Interim Financial Results for the Fiscal Year Ending March 2008 Q&A

Why did profits increase during the first half of the fiscal year?

Cost reductions due to quality improvement and an increase in the ratio of new products contributed to the profit increase. Also contributing to higher profits was the fact that expenses were lower than expected and the increase in the ratio of sales in the highly-profitable semiconductor production equipment category vis-a-vis the overall sales.

What are prospects of profits for the entire year?

If net sales reach the 900 billion yen level announced in our financial forecasts, our operating income should be around 160 billion yen.

What are prospects of future fixed costs?

It is expected that fixed costs will not increase or decrease substantially from the first to second half of the fiscal year. We have yet to formulate our plan for the next fiscal year, but research and development investment will be continued after narrowing down the projects to be focused on.

If you enter a period of adjustment in the next fiscal year, will there be a difference in your response compared to before?

We are taking prompt measures by revising the hiring plans, starting from the second half of the fiscal year, so that new mid-career hiring is suspended during the period and thereafter. Our policy differs from U.S. companies, who assert that employment costs are variable costs and adjust their workforce as soon as they deem it necessary to do so.

Will you explain your specific plans for increasing research and development expenses and capital investments?

We increased development expenses by about 5 billion yen in the second half of the fiscal year in order to develop Radial Line Slot Antenna (RLSA), a new type of plasma source characterized by a low electron temperature, low-energy Gas Cluster Ion Beam (GCIB), and other technologies. We also increased capital investments by about 5 billion yen, mainly for machinery used for R&D purposes.

What are details of the gain on the sale of fixed assets reported as extraordinary profits?

The relocation of our Korean subsidiaryfs head office generated a 1 billion yen gain from the sale of the head office building and another 1 billion yen was generated from the sale a plant located in Texas.

What are prospects of capital investments for semiconductor production equipment during the fiscal year ending March 2009?

It is anticipated that manufacturers will enhance their facilities in the future, so we believe that flat growth can be achieved during the fiscal year ending March 2009 compared to the fiscal year ending March 2008. If the 1-giga DRAM age arrives, we predict that, from the viewpoint of cost-effectiveness, highly productive 300-mm equipment will be needed, and this will boost capital investments. Next year, with the full-scale expansion of Vista-based PCs and other developments, it is expected that demand for semiconductors used in digital consumer electronics will grow, and a recovery centered on memory is anticipated. We expect that the situation for orders will be bearish until the January-March period but that orders will gradually recover in the April-June period and thereafter.

What are the prospects for sales of FPD production equipment during the next fiscal year?

It is expected that orders for FPD production equipment will grow substantially starting from the October-December period. Capital investments will rise by 20-30% next year, but we will see our sales grow by around 10% compared to the previous year based on our sales standards, depending on when the sales are recognized.

In terms of value, what are the prospects for future orders you will receive?

We expect that we will receive 170 billion yen fs worth of orders in the October-December period, consisting of 130 to 140 billion yen for semiconductor production equipment and 30 to 40 billion yen for FPD production equipment. For the January-March period as well, the same level of orders is expected.

How much will Tokyo electron benefit from double patterning?

The double patterning technology offers many kinds of methods, with the optimal method for a manufacturer varying according to the patterns and films it processes. So in the end the most economical method can be adopted. In this context, Tokyo Electron, which holds a large share of each of the markets for coater/developer, etch system, and deposition system, will benefit greatly from double patterning regardless of the method adopted. We expect that sales growth for some products will be 10 to 20%.

Will you explain your solar cell business?

Tokyo Electron is interested in solar cell business, and we would like to enter the business if favorable opportunities arise.