FY2006 Financial Announcement Meeting Q&A

Q1.	Based on the current level of orders, in this fiscal year the SPE/FPD division alone will achieve sales of more than 700 billion yen, and when the sales from other divisions are included, might you expect around 50 billion yen more than the previously announced financial forecasts for sales and corresponding profits?
A1.	There continue to be uncertain factors for the second half of this fiscal year, so we have adopted a somewhat conservative projection.

Q2.	In the past several years, including the current announcement of financial forecasts, there have been no pleasant surprises with respect to improvements in profit margin. Shouldn't there be further improvements in the marginal profit ratio and the like?
A2.	Not much time has passed since the introduction of new products, and as a result we have not yet entered the phase in which we reap the benefits. If the percentage of new products introduced the previous fiscal year and the current fiscal year increases, we would expect the profit margin to improve in about three years.

Q3.	What are your projections for the market in 2007 and 2008?
A3.	We have no specific evidence that refutes further market growth, and therefore we expect the market to expand next year.

Q4.

Please provide some indication of your future management measures.

A4.

First, we consider a goal of a 20% operating income margin to be pivotal. To achieve this, we will accumulate core technologies and reinforce our development and planning capabilities. There are those who believe that cost competitiveness is more important than technology, but we believe that even more advanced technologies will be demanded in the future, and consequently we intend to ceaselessly seek for new technologies.

Q5.	With the slump in the economy up to now, a disparity compared to the trends of financial results among competitors has appeared. Can we expect any improvement in the future? Also, what measures will you carry out to increase corporate value?
A5.	Our first priority is to create a business structure that will not fall into the red even during an economic slump. Although some increases in fixed costs are unavoidable, we will manage the fixed cost ratio and the like at an appropriate level.

Q6.	Are there any concrete figures you can announce concerning progress in raising manufacturing capabilities?
A6.	We have not prepared any concrete figures at this time, but we have made steady progress in reducing manufacturing lead times and cutting materials costs. For future products, we are working to achieve these improvements from the design and development stages, and we believe that we will be able to announce concrete figures at a later time.

Q7.

There is a sense that the rate of outsourcing remains high from the perspective of further increasing profit margins. What are your views on shifting production in-house in the future?

A7.

Having a high rate of outsourcing provides for a certain level of comfort when considering market fluctuations, but upon reflection the rate may be a little too high. We will consider carefully what are our core technologies and plan to increase the rate of in-house production to some extent. This will make possible improvements in production technologies and manufacturing capabilities, resulting in further cost reductions and efficient development and manufacturing. We are currently considering concrete quantitative criteria and hope to set goals during the first half of the fiscal year.

Q8.	What are your medium- to long-term goals, if any, for reducing the receivables and inventory turnover period?
A8.	As a result of the various measures that we have implemented up to now, we have reduced these turnover periods to their current levels. We are not satisfied with these levels, however, and we intend to take additional measures to achieve further improvements. New measures will be necessary to do this, and we are now considering such measures.

Q9.

Are there any factors that contradict the argument that quarterly orders will peak at above 200 billion yen and support the contention that they will be boosted to the 250 billion yen level?

A9.

We feel that we are shifting from the environment in which the market is essentially driven by events to a situation where the base of the IT-related market will expand on a global scale. Based on wireless networks, the semiconductor and IT markets are expected to expand in emerging countries without being limited to traditional communications fields, while establishing a foothold in the fields of education, healthcare, etc. Among our product families, we will increase the market shares of existing products with high cost performance while accelerating the development of products that will become new core products. We believe that increasing our operating income margin from 17% to 20% will be possible when these product families contribute to financial results. In addition, the post-sales division's profit margin is at a high level, and we intend to boost profit margins further by increasing sales for this division.

Q10.	What is your projection for orders in the April to June 2006 period and beyond?
A10.	We expect orders during the April to June 2006 period to remain at the same high level as the January to March 2006 period. Although there is a degree of uncertainty regarding later periods, we predict that there will be an adjustment phase within this year, followed by another increase in orders.

Q11.	When will the percentage of foundry orders among all orders exceed 10%?
A11.	We expect that orders from foundries will increase in the future. Since the scale of investment for memory is large, the percentage of foundry orders to the total is relatively low. The business performance of some of our foundry customers other than the top manufacturers is improving, and we expect orders to increase in the future.

Q12.

For what specific products are you working to increase market share?

A12.

We are working to increase market share of all products in general. We will use new products that are selling well as leverage to further increase the market share of dielectric etch systems and thermal processing systems. It may be difficult to substantially increase the market share of semiconductor production equipment overall, but we believe it is more than possible for individual products. Among 300mm product families, our oxide etch systems boast a 64% market share, and looking at the overall etch system market, our market share is still only about 30%; therefore we are aiming for a share in excess of 50% in the future. In addition, single-wafer cleaning systems are a product for which we anticipate increased sales in the future, and we believe that there is still room for increases in market share for our existing product families.

Q13.

With regard to FPD production equipment, what is your thinking concerning progress in coaters/developers for eighth-generation substrates and your measures for next-generation display equipment?

A13.

We are extremely confident of our newly-released eighth-generation equipment, and considering the equipment concepts and other factors, we are certain that these products are very appealing from the customer's perspective. We will proceed, however, without taking measures to increase sales all at once. With respect to next-generation equipment, we are taking a variety of measures. One concept is to aim for high productivity for extensions of current technologies, and another is to have equipment for displays that is different from current LCD panel formats.

Q14.

It is forecasted that future growth of the LCD production equipment industry as a whole will become difficult. Are you considering mergers and acquisitions and other measures?

A14.

If we look at individual products, our market share is high, and this means that mergers and acquisitions will not be advisable for increasing market share further. If outstanding technology appears, however, we will consider acquiring it and increasing the rate of in-house production. We believe that until about 2012, capital investment in LCD panels will increase or will remain at a high level. Following that, there are two possible courses. One is the application of this to high-definition displays such as organic EL displays, while the other is flat illumination; and if LCD panel technology is applied to illumination, etc., new markets will be created.

Q15.	Is there any possibility that with respect to FPD coaters/developers, losses will increase because of additional costs following delivery?
A15.	Results have been positive until now and we are not concerned about additional costs.

Q16.	Is it appropriate to include the agency business for electronic components and other products within consolidated financial results? Is there any possibility for the sale of this business?
A16.	We believe that in order to increase the added value of semiconductor production equipment, we can make use of electronic component designs and software development capabilities. Considering the future of the semiconductor industry, we can expect synergy effects for that business. We have no plans at this time to sell the business.

Q17.

What developments led up to the creation of a new engineering company specializing in post sales in South Korea? Is there any risk of outflows of technology?

A17.

The South Korean production equipment industry is growing at a greater pace than in the past, and we expect a high growth rate in the future. Among the options for future development and manufacturing sites is the creation of a local subsidiary and confirmation of the progress in infrastructure development in the future. With regard to outflows of technology, the company is a wholly owned subsidiary and we are managing the risks through the implementation of appropriate internal controls.