TOKYO ELECTRON ANNUAL REPORT 2015

PAGE4CONTENTSCONTENTS

Financial Highlights

Business Overview

To Our Stakeholders

Message from the CEO

Review of Operations
and Business Outlook

Corporate Governance

Financial Section

Corporate Data

Message from the COO

To Our Stakeholders Message from the CEO

Transforming
for the Next Half Century
To begin, I’d like to express my thanks for the continued understanding and support of ourinvestors and all Tokyo Electron’s stakeholders. Looking back at 2014, capital investment bysemiconductor manufacturers was brisk. Global sales of semiconductors reached a record
high of US$340 billion, reflecting strong demand for cutting-edge mobile devices and datacenters. Capital investment in the wafer fab equipment market, in which Tokyo Electron operates, grew 16% year on year to US$32 billion. Buoyed by increased market shares, Tokyo
Electron’s consolidated net sales for fiscal 2015, ended March 31, 2015, grew to ¥613.1 billion,outpacing market growth. Operating income rose 174% year on year to ¥88.1 billion.
Furthermore, the second half of the fiscal year saw consolidated net sales of ¥318.9 billion
and operating income of ¥58.0 billion, achieving a record-high level of operating margin forthe six-month period. Seeking to reciprocate the support of our shareholders, we paid annual
dividends of ¥143 per share, our highest ever.
Regarding our planned business combination with U.S.-based Applied Materials, wewere ultimately not able to secure regulatory approval under applicable competition laws.
Despite the best cooperative efforts of both companies since the business combination plan
was announced in 2013, we had no choice but to terminate the agreement. I apologize to ourshareholders who supported us in this endeavor, particularly at last year’s General Meeting ofJune 2015

Shareholders, for this disappointing turn of events. While we were not able to execute thebusiness combination, fiscal 2015 nevertheless represented a major inflection point for Tokyo
Electron in terms of progress toward future growth as we successfully bolstered profitability
and product competitiveness in our mainstay semiconductor production equipment (SPE)

Tetsuro Higashi
President & CEO

business and implemented business reorganization to increase profit margins. Furthermore,
we are firmly determined to apply the many lessons we learned in the course of preparing forthe business combination to achieve greater growth.

TOKYO ELECTRON ANNUAL REPORT 2015

PAGE

5CONTENTS
CONTENTS

Financial Highlights

Business Overview

Review of Operations
and Business Outlook

To Our Stakeholders

Message from the CEO

Corporate Governance

Financial Section

Corporate Data

Message from the COO

Message from the CEO

Concentrating Management
Resources
in Core Businesses toGrow Profit

Tokyo Electron is working to transform for the next half
century. The Company is formulating a new medium-term
management plan, reviewing its capital policies andconsidering ways to offer more appealing shareholder returns.

23.6%

392.0

4008000013Net Sales

1415

Gross profit margin

13Net Sales

12.5

201415Segment profit margin

5.3%

402.5%

12.4%

200

32.2

15.5%

60

400

200

88.1

478.8

613.1
39.6%

497.3

600

Operating Income andOperating Income Margin(Billions of Yen)
100576.2(Billions of Yen)
600

612.1

(Billions of Yen)
800

33.0%

2015 marks the 50th year since the penning ofMoore’s Law. Over these five decades, semiconductors have undergone incredible transformation
through constant miniaturization, increasing inperformance and dropping in cost, and thus playing a major part in the emergence of modern
societies built on advanced information and communications networks. To illustrate the way that
semiconductors have evolved, Intel comparedthem to automobiles. If cars had evolved the way
semiconductors have, cars that topped out at 130km/h in 1971 would have reached speeds of482,700 km/h in 2015. Fuel economy of 11 km/l in1971 would be up to 850,369 km/l in 2015, andthe price of a car, US$2,500 in 1971, would bedown to just four cents*. I think this shows just
how surprising and dramatic progress in semiconductors has been.
Today, society is rapidly approaching a newera. Until now, people have largely had to deliberately use personal computers, mobile devices
and networks to enjoy their benefits. Soon, theinternet of everything (IoE), in which virtually
everything is connected through the internet, willarrive. In this futuristic-seeming era, such technologies as big data analysis that makes sophisticated use of the vast amounts of information beingtransmitted on networks and AI-equipped interfaces between humans and machines will support
our daily lives in ways we are not even aware.
To create such an advanced society, expectations toward technological innovation in semiconductors and their production equipment are onlyrising. The semiconductor industry now stands atvarious technological inflection points. Initiatives

31.9%

The Ongoing Evolution ofSemiconductors and Rising
Expectations for Production
Equipment

