TOKYO ELECTRON ANNUAL REPORT 2020

PAGE

4CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Interview with the CEO

Review of Operations
and Business Outlook

Corporate Governance

Financial Section
Investor Information

Interview with the CEO

Interview with the CEO

Realizinga Strong,
Resilient Society
Our Mission and Responsibility asa Globally Excellent Company

Toshiki Kawai
Representative Director
President & CEO

Question01

In 2019, the wafer fab equipment (WFE)1 market,
which had been expanding for several years, underwent
a period of adjustment. Given this, how do you evaluateTokyo Electron’s performance for fiscal 2020?
In 2019, although investment by logic

restrictions. I believe Tokyo Electron

chip manufacturers and foundries grew,rose to the challenge.

driven by demand for data centers andWe announced a plan to invest

5G smartphones, investment by mem-approximately ¥400 billion in researchory chip manufacturers underwent

and development over the three years

an adjustment following several years

beginning with fiscal 2020 to achieveof investing to increase production

the targets of the medium-term

capacity. As a result, the global WFE­management plan. In line with themarket edged down year on year. In

plan, in fiscal 2020, we invested ¥120.2

addition, there were concerns aboutbillion in research and development,

the impact of COVID-19 near the end

a record high.

of fiscal 2020. Nevertheless, we met

Amid this rapidly changing business

our financial estimates for all our key

environment, and while investing

indicators, namely net sales, operating

aggressively in growth, I think that our

income and operating margin. The

results for the year were satisfactory,

driving force behind Tokyo Electron isprecisely achieving our initial financial

its rich technological prowess built up

estimates for fiscal 2020s and achiev-

as an industry leader, customer trust

ing net sales of more than ¥1 trillion,

based on solid technical service, andan operating margin of over 20% andour employees, who are capable of

ROE over 20% for a third consecutive

flexibly and rapidly adapting to chang-year. Going forward, all of Tokyo

es in the environment and always

Electron will continue to work as one

eager to take on new challenges. Fiscal

to achieve the upwardly revised tar-2020 was truly a year in which thegets of the medium-term manage-strength of Tokyo Electron was put toment plan published in May 2019.

the test, whether it was maintaining

1 	Wafer fab equipment (WFE): The semiconductor production process is divided into front-end production, in
which circuits are formed on wafers and inspected, andback-end production, in which wafers are cut into chips,
assembled and inspected again. WFE refers to the production equipment used in front-end production and inwafer-level packaging production.

production amid the rising threat of
COVID-19 or providing remote customer support and the flexible response oflocal employees overseas amid travel

TOKYO ELECTRON ANNUAL REPORT 2020

PAGE

5CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Interview with the CEO

Review of Operations
and Business Outlook

Financial Section
Investor Information

Corporate GovernanceInterview with the CEO

Interview with the CEO

Question

03

Could you go over the medium-term management plan’sfinancial model and the measures Tokyo Electron is taking
to achieve them?

Question

02

Could you tell us your medium- to long-term outlook forthe business environment?

The medium-term management planand maintenance services), whichneeds like Tokyo Electron. Utilizing all

announced in May 2019 comprises

boasts wide profit margins, we willthese resources, we will contribute to­targets for fiscal 2024 under threeleverage our installed base of moresociety by creating high-value-added

scenarios. Given the business environ-than 72,000 units, the largest in thetechnologies never seen before.

ment, as we’ve been discussing, weindustry, to achieve steady growth.

expect the WFE market to grow toFew companies in the world have

US$65–70 billion within four years andthe diverse management resources toare targeting net sales of ¥2 trillion, an

meet leading-edge technologicalFor details on the medium-term management plan,
please visit our website.
www.tel.com/ir/policy/mplan/

operating margin of over 30% and
ROE of over 30%. However, we havealso included two downside scenarios
Furthermore, alongside the evolu-

Financial Model (within 4 years)

In addition to IoT, which will connect all

Against this backdrop, the global

kinds of things to networks, the growing

semiconductor market, which reachedtion of semiconductors, displays,

ate profit and provide returns toadoption of AI and 5G is bringing us into

US$412.3 billion3 in 2019, is forecast towhich translate data into visual form,

stakeholders if the WFE market does

the true big data era. As a result, goingexceed US$1 trillion4 in 2030. This is

are evolving too. New applications

not grow as anticipated due to theOperating
marginforward, global data traffic is forecast to

like saying that, on top of the existing

being created by high definition, higher

macro economy or changes in thegrow at a compound annual growth rate

market, which has developed over thepower efficiency, increased display size

semiconductor supply balance. AsROE

of 26%2. In addition, the spread of COVID-

approximately 70 years since theand designs leveraging flexible struc-such, the financial model is designed

19 is accelerating the use of remote work

invention of the transistor, another,tures are, in turn, driving technologicalto capture as much growth potential

arrangements, distance learning, remote

even larger market will be created ininnovation. As a result, display applica-

as possible while steadily reinforcing

medicine, and streaming video services,a single decade. We are now right ontions are expanding beyond the con-Tokyo Electron’s financial strength.

further increasing the importance ofthe verge of a massive growth oppor-

cept of the mere monitor. As long as

aggressively implementing information

tunity. As long as the semiconductor

efforts to make displays more beauti-

leverage our 100% market share inand communications technologies.

market continues to grow, the semi-

ful and easier to use continue, techno-

mass production EUV coater/develop-

The big data era will require large

conductor production equipment

logical innovation will continue. Likeers and reinforce product competitive-

quantities of diverse semiconductors

market that underlies it will steadily

semiconductors, the importance ofness in the key fields of etch, deposition

as well as even higher performance.

grow as well. As I mentioned, Tokyo

displays as a form of infrastructure inand cleaning, where we expect major

Technological innovation in semicon-

Electron recorded net sales of over ¥1society is increasing, and we expect

market growth going forward.

ductors to increase storage capacity,trillion for a third consecutive year infurther growth going forward.

