1Q FY2008 Financial Announcement Meeting Q&A | Investor Relations

What are the regional trends for orders?

Although orders from South Korea decreased in the April-June period, it will increase slightly towards end of year. Orders from Taiwan vary by manufacturer. The worst scenario, in which all our customers stop orders, seems to be avoided, and we expect orders to increase by about 10% in each of the next two quarters.

What was the percentage of DRAM and NAND flash memory to total orders for memory in the April-June period?

DRAM accounted for 58% of total memory orders during the April-June period, and NAND flash memory for 42%. The ratio will likely remain between 7:3 and 6:4 in the future.

You say that orders will increase about 10% in each of the next two quarters. What is the expected breakdown of orders?

In the July-September period FPD production equipment will account for two-thirds of the increase, and semiconductor production equipment will account for one-third. In the October-December period semiconductor production equipment will account for most of the increase.

What do you expect the percentage of orders for memory to be during the July-September period? Also, what is the status of investments by foundries?

We expect that orders for memory will continue to account for around 70% of total orders. Investments by foundries will contribute mostly to an increase in orders during the July-September period.

What are the prospects for the semiconductor production equipment market in 2008?

Currently, DRAM investments are decreasing, and NAND flash memory investments remain almost even, but we expect DRAM investments to begin rising toward next year. We are receiving good news during the SEMICON WEST exhibit, and overall orders are expected to increase. Orders will peak at the end of 2007 and in 2008. Positive factors include the development of new applications that use NAND flash memory, which will give momentum to NAND flash memory investments.

We hear that investments in miniaturization will benefit some production equipment manufacturers. What about TEL?

Moves toward miniaturization provide a nice tailwind for our coater/developers and etch systems. Although there are several miniaturization methods, all are favorable to us whether they involve dual exposure or double exposure. If new materials such as copper are used for memory, the number of units we produce will increase further.

Are you moving to increase your share of the coater/developer market?

We do not place top priority on market share. We may be losing our share in the low-end market at present, for example, but our new product CLEAN TRACK™ LITHIUS Pro™ is being well received. From the second half of this year we will begin volume shipment of new products and increase our market share.

How many immersion process coater/developer systems did you ship? What were their prices?

We shipped about 30 units during the fiscal year ended March 2007, and we expect to ship about 55-60 units during the fiscal year ending March 2008. Although prices vary depending on configuration, these systems are generally 10-20% more expensive than previous models.

Since value added to equipment determines its price, we do not think the pressure on our prices has become particularly strong. There will be no change in our current pricing strategy.

Please comment on TEL fs first-quarter business performance. Can you achieve the fiscal year goals of 900 billion yen in net sales and 160 billion yen in operating income?

We expected operating profit margin for the first quarter to be around 18-19%, but it exceeded 20%, more than initially predicted. Net sales of 900 billion yen for the fiscal year are an achievable goal, and we consider operating income of 160 yen to be within our reach. Initially, we expected to perform better in the second half than in the first half of the year, but it is possible that our performance for the first half may be stronger than for the second half.

What is the breakdown of non-operating expenses?

Foreign exchange losses accounted for most of the 2.9 billion yen in non-operating expenses. We conclude forward exchange contracts for long-term, large-volume orders. A valuation at market price resulted in losses from exchange rate fluctuations. These losses will be offset when net sales are reported.

A disparity still exists between the profit margin for TEL and that for foreign manufacturers in the same industry. Is TEL taking any measures to correct the disparity?

We recognize that our profit margin is lower than our competitors in the U.S., and we view raising the margin as a task to address in our medium-term plans. In the first medium-term plan, we improved the operating income margin from 11% to 17%. The next goal is to increase the margin to 20-25%. One specific measure is to reduce distribution costs that increased after we shifted to outsourcing. We will do that by concentrating production in-house, using the new plant completed this year. Through the effects of this measure we believe we can achieve an operating income margin of 20-25% in the medium range. Also, although a large disparity exists between the profit margin for TEL overall and that for its competitors, if we look only at industrial electronic equipment business (semiconductor and FPD production equipment), we see that we improved our operating income margin each year. The profit margin for industrial electronic equipment business during the first quarter was 22.5%.

In order to reduce effective tax rates, is TEL considering expansion into foreign countries where tax incentives are available? The impression is that even if the company earns a profit, it is not being returned to investors.

Overseas expansion is an issue we will consider in the future. We have no specific plans at present, and are not considering a shift overseas as part of our tax reduction policies. From the viewpoint of corporate social responsibility, we believe that by paying taxes we perform one of major social contribution roles.