Tokyo Electron

Annual Report 2012

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n To Our Stakeholders

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FeatureCorporate GovernanceCorporate Citizenship

R&D/Intellectual Property

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Corporate Datan Interview with the CEO

Interview With the CEO
In relation to capital investments for the future, we established three new manufacturing
and development sites, namely the new Miyagi plant for strengthening the etch system business; the new Kunshan plant in China to address the country’s expanding demand for flat
panels through localization; and the TEL Technology Center Tsukuba, to enhance basic R&Dactivities and promote the commercialization of photovoltaic cell (PV) production equipment.
In another development, in April 2012 we established TEL Technology Center Korea, in thecity of Hwaseong, South Korea, with the view to strengthen business operations in South
Korea’s booming semiconductor market. In this manner, we invested in the future according

Q& A

to each of our intended objectives.
In addition, we announced two acquisitions. We have often said that the source ofTokyo Electron’s growth lies in technological innovation. We believe that acquisitions fall
into three categories. The first is acquisitions to strengthen existing businesses. The secondis acquisitions to expand related businesses. Finally, the third is acquisitions to enter newbusinesses. In every category, Tokyo Electron seeks to create high-value businesses byincorporating technologies it does not have, and fusing them with its own technologies.
The latest acquisitions are intended to enhance our range of products in the semiconductor advanced packaging field, which has a high growth rate, and to enter the thin-film

Hiroshi Takenaka,President & CEOQA

silicon PV production equipment field, where we can harness the technologies Tokyo
Electron has developed over the years.

Capital Investments For Medium-term GrowthOver the last 2 years, Tokyo Electron has allocated high levels of R&D expenses and made sizable
capital investments, aiming at future growth.

What progress did you make on the management front in fiscal 2012?

The business environment surrounding Tokyo Electron was extremely severe over the pastn R&D Expenses

n CAPEX
Depreciation and Amortization(Billions of Yen)

(Billions of Yen)

100n New Miyagi plantn TEL Technology Center Tsukuba
n Kunshan (China) plantn TEL Technology Center Korea

100year, mainly due to the Great East Japan Earthquake that struck in March 2011, as well as
the yen’s rapid appreciation to historic levels and a downturn in final electronics products
due to the impact of the flooding in Thailand. In this environment, Tokyo Electron managed
to minimize the impact of the Great East Japan Earthquake through concerted efforts by the81.5

75

70.6

66.1
61.0

50

50

54.1

entire company to restore operations in the aftermath of the earthquake. Nonetheless, overall net sales decreased by around 5% year over year.

75New fields

Existing fields
2539.125

which was an all-time high. We have started to see the positive results of these outlays grad-22.7

039.5

23.1
20.0

Meanwhile, as in the previous fiscal year, we executed sizable growth investments in preparation for future growth. In fact, we allocated R&D expenses of ¥81.5 billion in fiscal 2012,

21.4

18.1

14.9

24.2
17.7

0

FY08

FY09

FY10

FY11

FY12

FY08

FY09

FY10

FY11

FY12

ually become apparent, including improved positions in focused areas like the markets foretch systems and cleaning systems. Fiscal 2012 was also a year that saw us make steadyprogress in several new business fields.

ZoomTokyo Electron

Annual Report 2012Page5ContentsHighlights

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n To Our Stakeholders

Segment Information

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Corporate Datan Interview with the CEOInterview With the CEO

Q

Meanwhile, our basic approach is to conduct manufacturing primarily in Japan in order totake full advantage of the country’s strong manufacturing capabilities. However, we areThe market for semiconductor production equipment (SPE) seems tohave struggled to grow since the global financial crisis erupted threeyears ago. What is your outlook for the industry?

expanding procurement of parts and materials to the rest of Asia, in order to leverage theyen’s recent appreciation, in an effort to improve the overseas procurement ratio. In the SPEbusiness, we will work to strengthen Tokyo Electron’s position and enhance profitabilityAthrough these types of development and manufacturing strategies.
In the flat panel display (FPD) production equipment business, the market has now arrived

The semiconductor market has already seen fierce borderless competition for many years. Aat a major turning point. There has been a large drop in the prices of large LCD TVs at massglance at recent newspapers shows that the Japanese electronics industry in particular has

home appliance retailers. Because of the commoditization of LCD panels, FPD production

struggled to cope with intensified global competition. Looking around the world, demandequipment has also faced fierce price-based competition from emerging Asia-based players.

for final electronics products still remains weak due to the lingering impact of the global

In response, Tokyo Electron will maintain its competitive edge in the market by building man-financial crisis.

ufacturing infrastructure in China, which has enormous untapped demand for panels, while

