Tokyo Electron Limited

Annual Report 08

F INANCIAL R EVIEW

Financial results in this section refer to the Company’s performance for fiscal 2008, the year ended March 31, 2008. Percentage comparisonsrefer to year-on-year changes from fiscal 2007.
The Company adopted the following revised accounting standards and business segment.
n	Effective from fiscal 2005, the policy for revenue recognition of semiconductor and FPD production equipment was changed from the time of
shipment of products to, in principle, the time of confirmation of set-up and testing of products. The effect of this change decreased net
sales, operating income and income before income taxes by ¥80,956 million, ¥20,541 million and ¥20,563 million, respectively, for fiscal
2005, compared with the corresponding amounts which would have been recorded if the previous method had been applied.
n	Effective from fiscal 2005, the accounting treatment of after-sale repair expenses incurred during the warranty period for semiconductor and
FPD production equipment was changed. In the past, the Company charged such expenses to income as incurred. Effective from the fiscal
year ended March 31, 2005, the Company provides accrued warranty expenses for estimated expenses, calculated on the basis of after-salerepair expenses incurred in the past. The effect of this change decreased operating income and income before income taxes by ¥635 millionand ¥13,106 million, respectively, for the year ended March 31, 2005, compared with the corresponding amounts which would have beenrecorded if the previous method had been applied.
n	On October 1, 2006, Tokyo Electron’s computer networks division was transferred to Tokyo Electron Device Limited. Accordingly, sales fromcomputer networks, which were formerly included in the industrial electronic equipment segment, are now included as part of the electronic
components and computer networks segment (formerly the electronic components segment), effective from fiscal 2007.

Sales and Income
Operating Environment
During the fiscal year ended March 31, 2008, the global economy turned in a steady performance in the first half of the fiscal year on the backof high growth in China and solid growth in Asian nations. From the mid-point of the fiscal year onward, the outlook for the global economy
became increasingly unclear, with the U.S. economy showing signs of slowing, and the global financial markets thrown into turmoil by the subprime mortgage issue. In Japan, in the first half of the fiscal year, moderate economic expansion was sustained by higher exports, better corporate profits and brisk capital expenditures. In the second half, however, the Japanese economy showed signs of deceleration due to sharp priceincreases in crude oil and raw materials, coupled with rapid appreciation of the yen to the U.S. dollar.
In the electronics industry, in which the Group operates, shipments of PCs, telecommunication devices including mobile phones and digital
home electronics continued to expand, due in part to the effects of growing demand among emerging economies, centered on the BRICs
nations. However, signs of slowing economic growth appeared in the second half of the fiscal year. Looking at the situation for capital expenditures, which have a direct impact on the Company’s earnings, investment in the semiconductor industry was robust in the first half of the year,
but slowed in the second half. Meanwhile, capital investment related to LCD panels was weak throughout the entire fiscal year.
(Millions of Yen)

2004

2005

2006

2007

2008

Net sales.............................................................................................

¥529,654¥635,710¥673,686¥851,975¥906,092

Gross profit..........................................................................................

140,155

175,913

189,732

272,649

311,298

Gross profit margin..............................................................................

26.5%

27.7%

28.2%

32.0%

34.4%

Selling, general and administrative expenses........................................

117,875

111,930

114,029

128,670

142,800

Operating income................................................................................

22,28063,98375,703

143,979

168,498

Operating margin.................................................................................

4.2%

10.1%

11.2%

16.9%

18.6%

Income before income taxes................................................................

14,93655,77575,328144,414169,220

Net income..........................................................................................

8,297

61,601

48,006

91,263106,271

Effective from fiscal 2005, the Company made certain changes in accounting policies as discussed in this financial review.

28Annual Report 08 Tokyo Electron Limited

Sales
Consolidated net sales grew 6.4% year on year, to a second consecutive record high of ¥906.1 billion. Domestic sales increased 3.2% year on
year to ¥323.9 billion, while overseas sales rose 8.2% to ¥582.1 billion, with particular contributions from sales of semiconductor production
equipment in Taiwan. Overseas net sales increased as a share of consolidated net sales, to 64.2% compared with 63.2% in fiscal 2007.
Meanwhile, consolidated orders received fell by 23.8% year on year, to ¥744.8 billion, and the consolidated order backlog at the end of fiscal
2008 declined 33.2%, to ¥325.0 billion, reflecting lower sales in the fiscal year ending March 31, 2009.

