FY2009 Financial Announcement meeting Q&A

What is the reason that the fixed cost reductions for fiscal year 2009 increased from the initial forecast of 34 billion yen to 40 billion yen, and also what are your thoughts on the 30 billion yen in further cost reductions for fiscal year 2010?

While one reason that the actual cost reductions exceeded the forecast was that our forecast was somewhat on the conservative side, it was the successful efforts to cut outsourcing costs, personnel costs, such as overtime, and other expenses, which allowed us to make even further reductions in fixed costs. For fiscal year 2010, the effects from the existing cost-cutting measures will continue throughout the year, allowing us to achieve the 30 billion yen target.

Is the free cash flow for fiscal year 2010 expected to be a positive figure?

Even considering the expected net loss of 38 billion yen for fiscal year 2010, we expect that the reduction in working capital will result in a free cash flow that is somewhat on the positive side.

What are the assumptions for customers' capex when you forecast SPE/FPD production equipment business in fiscal year 2010?
What are the general expectations regarding the amount of orders for each quarter?

It is deniable that the semiconductor production equipment market in fiscal year 2010 will shrink by 40% - 50% compared with the previous year. In this April-June quarter, there appear to be signs of improvement from the logic foundries, and total orders including SPE and FPD/PVE are expected to increase by 30% - 50% compared with January-March quarter. Subsequently, we expect that beginning from July-September quarter, both the NAND flash memory and DRAM will occupy strong positions. For FPD/PVE, this year will see a bottoming out, with almost no orders expected during the first half of the year and a recovery forecast beginning from the second half.

With the harsh business environment expected to continue, will it be difficult to restore profitability in fiscal year 2011.

We believe that it will be possible to restore profitability in fiscal year 2011. We intend to become profitable by continuing with strong efforts in pursuit of cost reductions, while also strengthening product development, ensuring sales to major customers, and increasing our market share and profit ratio.

Please tell me about the current conditions regarding competition and market share.

In the field of coater/developer, where we have always controlled a high market share, we have dedicated ourselves to making further improvements in customer satisfaction at our own company. For etching systems and thermal processing systems, we intend to increase our market share with expectation of capturing the new market by establishment of our double patterning technology.

What are the mid-term sales targets for the post sales business?

We will continue to offer servicing support that promise high utilization rates for our equipment. Currently more than 50,000 Tokyo Electron products are in operation, and the potential market is extremely large. Through areas such as modifications, maintenance servicing, and parts sales, we believe that we will be able to boost our post sales business from a 100 billion yen business to a business on the 150 billion yen level.

There have been some calls to revise the expected growth rate downward for the semiconductor production equipment market. Nonetheless, Tokyo Electron achieved its highest profits ever in the year ended March 31, 2008. Will you be able to top this record in the future?

It will be difficult to set a new record for profits in the short term. While consolidation among semiconductor industry is continuing, they are likely to spare no expense with regard to investment in order to ensure their survival in the market. Although there are some calling for a slowdown of the growth rate in the semiconductor production equipment market, Tokyo Electron hopes to apply innovative breakthrough technologies and achieve a new record for the highest profits.

I understand that Tokyo Electron has changed its stance to M&A, and is now steering for a more aggressive policy in this area. Please explain any issues concerning the conduct of M&A, or any problems that remain to be resolved.

The possibility of boosting our business synergy effects and becoming a top supplier in each market segment remains an important issue. However to date we have encountered no M&A candidates that satisfied our criteria, and as a result none have been carried out.

You have announced a partnership with Oerlikon Solar. What is the status of approaches from the customers regarding these products, and what is the sales forecast for fiscal year 2010.

We have received many inquiries from in the Asia and Oceania regions. However at present sales are being conducted as a commission business as we are the representative for Oerlikon Solar's products, sales for our company this year will not be large.

What was the purpose behind the purchase of ASM International stock (4.9%) that was announced in April 2009?

ASM International is a company with very attractive technologies in cutting-edge fields.
We conducted a strategic acquisition of stock in order to make negotiations more favorable in the event that we require these technologies. The 4.9% purchase is within an appropriate range, and we have no plans to further increase our share in this company.

There was a time when the mid-range targets for the operating income margin were in the range of 20% to 25%. At present, have any changes been made to this plan? Also, will you be able to exceed your peak level of sales, standing now at 900 billion yen.

We intend to continue operating with the same targets. In this market, a company which continues to provide superior products that meet customers' needs will be a company that is chosen by the customers. This means that our future sales/marketing strategy and approach to development will be a key for the success. We believe that by meeting these demands, we will be able to raise our operating margin. It will also be necessary to improve our cost competitiveness, and we will continue to carry out steady reductions in fixed costs.