Q&A on First Quarter Results for the Fiscal Year Ending March 2010

How does actual operating income for the April-June period compare with projections?

Operating income was almost as projected. As we are seeing upturn in orders, we revised up sales and operating income forecast for the first half.

You revised net sales upward by 18 billion yen for the first half of the year. What applications will drive sales? Isn't there a possibility that the company will go into the black during the January-March 2010 period?

Increases in the overall net sales for NAND flash memory, DRAM, and foundries are cited as factors for upward revision of net sales for the first half of the year. At the moment, it is still difficult to expect that we will go into the black during the January-March 2010 period, but depending on how the market environment develops, such a possibility cannot be entirely ruled out.

What are prospects for orders in the July-September and October-December periods?

During the July-September period, we expect SPE and FPD orders for combined to grow 10-20% compared to the April-June period. Orders for SPE are expected to remain almost on the same level as in the preceding quarter. It is also expected that the composition of orders by application will show the same tendency as in the April-June period. We reckon that, if any, investments for NAND flash memory and DRAM will drive further orders during the October-December period. Meanwhile, we anticipate that orders for FPD will recover quickly during the July-September period. Orders for the October-December period are expected to remain almost on the same level as during the July-September period.

Given the fact that investment seems to be heavily concentrated on FPD, is there any problem with manpower? In addition, since the lead-time for production is long, isn't there any concern that the balance of cash on hand will decline rapidly?

There is no problem because we have abundant cash reserves. We partly adopt a method of receiving advances from customers. We are continuing to work to shorten lead-time and are striving to reduce working capital.

What applications have manufacturers invested in for high-volume production in recent months?

The trend for orders is becoming favorable, but manufacturers of NAND flash memory and DRAM are investing only in design shrinkage, so orders from them remain at a low level. Foundries have entered a phase of investments for high-volume production and orders from them are strong.

Is there any change to the plan for reducing fixed costs by 30 billion yen during the current term? Does the announced restructuring of operational bases in Japan have any effect on that plan?

The fixed-cost reduction plan is progressing as scheduled. Fixed costs were reduced by nearly 10 billion yen during the April-June period. The primary objective of this restructuring is not to reduce fixed costs for the immediate future but to bring stronger products to the market by enhancing the efficiency and strength of development and manufacturing.

You plan to restructure three operational bases in Japan, but overseas bases also have many employees. Are there any plans to restructure those overseas bases as well?

We worked on the restructuring of overseas bases at an early stage. However, we are always considering what the appropriate level of personnel is. The basic policy is to match our personnel system with customers' investment plans, but the United States is our important development center, so we must take that into consideration. We will continue to consider what the appropriate scale of the overall workforce is, while keeping an eye on future market scale.

Given the fact that memory customers still face a difficult economic situation, what is the break-even sales for Tokyo Electron? It seems that your company will not feel secure unless the break-even sales is further lowered, but our impression is that the announced restructuring of operational bases in Japan is not sufficient to achieve an appropriate level. What is your opinion regarding this?

Our aim is to make a profit during the next fiscal year. Depending on the level of net sales, it may be necessary to take further measures to secure a profit. But our policy is to aim for medium- and long-term growth and avoid easy personnel reductions. We are in the process of prioritizing operational bases that need to be restructured; and we will continue to consider what measures should be taken in the future.

What is your view of the growth rate for capital investment for next year? In terms of segments, we believe that the etching market will grow, but how are you going to raise your etch systems and cleaning systems to the top position in the market? What is the timeframe for achieving that goal?

We expect the SPE market to grow by at least 30%, and possibly by 50% next year. We would like to develop our etch systems and cleaning systems so that they enjoy the largest share of their respective markets in around five years.

The prober business has been demoted from a business unit to a project. Are you thinking about selling it or disposing of it in some way? And have plans for M&A in other product categories made progress?

We are not considering withdrawing from the prober business. But we will review that business to determine where its value lies and establish a new business model for probers. As for M&A, we will not pursue economies of scale through M&A activities. We will actively consider M&A if synergistic effects are expected.