Gross Profit, SG&A Expenses and Operating Income
The cost of sales increased by 2.7% year on year, to ¥594.8 billion, and gross profit rose 14.2%, to ¥311.3 billion. The gross profit margin
improved by 2.4 percentage points to 34.4%, mainly the result of the launch of new products in the semiconductor production equipment field,
which pushed up average unit prices, a decline in warranty expenses and after-warranty expenses, and improvements to production efficiency
that lowered the cost of sales.
Selling, general and administrative (SG&A) expenses increased by 11.0% year on year, to ¥142.8 billion, while the ratio of SG&A expenses to
net sales increased to 15.8%, compared with 15.1% in fiscal 2007. R&D expenses, which are included in general and administrative expenses,
rose by ¥9.1 billion and were the major reason for the increase in SG&A expenses.
As a result, operating income grew 17.0% year on year, to ¥168.5 billion. The operating margin improved by 1.7 percentage points, to18.6%. Both marked the second consecutive year of record highs for the Company.

Research and Development
R&D expenses, as noted earlier, rose by ¥9.1 billion, or 16.0% year on year, to ¥66.1 billion.
In semiconductor production equipment, R&D efforts focused on the development of new technologies and products responsive to risingmarket demands, not only for equipment that responds to finer design rules of semiconductor devices, but also for responses to new materials
for realizing higher speeds and lower power consumption. As a result of ongoing R&D efforts, the Company launched three new models during
fiscal 2008: the TELINDY PLUS™ thermal processing system, which boasts further reductions in overhead time and other enhancements inbasic performance; the Trias™ High-k CVD, a single-wafer CVD system for high-k metal film deposition; and the CELLESTA™+ wafer cleaningsystem, which offers industry leading wafer throughput. In FPD production equipment, the Company continued to focus on the development ofequipment to accommodate large substrates.
In addition to R&D spending to develop new technologies and products in existing areas of operation, the Company also invested in creating
new businesses, including the development of equipment that applies RLSA*1 plasma source, which has superior characteristics, OLED*2 production equipment, and MEMS*3-related products.
*1 RLSA: Radial Line Slot Antenna*2 OLED:	Organic Light-Emitting Diode*3 MEMS:	Micro Electro Mechanical System

30

120

168.5
144.0

■ Domestic (Previous policies)■ Overseas (Previous policies)■ Domestic (New policies)■ Overseas (New policies)

08

30

4.2

0

8.3

07

48.0

10

11.2

22.3

06

323.9

05

313.8

262.5

04

91.3

60
61.6

64.0

18.6
16.9

75.7

85.2

582.1

538.2
411.2

11.9

90
20

10.1
240.7
232.7

0

120

60

242.3

300

287.3

600

476.0
403.0

900

106.3

180
906.1

(Billions of Yen)

1,200
852.0

(%)

673.7

Net Income(Billions of Yen)
716.7
635.7

Operating Income and Operating Margin(Billions of Yen)
529.7

Domestic and Overseas Sales

04

0
05

06

07

08

0
04

05

06

07

08

■ Operating Income (Previous policies)
Operating Margin (Previous policies)■ Operating Income (New policies)
Operating Margin (New policies)

29Tokyo Electron Limited

Annual Report 08

Other Income (Expenses) and Net Income
In fiscal 2008, the Company recorded net non-operating income of ¥0.7 billion. On the non-operating expense side, the Company incurred ¥4.1
billion for loss on impairment of goodwill associated with the revaluation of Timbre Technologies, Inc., a wholly owned subsidiary acquired in
February 2001. In non-operating income items, the Company received ¥2.2 billion in revenue from development grants and booked ¥2.4 billion
on the gain on sale of property, plant and equipment. As a result, income before income taxes rose 17.2% year on year to ¥169.2 billion.
Net income grew 16.4% year on year, to ¥106.3 billion, a second consecutive record high for the Company. Net income per share increased
from ¥511.27 in the previous fiscal year to ¥594.01 in fiscal 2008.

Dividend Policy and Dividend
The fundamental policy regarding return of profit to shareholders is to pay dividends linked to business performance and backed by earnings.
The Company applies a dividend policy that aims at a payout ratio of 20% of consolidated net income. On this basis, the Company increased
the cash dividend per share by ¥22, to ¥125 per share, representing a dividend payout ratio of 21.0% on a consolidated basis.
Meanwhile, the company uses retained earnings for R&D and capital investment aimed at further growth.