However, semiconductors are finding growing uses in devices that process massive

striving to improve its cost structure. Furthermore, we are eyeing the full-scale emergence ofamounts of data exchanged over the Internet, including PCs and smartphones, as well as

the market for OLED TVs around 2015. OLED TVs promise to rival LCD TVs as the new gen-servers. More semiconductors are also being used in numerous digital home appliances, aseration of TVs. Accordingly, Tokyo Electron will accelerate the confirmation of the commer-

well as in automobiles and medical equipment. Considering these factors, along with accel-cial viability of OLED display production equipment for large panels, and launch this businesserated growth in the supply of these products to emerging countries, we believe that growth

as early as possible.

in demand for semiconductors and related technological advances will still continue indefinitely into the future. Indeed, the arrival of the mobile computing era heralds the beginningof the second major growth phase of semiconductors.
The evolution of semiconductors will be supported by unlimited technological innovation

Expanding Our Global Development Network
We use our development network linked to our major customers throughout the world to speedily
create the products that they demand.

in semiconductor production equipment, our technology. We have reconfirmed the importance of this fact.

QWhat changes have taken place in the business environment surrounding Tokyo Electron? How will you respond to these changes and how
will you convert them into business opportunities?

Korea

U.S.

TEL Technology Center, Korea (TTCK)TEL Technology Center, America (TTCA)

Imec (Belgium)
CEA-Leti (France)A

Albany NanoTech (U.S.)l TEL development basen Joint research institution

Tokyo Electron’s overseas sales ratio for SPE has now reached nearly 85%. There has also been an
increasingly prominent trend for only a few major customers to make very large investments.

SEMATECH (U.S.)

JapanIn response to these changes in the business environment, Tokyo Electron has conductedits most important R&D activities in close proximity to global semiconductor manufacturers.
We have established cutting-edge process-technology centers in the U.S., South Korea andTaiwan, in addition to Japan. These centers allow us to work closely with customers in theirsemiconductor development from an early stage. Efforts are focused on embodying customers’ real needs in the next generation production equipment as early as possible.

TaiwanTEL Technology Center, Taiwan (TTCT)TEL Technology Center Tsukuba
Process Technology CenterTokyo Electron Technology Development InstituteZoomTokyo Electron

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FeatureCorporate GovernanceCorporate Citizenship

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Corporate Datan Interview with the CEOInterview With the CEOQA

Could you please go into a little more detail on your new businesses?

Tokyo Electron has executed high levels of R&D and capital investment over the past two years,
and has recently announced two corporate acquisitions. In addition to strengthening existing
businesses, these measures are aimed at creating new growth drivers for Tokyo Electron.
These growth drivers include new products based on new plasma technology that uses aradial line slot antenna; 3DI packaging technology in the wafer level packaging field; nextgeneration test systems; OLED display production equipment; and thin-film silicon PV production equipment. If these growth drivers become viable, Tokyo Electron will create new
businesses worth between ¥100 billion and ¥200 billion combined.
Elsewhere, while miniaturization is becoming more and more difficult for memory chips,
the era of STT-MRAM, a promising candidate for the next generation of memory, is drawing
near. Eyeing the development of this revolutionary new device, Tokyo Electron has teamed
up with Tohoku University, which possesses the world’s most advanced technology in thisfield. Under this partnership, Tokyo Electron will take on the challenge of developing highvolume production technology for these devices as a production equipment manufacturer.
If new business fields emerge, and STT-MRAM devices are successfully introduced in themarket as well, we expect they will allow us to establish new growth drivers alongside ourexisting core SPE products.

QTokyo Electron has transformed itself into an enterprise that can generate stable cash flow. What is your policy on returning profits to shareholders and using cash?

AThe year before last, we raised the performance-linked dividend payout ratio target from

Developing Businesses in New Fields
We are targeting business expansion by entering new business fields where we can take fulladvantage of our core SPE Technology.

Production
equipment for3DI packaging

20% to 35%, as part of our effort to increase returns to shareholders. In addition, as Tokyo­Electron marks the 50th year of its founding, we plan to pay a commemorative dividend of¥20 per share, expressing our appreciation for the continued support of shareholders.

Technology Expansion

However, we believe that our shareholders’ strongest expectations for Tokyo Electron are

PV production
equipment

for us to enhance its corporate value by achieving growth. Therefore, we intend to continue

LCD production
equipment

OLED display
production
equipmentusing surplus funds primarily to invest in technology development, as well as for othergrowth investments including corporate acquisitions.
At the same time, we will undertake appropriate considerations for stock buybacks
depending on situations. While remaining consciously aware about the need both to drive

Semiconductor production equipment (SPE)Zoomsales and earnings growth and improve ROE, management will continue to provide the leadership needed to enhance Tokyo Electron’s corporate value.