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

For the first half of the year, what is the reason for the large increase in operating income compared to the increase in sales?
Why is it that operating income is not forecasted to increase much for the second half of the year although sales are forecasted to continue to increase?

The profit ratio improved substantially due to an increase in income from a higher than expected increase in sales and because fixed costs decreased more than expected. In the second half of the year, meanwhile, plans call for increasing our R&D expenses. SG&A expenses which include R&D expenses will increase by 8 billion yen more than in the first half.
In addition, we will conduct more aggressive sales in some product fields, moreover, and it appears that some products are selling with lower profitability.

If fixed costs are reduced by 70 billion yen during the two-year period up to March 31, 2010 as planned, and based on a simple calculation of sales for the fiscal year ending in March 31, 2011 being about 500 billion yen, roughly the same amount of sales as for the fiscal year ended March 31, 2009, what level of operating income could be expected?

Although an increase in sales could be expected to contribute toward increased income, it is also necessary to consider a possible increase in expenses. We feel that at this point we cannot make a simple calculation using operating income alone. Also, since technology development is our very lifeline, we want to invest whatever is needed in that area.

Compared to the plan formulated at the beginning of the current fiscal year, 3 billion yen has been added to R&D expenses. In what areas will investments be increased?

We expect to increase our investments especially in the areas of etch systems, cleaning systems, and CVD systems. Over the medium term, investments will also be increased in the areas of 3DI and double patterning technology.

What is the outlook for orders in the October-December period?

We expect the value of combined orders for SPE and FPD / PV production equipment in the October-December period to be about the same level as in the July-September period. That estimate includes everything we have been able to grasp as far as the current situation is concerned.

If the value of orders is about the same, what do you expect the breakdown to be by type of application?
Also, there appears to be a move to increase capital investment in DRAM in FY2011. What are your thoughts concerning such an increase?

Our foundry customers will continue their role as a driving force, and in the area of memory there will be continued investments in design miniaturization. We expect orders to increase quarter-on-quarter. Concerning FPD, there will be a decrease during the October-December period but we expect an increase during the January-March period. On average, orders will continue for roughly two quarters at about the same level as during the July-September period.

What is the business environment like in the PV area?

We have already begun shipments of thin film plasma CVD systems. As far as our business as the representative in Asia and Oceania of Oerlikon Solar is concerned, the real results of our efforts will gradually emerge from now on.

How do you view the competitive environment?

We do not concern ourselves with our competitors, but instead concentrate on the question of what it is that we must do.
We are making the investments and introducing the organizational reforms we feel are necessary. We do not expect immediate results and will continue to operate steadfastly in the usual manner.

At your last Earnings Release Conference it was explained that your review of overseas operations was still underway. What has developed since then?

While there has been a concentration of our customers, some regions are responsible for developing important leading-edge technology. Meanwhile, 50,000 of TEL products are in operation worldwide. Because changes have been occurring in the business environment, for about two years we have been tackling reforms in our overseas corporate structure to fit the emerging situation. We will continue our review in the future as well.

What level of net sales and operating income margin do you estimate for the Field Solutions business?

Net sales would normally be around 100 billion yen but FY2010 will see a decrease of perhaps 20-25%. As a target, we will aim for annual net sales of 150 billion yen three years from now, and an operating income margin of at least 20%.