Performance by Segment
Industrial Electronic Equipment Segment
Segment sales (including intersegment sales) rose 6.6% year on year in fiscal 2008, to ¥796.0 billion. Segment operating income grew 17.4%,
to ¥164.8 billion, and the operating margin improved by 1.9 percentage points, to 20.7%.
Semiconductor Production Equipment
Sales to external customers in fiscal 2008 increased 13.0% year on year, to ¥726.4 billion.
Higher global demand for mobile phones and PCs and increased market penetration for digital consumer electronics fueled strong demand for
NAND flash memory and DRAM used in these devices. In the first half of the fiscal year, expectations of further growth in demand resulted in brisk
capital investment. In the second half, however, falling DRAM prices associated with deterioration in the semiconductor supply-demand balance
led to a gradual slowdown in semiconductor capital spending, pushing the equipment market into an adjustment phase.
By region, sales of semiconductor production equipment jumped 79.8% in Taiwan and increased 9.2% in Japan. Sales increased 2.9% in the
U.S., fell 23.0% in Europe, dropped 31.0% in Korea, rose 0.7% in China, and decreased 13.7% in Southeast Asia.

103

100

49.2

40

43.9

57.0

66.1

60

125

150

44.2

50

50

55

100

142.8

80

128.7

(Yen)

150

114.0

Cash Dividends per Share

(Billions of Yen)

111.9

R&D Expenses(Billions of Yen)

117.9

Selling, General and Administrative Expenses

04

05

06

07

08

04

05

06

07

08

10

0

0

0

30

45

20

04

05

06

07

08

Annual Report 08 Tokyo Electron Limited

By product group, except for wafer probers, sales of all equipment types increased year on year, with the single-wafer CVD system demonstrating particularly sharp sales growth.
Reflecting steep declines in semiconductor memory prices and slowing demand from the first half of the fiscal year, division orders declined
37.0% year on year, to ¥504.1 billion, and the order backlog at the end of fiscal 2008 fell 54.6% compared with the end of the previous fiscal
year, to ¥184.6 billion.
FPD Production Equipment
Sales to external customers declined 32.5% year on year, to ¥68.0 billion.
Flat-panel TVs equipped with LCD panels are seeing rapid market penetration against the backdrop of falling unit prices and the shift to digital
broadcasting, pushing up demand for panels. Under these circumstances, LCD panel makers in China, Japan, South Korea and Taiwan
invested to increase production capacity in 2006. This expansion resulted in deterioration in the panel supply-demand balance in 2007 andcurtailed capital expenditures in fiscal 2008.
Amid this environment, the Company worked to expand sales, centered on equipment used for seventh-generation and eighth-generation
large glass substrates. Sales fell 17.1% year on year in Japan, declined 63.1% in Taiwan, increased 7.7% in South Korea, and dropped 29.4%
in other regions.
In the second half of the fiscal year, the LCD panel supply-demand balance improved and orders from panel makers resumed. Divisionorders received increased by 94.2% year on year, to ¥129.9 billion, and the order backlog rose 94.9%, to a record-high ¥127.1 billion at theend of fiscal 2008.
OthersOther sales consist primarily of in-house services, such as non-life insurance and travel services. Sales declined by 59.4% year on year, to¥0.5 billion.

FPD Production Equipment Sales(Billions of Yen)

(Billions of Yen)

800

120

200

0
04
■ Previous policies■ New policies

05

06

07

08

68.0

81.2

60

100.8

90

75.0

486.9

Notes: 1. Since fiscal 2005, sales of FPD
production equipment have beenshown separately from SPE Division
sales, in which they were previously
included. In the left graph, SPE sales
for fiscal 2004 exclude FPD production equipment sales on a nonconsolidated basis for the convenience ofreaders. (These figures are unaudited.)
2. Effective from fiscal 2005, the Company
made certain changes in accounting
polices as discussed on page 28.

64.8

361.0

400

457.2

642.6

600

726.4

Semiconductor Production Equipment Sales

30

0
04

05

06

07

Notes: 1. Since fiscal 2005, sales of FPD
production equipment have been shown
separately from SPE Division sales, inwhich they were previously included. In
the left graph, FPD production
equipment sales for fiscal 2004 are on anonconsolidated basis, while those fromfiscal 2005 are on a consolidated basis.
2. Effective from fiscal 2005, the Company
made certain changes in accounting
polices as discussed on page 28.

