TOKYO ELECTRON LIMITEDANNUAL REPORT 06

TO OUR STAKEHOLDERS

Advancingto a New Stageof GrowthFiscal 2006, the year ended March 31, 2006,
saw Tokyo Electron enter a phase of renewedsales and earnings growth. The year was
also marked by the introduction of a rangeof new next-generation products.

Review of fiscal 2006 operating results: strengths
in semiconductor memory field drive sales andearnings growth
Consolidated operating income for fiscal 2006 rose 18.3% year
on year to ¥75.7 billion, on a net sales gain of 6.0% to ¥673.7billion. Net income*, however, declined 22.1% to ¥48.0 billion.
* Net income for fiscal 2005 was ¥61.6 billion, mainly because ofa one-time ¥27.9 billion reversal of valuation allowance ondeferred tax assets that lifted net income.

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TOKYO ELECTRON LIMITEDANNUAL REPORT 06

As a company committed to boosting profits throughgrowth in working capital requirements have started to yield

meaningful contributions to our customers’ businesses, we arepositive results, as evidenced by the significant increase in freealso pleased to report a definite return to a phase of renewedcash flows for a second consecutive year. Some of this ample

sales and earnings growth. We are on the right track toward

cash was used to retire interest-bearing debt, bringing downachieving the goals we set in our medium- to long-term growth

the debt-to-equity ratio (interest-bearing debt/shareholders’plans. We are convinced that Tokyo Electron now stands at theequity) to 17.3%. We also raised the balance of cash and cash

turning point of a new stage of growth.

equivalents to an appropriate level, putting our balance sheet
on an even stronger footing, in view of the unique nature of

Capital investment in semiconductor and LCD production

business characterized by the silicon cycle.

facilities remains high worldwide, as a true era of digital networks and mobile communications appears on the horizon.
More particularly, accelerated capital investment in Japan,

Foremost achievement in fiscal 2006: the launch of

Taiwan and Korea provided Tokyo Electron with a tailwind, due

several strategic products that will drive earnings

to our strong customer base in the region, supporting ourGrowth at Tokyo Electron is underpinned by our ability toimpressive financial results. Semiconductor applications aredevelop new products. But the true growth driver is our ability

also experiencing change. The NAND flash memory, a trigger

to precisely identify new technologies that our customers require,for the revolution in memory media, drove the market. We enjoy

and to quickly develop and bring to market products that provide

a competitive edge in semiconductor production equipment for

powerful support for technological advances at our customers.

such state-of-the-art semiconductors that require advanced

In the past fiscal year, we launched a range of new prod-process technologies. We have won a high level of customer

ucts for 65/45nm nodes, as we responded to the change toconfidence by supplying outstanding products with top caliber

even finer design rules and the use of new materials in semi-service. This, too, underpinned our strong performance in theconductor manufacturing processes. Another significant devel-past fiscal year.

opment was the launch of the world’s first eighth-generation

Building a strong company with cash flow immune toFPD production equipment for the manufacture of large-sizedmarket cycles has been an important ongoing management

LCD panels as growth in demand for large-screen LCD TVs ispriority. Initiatives to improve the asset turnover ratio and curb

fast surpassing forecasts. Our efforts to develop new products

Net Sales and Operating Income (Loss)

Interest-bearing Debt and Debt-to-Equity Ratio(Billions of Yen)

(%)

800
635.7
529.7

600
417.8

460.6

10.1

673.7
11.2

400

(Billions of Yen)

20250

15200

0

-4.4

-18.3

22.3

64.0

75.7

1.1

■ Net sales■ Operating income (loss)
Operating margin

2005

60

127.0
46.1

99.565.1

40

29.9

500

2004

59.8

100

5–5

2003

151.4

50.6–200

2002

80

150

100.2

100

155.8

4.2200(%)

017.3

2002

2006

Effective from fiscal 2005, the Company madecertain changes in accounting policies as discussed
in the notes to consolidated financial statements.

7■ Interest-bearing debt
Debt-to-equity ratio

2003

2004

2005

2006

200

TOKYO ELECTRON LIMITEDANNUAL REPORT 06

have started to bear fruit. We feel that this was the foremost

the firm conviction that the primary mission of the Company

achievement of the past year. We expect to see a largeand its business is to provide the backbone for comfortable

increase in shipments of new products based on our unique

lifestyles. By identifying and nurturing new technologies with antechnologies from fiscal 2007 on, contributing significantly toeye on the future, Tokyo Electron will continue to contributesales and earnings growth.

profoundly to society through the supply of advanced manufacturing infrastructure to customers worldwide.

Business strategy

As a company operating on a global basis, Tokyo ElectronTokyo Electron is determined to continue its evolution torecognizes that thoughtful consideration for environmental

become an even more profitable enterprise by responding toprotection is one of today’s most important management issues.

the true needs of customers. The main thrusts of our growth

As a leading supplier of semiconductor and FPD production

strategy are to accelerate the launch of new, value-added

equipment, Tokyo Electron is committed to fulfilling its responsi-products, strengthen cost competitiveness through the pursuit

bilities by aggressively working to lower the environmental loadsof higher productivity in our manufacturing, and offer theof its equipment, while actively promoting other environment-

world’s highest level of quality in both technology and services.

related programs.

We plan to develop a framework that smoothly integrates

In corporate governance, Tokyo Electron was quick todevelopment, manufacturing and customer service, and toadopt concepts and systems that promote compliance, andincrease earnings and boost profit margins. We will use therealize fair, transparent management that allows the Company

cash this generates to invest in our next growth strategies.

to live up to the trust that society has placed in us.
Tokyo Electron is dedicated to providing its customers andThis will sustain a virtuous cycle of further growth.
While getting the most out of our original core technologies,

society with high-value products developed through the unwa-

we will focus on marketing and research and development withvering pursuit of technological innovation. We will achieve thisthe view to entering new fields that harbor prospects for growth.

while continuing reforms that build a foundation for sustainedTokyo Electron is committed to implementing businessgrowth, strong earnings and increased corporate value. Having

strategies that assure continuing medium- to long-term growth,

entered a renewed growth stage, Tokyo Electron is a company

and to becoming a company with a superior financial position.

to watch. We look forward to your continued support.

Provide infrastructure for the digital age throughJune 2006

untiring dedication to technological innovation
Tokyo Electron manufactures a broad range of production
equipment used in the manufacture of semiconductors, LCDs
and other cutting-edge products. These products help customers to manufacture key components that will be at the very core ofTetsuro Higashi, Chairman & CEO

the mobile communication and digital network era. The progressof a digital society is dependent on outstanding key components and the advanced production equipment required fortheir manufacture. Tokyo Electron is managed on the basis ofKiyoshi Sato, President & COO
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