2Q FY2006 Financial Announcement Meeting Q&A

Q1.	Is TEL satisfied with the current price of its stock? Since the beginning of the year, a disparity has emerged between TEL's stock price and the stock prices of Advantest and Tokyo Seimitsu. The growth of those two companies appears to be tied to the introduction of new products, but it is difficult to say the same thing about TEL. Please explain TEL's growth plans.
A1.	We are not satisfied with the current price level of TEL's stock. Concerning the company's growth, we will introduce new products from time to time, but for strategic reasons cannot go into details. We will introduce products in existing fields and will also enter new fields. On the financial side, we want to steadily improve our operating profit margin (the current margin is 10.9%).

Q2.	What do you see as the main future trends in your industry? In particular, how do you view the January-March 2006 period?
A2.	Although it is difficult to make forecasts at the present stage, the non-transparency of the past is slowly lifting. We are optimistic about the outlook for the entire next fiscal year.

Q3.	Concerning trends for orders to be received in the future, and about memory (DRAM) in particular, if orders received continue at their current high level it seems likely that there will eventually be a decrease. When do you think orders received will start decreasing?
A3.	To be honest, that is difficult to say. Shipments of low-end PCs, centered on BRICs, are doing well, and it is said that high-end PCs with a new operating system will be introduced sometime end of next year. So we feel that the demand for DRAM will continue to grow.

Q4.	What is the outlook for orders received in the October-December period?
A4.	Current order inquiries are firm. Compared to the July-September period, we expect orders received in the October-December period to increase by around 10 billion yen.

Q5.	DRAM and flash memory accounted for 53% of the orders received for SPE during the July-September period. What is the breakdown of those orders?
A5.	Usually, flash memory orders are equivalent to about 20-30% of memory orders. During the July-September period, however, orders for DRAM from customers in Taiwan and elsewhere were far larger than those for flash memory, so the flash memory percentage was lower for that period.

Q6.	What is the situation in the device market for FeRAM?
A6.	FeRAM is a candidate for the nonvolatile memory field. Although it cannot be denied that this is still a niche field, whether or not it becomes a mainstream memory product will be clear in the future. Besides Japan, we have also delivered products to customers in the U.S.

Q7.	Concerning the order situation for LCD coaters/developers, has TEL recovered its market share?
A7.	We feel that TEL has a foothold in the coater/developer market. We expect increased orders from the next fiscal year and view the LCD market as progressing favorably. We believe that customers have plans for much capital investment in LCDs for large-size TVs.

Q8.	Have customers already begun talking with TEL about devices for 9G?
A8.	We are not yet at the stage where we are making decisions on specifications or receiving orders. There is still nothing specific.

Q9.	Is it safe to say that TEL's share of the market for etching systems will increase in the future?
A9.	We introduced a new chamber (development code name JIN), and the evaluation by customers has been favorable. We are taking steps to win back the small amount of market share that we lost last year.

Q10.	What has the percentage of in-house production been up to now, and what is the outlook for the future?
A10.	Although there are slight differences in trends between our plants, we are presently reviewing excessive outsourced manufacturing. Production costs will increase with improvement of product quality, but we aim to improve our profitability to cover the rise in fixed costs.

Q11.	Do the measures TEL has in place for increasing its profit margin include a scenario of withdrawal from business areas where the profit margin is low?
A11.	We are always discussing such possibilities as management issues. There is a need, however, to invest resources of areas we withdraw from into new areas, and it takes much time and large amounts of capital to enter new fields. If the timing is good, that would be the thing to do, however we think we are not in that circumstance at this moment.

Q12.	Some improvement is noticeable in TEL's cost structure. What will the company's next moves be in this area?
A12.	Our preparations are almost complete for introducing a new production control system in our plants. We expect positive results to appear in the next fiscal year in terms of inventory and delivery control.

Q13.	It appears that through an additional facility at TELAT, TEL will increase its manufacturing capacity for production equipment (LCD etching systems) for large-size substrates. What is the outlook for recovering the amount of capital invested?
A13.	Although the profitability of FPD production equipment has an unfavorable image, FPD etching systems actually are highly profitable. Viewed from the current level of orders received, we believe that we will have enough pay-back from our investment soon.

Q14.	What were the actual R&D expenditures for the April-June and July-September periods?
A14.	For the April-June period R&D expenditures were 9.8 billion yen; for the July-September period they were 11.9 billion yen.

Q15.	TEL plans to increase the number of personnel in the R&D area during the second half of the year by 100 people. What are the details regarding those plans?
A15.	We will mainly hire engineers, and will bolster the mechanical, electric, software, and process engineering areas.

Q16.	It seems that TEL's plan for personnel increases runs contrary to the slimming-down move the company previously announced. Is the plan in preparation for trends from 2007?
A16.	The aim of our structural reforms was to get rid of excesses the company had and to build a structure that would not generate deficits when business was sluggish, and we achieved quite a bit of success in those efforts. We will continue promoting the same efforts in the future. In terms of development, however, we believe that now is the time to invest for our next period of growth.

Q17.	Will the ratio of fixed costs increase as a result of the workforce being bolstered?
A17.	Regarding investments that cause an increase in fixed costs, we will make the investments in stages and carry them out as prudently as necessary. Development is an area in the company that needs strengthening, and since there is natural attrition in our existing workforce, we do not feel that bolstering our workforce will lead to a sudden increase in the ratio of fixed costs.

Q18.	What is the cause of the worsening of gross profit margin in the July-September period of FY2006?
A18.	The main cause is the effect of the product mix. We view this as being a temporary issue.

Q19.	Please explain what TEL will be doing to improve its profit margin by product.
A19.	Although we cannot explain the measures we will be taking for individual products, we will increase the overall margin. In the area of FPD coaters/developers, we expect the profit margin to improve through the introduction of new products. In the future, to have our operating profit margin reach 20%, we will introduce new products in each area.

Q20.	About how large will your gross profit margin be for the second half of the fiscal year?
A20.	We expect it to be 28%.

Q21.

What is your expected free cash flow for the second half of the fiscal year?

A21.

It will be difficult to maintain a free cash flow at the same level of the first half of the year, which was about 50 billion yen. We expect a level of about 10 - 20 billion yen for the second half. As we expect domestic sales to be high in the second half of the year, accounts receivable will increase. As a result, the outlook is for free cash flow to decrease slightly compared to the first half of the year.

Q22.	Customer advances decreased in the free cash flow. Does that mean that because the company's situation improved it relaxed its stance of requesting customers to pay in advance?
A22.	One of the reasons for booking customer advances is shipment to overseas customers. The decrease is a result of progress in booking sales to those customers.

Q23.	Further restructuring and natural attrition within the industry is expected, and it is even possible one of TEL's business partners will go bankrupt. In that context, please tell us about TEL's system of risk management, especially regarding accounts receivable.
A23.	TEL has a thorough credit management system. Depending on the transaction, for example, there are times when we request an advance payment on receipt of an order. Also, depending on the region, we require letters of credit. Overall, therefore, you can say that TEL has solid risk management measures in place.

Q24.	What will happen in the future to the shares of TEL that TBS holds? Is TEL holding discussions with TBS management about the shares? Also, at TEL's general meeting of shareholders in June 2005, the motion to introduce countermeasures against takeover bids was defeated. What plans have been developed since then?
A24.	We cannot comment on the first question. Concerning the second question, TEL will take whatever action is necessary to protect the interests of its shareholders. At present, the matter of introducing countermeasures against takeover bids has been returned to the drawing board. We will revisit it in the future.