08■ Previous policies■ New policies

31

Tokyo Electron Limited

Annual Report 08

Electronic Components and Computer Networks (Tokyo Electron Device Limited)In fiscal 2008, net sales in this segment, including intersegment sales, increased by 3.1% year on year, to ¥112.1 billion. Operating income
declined by 7.8%, to ¥3.7 billion, and the operating margin declined 0.4 percentage points, to 3.3%. Net sales in this segment to outside customers rose by 3.5% to ¥111.2 billion.
Along with signs of deterioration in the Japanese economy from the second half of the fiscal year, the domestic semiconductor market slowed
somewhat. However, IT investment was brisk due to the strengthening of legislation related to corporate governance and information security.
The main strategic market for this segment is the industrial equipment industry, where sales focus on custom ICs, analog ICs and otherhigh-value-added devices. Tokyo Electron Device Limited also concentrates on increasing orders for contract semiconductor design services
and stepping-up efforts to develop its own products (under the brand name “InreviumTM”). In computer network equipment and IT-related
software, the company strives to strengthen its sales and maintenance service capabilities to provide solutions that are optimally configured
for the business strategies of customers.

Business Segment Information
Millions of yen
Industrial
electronicequipment

Electronic
components
and computer
networks¥794,911¥111,181

2008:

Total

Eliminations
andcorporate

Consolidated¥906,092¥     –

¥906,092

1. Net sales and operating income
Net sales(1) Sales to external customers................................................................
(2) Intersegment sales or transfers............................................................

1,117

948

2,065

(2,065)–

Total........................................................................................................

796,028

112,129

908,157(2,065)906,092

Operating expenses.................................................................................

631,220

108,470739,690(2,096)

737,594

Operating income....................................................................................

164,808

3,659

168,46731

168,498

Assets.....................................................................................................

¥744,280¥ 51,459¥795,739¥(2,921)¥792,818

2. Assets, depreciation and amortization expenses, impairment losses andcapital expenditures
Depreciation and amortization expenses..................................................

22,649365

23,014–23,014

Loss on impairment of goodwill................................................................

4,072

–

4,072

–

4,072

Loss on impairment of property, plant and equipment . ............................

808

–

808

–

808

Capital expenditures, including intangible and other assets.......................

26,924924

27,848–27,848Working Capital and Current Ratio

Interest-Bearing Debt, D/E Ratio

Equity and Equity Ratio(Billions of Yen)

(Times)(Billions of Yen)(%)

(Billions of Yen)

(%)

800

4.0

150

60

800

80

0
04

■ Working Capital
Current Ratio

05

06

07

08

36.1

40.2

200
8.7

0
04

05

■ Interest-Bearing Debt
D/E Ratio

06

07

60

40

460.2

20

6.7

0
08

376.9

20
17.3

67.5
59.7

51.6

332.2

99.5
29.9

50

56.8

400 49.1

1.0

0

32

2.0

40

65.1

441.4

2.7

384.5

2.6

315.9

200

261.5

2.4

288.6

2.8

400

600

46.1
127.0

100

275.8

3.0

535.0

3.2

600

0

0
04

■ Equity
Equity Ratio

05

06

07

08

Annual Report 08 Tokyo Electron Limited

Financial Position and Cash Flows
Assets, Liabilities and Net Assets
AssetsAt March 31, 2008, total assets stood at ¥792.8 billion, an increase of ¥22.3 billion from the end of March 2007.
Current assets increased by ¥29.9 billion, to ¥640.2 billion. Reflecting the collection of trade notes and accounts receivable, cash and deposits (which includes certificate of deposits) increased by ¥69.2 billion. Meanwhile, inventories declined by ¥33.7 billion due to reductions in workin process at plant and inventories of products shipped but yet-to-be installed toward the end of the fiscal year.
Net property, plant and equipment declined ¥0.8 billion year on year to ¥104.1 billion, mainly reflecting ¥22.7 billion in new acquisitions, lessan impairment loss of ¥0.8 billion associated with the closure of the Kumamoto Plant of Tokyo Electron Kyushu Limited and depreciation of¥21.4 billion.
Investments and other assets declined ¥6.7 billion, to ¥48.5 billion. A major factor was ¥4.1 billion in loss on impairment of goodwill due tothe business revaluation of Timbre Technologies, Inc., a wholly owned subsidiary acquired in February 2001.
Liabilities and Net Assets
Total liabilities fell by ¥53.1 billion, to ¥247.6 billion.
Current liabilities declined by ¥27.0 billion, to ¥198.8 billion. The main reasons for the decline were a ¥30.1 billion decrease in trade notes andaccounts payable and a ¥17.4 billion reduction in income taxes payable. The current portion of long-term debt increased ¥21.5 billion to ¥30.0
billion. There was a ¥5.5 billion redemption of the No. 5 issue of unsecured bonds with warrants and a ¥3.0 billion repayment of borrowings by
Tokyo Electron Device, but the due date for the No. 11 issue of unsecured bonds fell to less than one year, and ¥30.0 billion was transferred tocurrent liabilities as a result.
Total net assets increased ¥75.4 to ¥545.2 billion, bolstered mainly by an ¥82.8 billion year-on-year rise in retained earnings. As a result, theequity ratio rose 7.8 percentage points, to 67.5%, and return on equity (ROE) declined by 0.4 percentage points year on year, to 21.4%.
Total interest-bearing debt consisting of short-term and long-term debt combined was ¥36.1 billion at the end of the fiscal year. Long-term
debt was zero, reflecting the due date for the redemption of the No. 11 issue of unsecured bonds falling to less than one year; therefore, thisfigure comprises the total of short-term borrowings and the current portion of long-term debt. As a result, the debt-to-equity ratio (interestbearing debt/equity) fell to 6.7%, compared with 8.7% at the end of fiscal 2007.