SPE Segment Net Salesand Segment Profit Margin

14.4%

Net Sales and Gross
Profit Margin

1314

Operating income

15
Operating income margin

Segment profit is based on income before income
taxes and minority interests.

to create 3D structure devices, adopt new materials and realize STT-MRAM (magnetic memory)and other forms of emerging memory havebegun. We regard these technological inflection
points as excellent opportunities for businessexpansion and remain committed to striving
toward growth. The semiconductor productionindustry will continue to expand. I am confident
that Tokyo Electron will achieve further growth byaggressively investing in the development ofgrowth fields, creating breakthrough technologies, and thus contributing to the creation ofvalue for society.
* Source: IntelFiscal 2015 Business Highlights
1.	Increased Profitability and Competitivenessin the Mainstay SPE BusinessIn 2014, capital investment in wafer fab equipment grew a considerable 16% year on year,backed by strong demand for mobile devices. To
take advantage of opportunities for growth in2014, Tokyo Electron advanced the timely introduction of new products. These efforts paid off as
our market shares in all product categories grewand SPE segment net sales outpaced market
growth, climbing 20% year on year to ¥576.2 billion. In the cleaning system and etch system businesses, areas of particular focus for us, weachieved steady market share growth, with thecleaning systems business reaching an all-timehigh. In addition, we have been working toTOKYO ELECTRON ANNUAL REPORT 2015

PAGE

6CONTENTS
CONTENTS

Financial Highlights

Business Overview

Review of Operations
and Business Outlook

To Our Stakeholders

Message from the CEO

Corporate Governance

Financial Section

Corporate Data

Message from the COO

Message from the CEO

Demand for semiconductors
will expand as the world
connects through the IoE
Automobiles

Transportation

Data center
Smart homes

expand sales in the field solutions business,
which handles sales of parts and used equipment, modifications and maintenance services,since setting up a dedicated business unit in 2009
for this area. In fiscal 2015, we achieved annual
net sales in this business of over ¥170 billion, well
above our target of ¥150 billion. As miniaturization
advances and demand for more sophisticatedtechnologies increases, the expectations facing
equipment manufacturers regarding sophisticatedsolutions and support capabilities are also rising.
At the same time, we continue to advance initiatives to streamline development and manufacturing, including reducing costs from the design
stage onward, shortening production lead times
and revising procurement.
As a result of such efforts, in fiscal 2015 weachieved a segment profit margin in the SPE business of 23.6%, a record-high level.
2.	Business Reorganization to Concentrate
Management Resources
In fiscal 2015, we also implemented significant
business reorganization to further improve profitability. First, withdrawal from the unprofitable
photovoltaic panel (PV) production equipment
business proceeded as planned. Accordingly, infiscal 2016, ending March 31, 2016, we will only
continue support operations for delivered units,
and we expect to greatly reduce segment loss
compared with fiscal 2015. We also consolidated
development sites and other locations.
Furthermore, we reduced our stake in Tokyo
Electron Device Limited (TED), which handles theNet Income (Loss) and ROE

90-19.4

131430

-3.3%

6.1
1.0%

060

50

40

11.8%

120

51

150

60

20143(Yen)71.9(Billions of Yen)
80

Cash Dividends per Share-20013
Net income (loss)

1415ROE

15The fiscal 2013 annual dividend of ¥51 includes
a commemorative 50 year anniversary dividend of ¥20.

Smart Cities

The cloudData centerAIData centerBig data analysis
Industrial

Wearables

Medical/Healthcare

MobileMemory

electronic components and computer networks
business, resulting in the reclassification of TED
from consolidated subsidiary to equity method
affiliate. As a result, the fiscal 2015 gross profit
margin improved 6.6 percentage points year on
year to 39.6%. ROE came to 11.8%, and net
cash provided by operating activities amounted
to ¥71.8 billion, both big improvements over theprevious fiscal year. Going forward, we aim tocontinue to strengthen our business foundations,grow profit and return profit to our shareholders.
Lastly, in May 2015, we announced a new
executive framework aimed at powerfully
pushing growth forward. This change brought
younger members into top management. We
also newly appointed the chairman of theboard and established the position of Chief
Operating Officer (COO) under the president

Processors

Sensorsand CEO. These changes are intended to create a system that can swiftly execute businessand thus move continuously forward in anenvironment of constant change and fierce
competition. We also added executive officers
who possess rich experience managing local
companies overseas, intending to enhance ourcompetitiveness at a global level.
In April 2015, we announced plans for ashare repurchase of up to ¥120 billion. Goingforward, we will formulate a medium-term
management plan to address new tasks facing
us and review our capital policies while considering ways to offer more appealing shareholder returns. We will accelerate innovative
initiatives and strive to increase corporate
value. Thank you for your continued confidence and support.