R E V I E W O F O P E R AT I O N S

S E M I C O N D U C TO R P R O D U C T I O N E Q U I P M E N TDuring 1999, the semiconductor production equipment industry experienced
a strong turnaround from the previous year’s severe recession, especially inthe latter half of the year. Chipmakers began to invest aggressively in capital
equipment to meet resurgent demand, in what is believed to be the earlystages of a multi-year upturn.
With its global reach and broad lineup of leading-edge products, TokyoElectron was well positioned to benefit from this recovery. Consolidated netsales of the Semiconductor Production Equipment (SPE) division increased
46.6 percent year-on-year to ¥355.1 billion. Moreover, orders for semiconductor production equipment increased steadily in each quarter, particularly inthe second half of the fiscal year.
SPE Sales by Geographic Region(¥ Billions)

Review by Geographic Region

Sales increased in every region in the past fiscalyear. Taiwan accounted for the largest proportion of net sales, signifying Tokyo Electron’s
progress in globalizing its operations.

101.0

99.779.5
65.5
56.2
50.5

33.6

36.8

22.7

18.6
15.3

18.1

JapanNorth EuropeAmerica■ 1999■ 2000Korea

TaiwanOther

Sales of third-party products
imported into Japan are includedin Japan sales.

SPE division sales expanded in every region in which Tokyo Electron operates.
In Japan, chipmakers began investing in equipment for new SOC and flash
memory fabs, while continuing to invest in equipment for upgrading existinglines. As a result, sales in Japan increased 25 percent to ¥99.7 billion. In North
America, sales rose 17 percent to ¥65.5 billion as Tokyo Electron continued
to make large inroads into the market. In Europe, investment in equipment for
manufacturing communications-related devices increased, leading to a 48 percent gain in sales to ¥33.6 billion. In Taiwan, despite suffering a devastating
earthquake, chipmakers were able to recover quickly. Sales jumped 100 percent to ¥101.0 billion as U.S. and Japanese chipmakers steadily increased outsourcing to Taiwanese foundries. Of note, sales in Taiwan were the highest
among the regions in which Tokyo Electron operates. This was the first timein Company history that a region other than Japan accounted for the largest
proportion of total net sales, highlighting the progress that Tokyo Electron has
made in globalizing its operations. In Korea, chipmakers started to invest heavily in new equipment due to a strong recovery in DRAM and LCD demand,
resulting in a 103 percent increase in sales to ¥36.8 billion.

Review by Product
Sales in all product categories increased year-on-year, with ACT® 8 series
coater/developer systems and UNITY® series etching systems generating particularly strong sales gains. In addition, sales of furnaces/LP-CVD systems
equipped with a Fast Thermal Processing System (FTPS) also showed solid
growth as chipmakers brought new lines onstream. Sales of TFT-LCD production equipment more than doubled as LCD manufacturers in Taiwan,Korea and Japan raced to add new capacity to meet soaring demand for TFTLCDs. Sales in Taiwan were especially strong as several new fabs were
Note: Years in all graphs refer to fiscal years ended March 31.

16

TOKYO ELECTRON LIMITEDSPE Sales(¥ Billions)
Renewed investment among chipmakers and LCD manufacturers createdbrisk demand for Tokyo Electron’s advanced semiconductor and TFT-LCD
production equipment.

380.2
355.9

355.1

335.0

242.2

1996 1997 1998 1999 2000

brought online.
Tokyo Electron is currently putting its efforts into moving several new
products to volume production, including the CLEAN TRACK ACT® 8 SODsystem, the WX-8 wafer-level burn-in & test system and the UW200Z andPR200Z cleaning systems. Growth prospects are excellent for the CLEAN
TRACK ACT® 8 SOD system, which uses the same platform as the Company’s
best-selling coater/developer system, as the industry moves toward spin-on
technology to apply new low-k materials as insulators. The WX-8 is a revolutionary new product that enables burn-in and testing at the wafer level.
Hereto considered technologically infeasible, this system is designed to contribute to substantial cost savings compared with conventional burn-in testingat the chip level after packaging. The UW200Z has reduced bath volume, footprint and chemical and D1 water consumption, thus representing a new standard for Front-End-of-Line cleaning applications. The PR200Z incorporates
unique cleaning technology for Back-End-of-Line processes, particularly forcleaning in high aspect ratio via holes. Shipments of all of these systems havecommenced, and evaluations from R&D institutions and customers alike havebeen extremely favorable. Shipments of 300mm tools have also started, which
will contribute to even further growth in the future.