Free Cash Flows(Billions of Yen)

(Billions of Yen)

30

120

04

05

86.8

0
–0.7

3.1

04

68.3

30

4.1

0

60

29.0

9.9

10

11.7

11.0

10.7

10

13.3

13.5

22.7
21.4

20

90

18.8

20.2 21.4

19.2

20

21.7

21.5

21.8

20.3

25.0

30

106.9

Capital Expenditures and Depreciation and Amortization

(%)

27.1

ROE and ROA

–30

0
05

06

07

08

Return on equity ratio (ROE)
Return on assets ratio (ROA)
ROA=(Operating income+Interest and dividend income)/Average
total assets x100

■ Capital Expenditures■ Depreciation and Amortization

06

07

08

04

05

06

07

08

Free Cash Flows=Cash Flows From Operating Activities+Cash Flows From
Investing Activities

33

Tokyo Electron Limited

Annual Report 08

Capital Expenditures*1 and Depreciation and Amortization*2
Capital expenditures decreased by 16.3% year on year to ¥22.7 billion. Major capital expenditure items included the purchase of evaluationequipment and measuring equipment for R&D on semiconductor and FDP production equipment and the acquisition of buildings. Depreciation
and amortization expenses increased 13.8%, to ¥21.4 billion.
*1 Capital expenditures only represent the gross increase in property, plant and equipment.
*2 Depreciation and amortization does not include amortization and loss on impairment of goodwill.

Cash Flows
Cash flow from operating activities in fiscal 2008 was ¥116.9 billion, ¥62.6 billion more than in fiscal 2007. The main sources of cash were¥169.2 billion from income before income taxes, depreciation and amortization of ¥21.4 billion and a ¥2.5 billion decrease in trade notes andaccounts receivable, and a ¥28.3 billion decrease in inventories. The main uses of cash, meanwhile, included a ¥27.4 billion decrease in tradenotes and accounts payable and ¥73.7 billion for the payment of income taxes.
Investing activities used net cash of ¥30.2 billion, ¥4.9 billion more than in fiscal 2007. The main use of cash was ¥19.3 billion for the purchase of property, plant and equipment, including evaluation equipment and measuring equipment for R&D intended to promote the Company’s
future growth, and ¥10.1 billion for deposits with a maturity of more than three months.
Financing activities used net cash of ¥27.0 billion, ¥7.7 billion less than the outflow in fiscal 2007. The Company used ¥5.5 billion in cash toredeem its No. 5 issue of unsecured bonds with warrants and ¥23.4 billion in cash to pay dividends.
As a result, the balance of cash and cash equivalents increased by ¥59.1 billion year on year, to ¥193.5 billion at the end of March 2008.

