and achieved a 20% decrease in power consumption compared with its predecessor model. We will introduce these new models for both consumer and business markets outside Japan at the end of 2001. We also plan to launch 43-inch plasma displays worldwide will increase approximately 8 times, from 1 million units in fiscal 2002.2003 to 8 million in 2008.

Car Electronics:

This groupsegment includes car stereos, car CD players, car MD players, car DVD players,AV systems, car speakers and car navigation systems.

Sales by product for fiscal 2001 in the Car Electronics group is as follows: Car CD playersOverall, car stereos accounted for the largest sales in this group. Of these, our car stereos equipped with OEL displays were well received by consumers due to clear images from a wide viewing angle range. Also, cassette car stereos accountedsegment for a significant portion of sales in this group.fiscal 2004. In Japan, our car navigation systems accounted for a significant portion ofthe largest sales, while overseas car stereos accounted for the largest sales in this group.segment. Sales based on OEM accounted for 32.3% in this segment.

Both in Japan and outside Japan, sales in this group are generally made in the consumer market and to automobile manufacturers on an OEM basis for installation in new cars on production lines or as optional parts. Sales in this category are gradually shifting from the consumer market to the OEM market, as automobile manufacturers place greater emphasis on differentiation of their cars. Our strong brand recognition in both markets is helping us maintain our leading market share of car electronics products on a global basis. We plan to shift manufacturing of car electronics products to China in order to meet price competition.

We werebecame the first manufacturer in the industryworld to introduce car navigation systems for the consumer market when we launched our first car navigation systems to the Japanese consumer market in fiscal 1991.1991, and since then have maintained a leading position by offering affordably-priced and easy-to-operate DVD-ROM and advanced HDD-equipped models. We have substantial expertiseplan to expand this business in Europe and North America, where the markets are expanding recently. JEITA forecasts that sales of car navigation systems and have been one ofworldwide will increase approximately 2 times, from 5.2 million units in 2003 to 10 million in 2008. In November 2002, we released in the consumer market leaders. Carthe world’s first car navigation systems showsystem that incorporates a data communication module for access to the current position oflatest map data. In the car they are installed in, by receivingaudio business, we also strive to widen our market share with new products and processing signalsinnovations, such as car CD players with OLED displays and in-car entertainment systems. As we keep introducing innovative car electronics products, we will continue to seek to distinguish our products from GPS orbiting satellites controlled by the United States Department of Defense. The information is given on maps displayed on a small in-car TV, as well as through voice guidance. Map information is generally stored on CD-ROMs or DVD-ROMs. The system also provides hotel, restaurant guide and other valuable information, and displays possible routes the driver could take. Currently, most of the market for our car navigation systems is in Japan.competitors.

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In June 2001 we introduced in Japan a new car navigation system incorporating a HDD, which has substantially faster access times than those of the existing DVD-ROM drive model. The new model is receiving favorable acceptance from our customers for its attractive and convenient features, such as its quicker search and display of routes to designated destinations, and its “music server” function with a storage capacity of approximately 20 audio CDs.

Others:

This group includes products primarily for business use, such as OEL display panels, equipment for cable-TV systems, DVD-ROM drives, DVD-R/RW drives, factory automation systems, digital broadcast settop boxes, and telephones for consumer use.

Sales by product for fiscal 2001 in this group is as follows: Settop boxes of cable-TV systems and digital broadcast accounted for the largest sales in this group. DVD-ROM drives also accounted for a significant portion of sales in this group. In Japan, telephones accounted for a significant portion of sales in this product group and factory automation systems, such as for car-related systems like air bags, fuel ignition devices and fuel supply devices, also contributed to sales.

We began shipment of OEL display panels in North America in fiscal 2001 on an OEM basis to a major U.S. cellular phone maker. OEL display panels offer many advantages over alternative display panels: self-lighting emission, an ultra-thin profile, low-power consumption, and clear images throughout a wide viewing angle range. We were the first in the world to market an OEL display in fiscal 1998 and the first and only company to start mass-producing four-color (blue, green, yellow and red) OEL displays in fiscal 2000. In addition, we expect to start manufacturing in the fall of 2002, through a joint venture company, continuous grain (CG) silicon TFT substrates for a higher-resolution active-matrix full-color OEL display.

In fiscal 2001, we began supplying DVD-R/RW drives to PC makers on an OEM basis. The DVD-R/RW drives can record both on a write-once blank DVD-R disc and a rewritable blank DVD-RW disc up to seven times as much data as that of a CD-R or CD-RW disc. In fiscal 2002, we launched a Pioneer-brand DVD-R/RW drive, the world’s first model that reads and writes data on all DVD-R, DVD-RW, CD-R and CD-RW discs.

Terrestrial broadcasting, cable TV and digital-broadcast satellite (DBS) are rapidly shifting into digital technology. We have been providing digital DBS settop boxes to a pay TV company in Europe since fiscal 1998. In fiscal 2000 we shipped digital cable-TV settop boxes to U.S. operators. In fiscal 2001 we started distributing digital DBS settop boxes in Japan and digital terrestrial broadcast settop boxes to a broadcast company in the United Kingdom.

AV Software

This segment includes the production, manufacture and sale of prerecorded DVDs, LDs, videocassettes, CDs and optical disc manufacturing systems.

Sales in this segment are substantially smaller than those of the Electronics segment. Characteristically, they show much volatility year to year, depending upon the presence or absence of hit movie and music titles. The main markets of this segment are Japan and North America. Sales analysis by product for fiscal 2001 in this segment is as follows: DVDs accounted for the largest sales in this category, due mainly to the expansion of the DVD player market, especially in Japan. In North America, prerecorded videocassettes of the hit animation titlePokémoncontributed to sales in this segment.

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