COMPUTER SYSTEMS AND ELECTRONIC COMPONENTS

Brocade Communications Systems, Inc.
Fibre Channel Fabric Switch
Emulex Corp.
Fibre Channel PCI Host Adapter
GenRad, Inc.
Combination Test System

Computer Systems
In the past fiscal year, consolidated net sales decreased 4.0 percent to ¥12.4
billion, due to continued weakness in domestic corporate demand. In thesecond half, however, IT-related investment
by Japanese corporations began to pick up,
fueling an increase in sales of servers andhigh-speed networking systems that form
the backbone of Internet-related business.
Sales of networking equipment, including Extreme Networks’ Gigabit Ethernet switch, increased 1.5 times
year-on-year. In addition, sales of Fibre Channel products for Storage Area
Networks (SANs) more than doubled. The market for SANs is expected togrow further, and the division will continue to strengthen its product lineup inthe Fibre Channel area as a core segment. Also in the past fiscal year, the division began handling Pathlight Technology router products.
Expansion in the e-commerce market has resulted in growing demand forsecurity systems. Beginning in the past fiscal year, the division began handlingTOKYO ELECTRON LIMITED17

CS & EC Sales(¥ Billions)
While computer systems sales remained
essentially unchanged, sales of electronic components rose to a record high.
72.1
62.5

60.1

57.7

52.5

14.3

14.4

15.3

12.9

12.4

1996 1997 1998 1999 2000
■ Computer systems■ Electronic components

AMD is a trademark of Advanced MicroDevices, Inc.
Power PC is a trademark of International
Business Machines Corp. (IBM) and is usedby Motorola, Inc. under license from IBM.

18

TOKYO ELECTRON LIMITED

the products of nCipher, a leader in SSL accelerator products. The divisionalso entered the market for Internet traffic administration products by adding
equipment from F5 Networks to its product lineup.
In addition to distributing hardware, the division is also developing consulting and outsourcing services that enable customers to use their information systems in an optimal environment. For example, the TEL Engineering
Office™ provides a pleasant engineering environment for Hewlett-Packard
users, and the DigiGuard™ data center gives users the option of outsourcing
their IT administration functions. The division also entered a new field by initiating distribution of Cycomm environment-resistant computers.
Electronic Components
The first full year since electronic components operations were transferred
to wholly owned subsidiary Tokyo Electron Device Limited (TED) in July
1998 has passed.
In the past fiscal year, consolidated net sales of the ElectronicComponents division increased 24.8 percent to a record ¥72.1 billion. Salesof devices related to communications, networking and personal computers
showed remarkable growth, and sales of digital consumer electronics weresolid. This is a result of increasing our ratio of high-value-added products byfocusing on these high-growth areas over the past few years. In particular,sales generated by the products of four companies that we recently started
dealing with more than doubled year-on-year, and have already come to account for nearly 5 percent of division sales. The division will continue to actively introduce new products in high-potential fields.
The division distributes theproducts of nearly 40 leading companies from around the world, andalso provides its own originally designed and developed products.
The latter include the TE4000 series of flash memory controllers, which have high growth prospects as devices that support multimedia applications. In addition, the division deploys
its extensive development skills and top-notch facilities to create more than
100 custom LSIs for customers each year. Recently, the scale of the design
work the division takes in for ASIC devices has been getting larger.
Strengthening and expanding electronic transactions is another objective.
In the past fiscal year, the volume of shipments handled via electronic data interchange (EDI) grew to approximately 80 percent of all shipments, which
has contributed significantly to greater operating efficiency.