Business-related and Other Risks
The following are possible risks that may have an impact on Tokyo Electron’s business performance, stock price, or financial position.
(1) Impact of Fluctuating Foreign Exchange Rates
Success in the development of overseas operations has increased the share of sales generated overseas. As a rule, Tokyo Electron conducts
export transactions on a yen basis to avert exposure to foreign currency risks. However, some exports are denominated in foreign currencies. In
these cases, Tokyo Electron hedges foreign currency risk by using a forward foreign exchange contract when an order is received or by othermeans. However, foreign exchange rate risks can arise from fluctuations in prices due to sudden foreign exchange movements, which could
have an indirect adverse effect on Tokyo Electron’s business performance.
(2) Impact From Research and Development
Through ongoing and proactive R&D investment and activities in cutting-edge technologies—miniaturization, vacuum, plasma, thermal processing, coating/developing, cleaning, wafer-transfer and clean technologies—Tokyo Electron has created advanced technologies. At the sametime, by quickly bringing to market new products incorporating these technologies, Tokyo Electron has successfully captured a high market
share in each of the product fields it has entered and generated a high profit margin. However, delays in the launch of new products and otherfactors could adversely affect Tokyo Electron’s business performance.
(3) Impact From Changes in the Semiconductor Market
Tokyo Electron has achieved a high profit margin by concentrating resources in high-tech fields, including semiconductor production equipment,
where technological innovation is rapid but Tokyo Electron can effectively use its strengths. Although technological change is responsible for thesemiconductor market’s rapid growth, Tokyo Electron has actively undertaken structural reforms to be able to generate profits under any circumstances, including when the market contracts temporarily due to imbalance of supply and demand. However, order cancellations, excess
capacity and personnel and increased inventories resulting from an unexpectedly large market contraction could adversely affect Tokyo­Electron’s business performance.

34

Annual Report 08 Tokyo Electron Limited(4) Impact From Concentration of Transactions on Particular Customers
Tokyo Electron has been successful at increasing transactions with the leading semiconductor manufacturers worldwide, including those inJapan, through the provision of products featuring outstanding, cutting-edge technology and of services offering a high level of customer satisfaction. However, Tokyo Electron’s sales may from time to time be temporarily concentrated on particular customers due to the timing of large
capital investments of major semiconductor manufacturers. The resulting escalation in sales competition could adversely affect Tokyo Electron’sbusiness performance.
(5) Safety-related Impacts
Tokyo Electron’s basic philosophy is to always bear in mind safety and health in the execution of business activities, including development,
manufacturing, sales, services and management. In accordance with this philosophy, Tokyo Electron works actively and continuously to
improve the safety of its products and to eliminate any harmful impact on health. However, harm to customers, order cancellations or othercircumstances resulting from safety problems or other problems related to Tokyo Electron’s products could adversely affect Tokyo Electron’sbusiness performance.
(6) Impact From Quality Issues
Tokyo Electron actively develops outstanding, cutting-edge technologies for incorporation in new products that are brought quickly to market. At
the same time, Tokyo Electron works to establish a quality assurance system, efforts that include obtaining ISO 9001 certification, as well as toestablish a world-class service system. These actions have resulted in a large number of customers adopting Tokyo Electron’s products. However, because Tokyo Electron’s products are based on cutting-edge technologies, and due to other factors, many of the technologies developed
are in unfamiliar fields. The occurrence of unforeseen defects or other issues could adversely affect Tokyo Electron’s business performance.
(7) Impact of Intellectual Property Rights
In order to distinguish its products and make them more competitive, Tokyo Electron has promoted its R&D strategy for the early developmentof cutting-edge technologies together with its business and intellectual property strategies. This approach has enabled Tokyo Electron to obtainsole possession of many proprietary technologies that have been instrumental to the Company’s ability to capture a high market share andgenerate high profit margins in each of its product fields. However, Tokyo Electron’s products incorporate and optimize many of these proprietary cutting-edge technologies. There may be cases in which, by avoiding the use of third-party technologies and intellectual property rights,
Tokyo Electron’s business performance could be adversely affected.
(8) Other Risks
Tokyo Electron is actively engaged in reforming its corporate structure so that it can generate profits even when markets contract. These
reforms have entailed creating new high-growth and high-return businesses and pursuing higher earnings from existing businesses. At the sametime, Tokyo Electron has promoted activities to preserve the environment and worked to restructure its compliance and risk management systems. However, as long as it conducts business activities, as with peer companies or companies in different industries, Tokyo Electron is subject
to the effect of many other factors. These include the world and regional economic environments, natural disasters, war, terrorism, unavoidable
occurrences (such as infectious diseases), financial or stock markets, government or other regulations, supply systems of suppliers, market
conditions for products and real estate, the ability to recruit personnel in Japan and overseas, competition over standardization, and loss of key
personnel. Any of these factors could adversely affect Tokyo Electron’s business performance.

35