Furthermore, in the field solutions

processing speed, power efficiency andfiscal 2020, and we expect sales tobusiness (encompassing sales of parts

reliability will continue.

continue to grow going forward.

2 CAGR 26% is CISCO forecast for 2017-2022.
(Cisco Visual Networking Index, Updated: June 18, 2020)
3 WSTS
4 IBS, January 2020

to ensure that we can steadily gener-To achieve the targets, we will fully

and used equipment, modifications

Net sales¥1,500 billion ¥1,700 billion ¥2,000 billion

26.5%

28%
>30%>30%

TOKYO ELECTRON ANNUAL REPORT 2020

PAGE

6CONTENTS

Business Overview
and Financial Highlights

To Our Stakeholders

Interview with the CEO

Review of Operations
and Business Outlook

Financial Section
Investor Information

Corporate GovernanceInterview with the CEO

Interview with the CEO

Management Policies
The Management Policies highlight the management values that Tokyo Electron regards as essential toachieving the objectives defined in its Corporate Philosophy. They express the logic that underscores oureight general rules of management.
Profit is EssentialGrowth Philosophy

The TEL Group aims to contribute to the developmentof society and industry and to the enhancement ofcorporate value while continually pursuing profit.
We will tirelessly take on the challenges of technological innovation to achieve continuous growth throughbusiness expansion and market creation.
Employees

The TEL Group’s employees both create and fulfill
company values, performing their work with creativity, a sense of responsibility, and a commitment
to teamwork.
Safety, Health, and the Environment

The TEL Group gives the highest consideration tothe safety and health of every person connectedwith our business activities as well as to the­global environment.

Question

Scope of Business

The TEL Group leads markets by providing highquality products in leading-edge technology fields
with a focus on electronics.

Quality and Service

The TEL Group strives to understand the true needs
to achieve customer satisfaction and secure customer trust while continuously improving qualityand service.
Organizations

The TEL Group builds optimal organizations thatmaximize corporate value in which all employees
can realize their full potential.
Social Responsibility

Feeling a strong sense of corporate social responsibility, we strive to gain the esteem of society andto be a company where our employees are proud
to work.

04

Please tell us about your management philosophy as CEO.
In terms of management philosophy,

happiness to all of our stakeholders

generation products. We will pursuethat recognize employee effort, com-

Tokyo Electron has the Corporate

through business activities.

Tokyo Electron’s core competence—

petitive compensation that is com-the world in many ways. Tokyo

providing added value to customers

mensurate with results, relationships

Electron’s social mission and responsi-Philosophy, which defines its reason

In addition, those at the helm of

The spread of COVID-19 has affected

for existence and social mission, as

corporate management must be

through the Best Products and Bestof trust with management and super-

bility of helping to build a strong,well as the Management Policies, eightaware of their company’s core compe-

Service on the market to steadfastly

visors, and an open corporate culture.

­resilient society will only grow moregeneral rules of management fortence, take a medium- to long-term

put into action our Corporate

To that end, I strive to share my vision

important in the future. Providing

achieving the Corporate Philosophy. I

perspective, understand market envi-

Philosophy: “We strive to contribute tofor the Company and initiatives toleading-edge technology products

think that the judicious management

ronment trends and changes, andthe development of a dream-inspiring

achieve it with all our employees.

and the best technical services todecisions made by its leaders over therespond appropriately.

society through our leading-edge tech-Whenever possible, I also value thepursue continued profit, increase

decades based on these are a major

As I said, technological innovation innologies and reliable service and sup-opportunity to visit our factories andcorporate value and bring happinessreason that Tokyo Electron has grownsemiconductors and displays will con-port.” It will be our employees whoother sites around the world to hearto our shareholders, customers,

to where it is today. With this in mind,

tinue. As long as technological innova-

make this happen. Employees are thefrom employees about issues at ouremployees and their families, andI try to always approach managementtion continues, the markets will grow.

source of value creation, and increasing

front lines. Also, as profits increase,everyone else related to Tokyo

with due consideration for the happi-

Tokyo Electron thus stands at the edge

employee motivation is crucial.

employees are better able to follow

Electron—that is my management

ness of our shareholders, customers,of tremendous future growth potential

their dreams and take on challenges inphilosophy.

and employees and their families. Thatin these markets. To capture as much ofby many factors, including expecta-

pursuit of growth without fear ofis to say, I strive to generate world-

this potential as possible, we will throwtions and dreams for the Company’s­failure, creating a virtuous cycle thatclass profit, creating value, to bringour full weight into developing next

future, fair human resource systems

further increases motivation.

Employee motivation is determined