TOKYO ELECTRON ANNUAL REPORT 2019

PAGE4CONTENTS

Business Overview
and Financial Highlights

To Our Stakeholders

Interview with the CEO

Review of Operations
and Business Outlook

Interview with the CEO

Interview with the CEO

The Dawn ofthe Big Data Era
Targeting World-Class Profitability

Question

01

Tokyo Electron achieved record-high profit1 in fiscal 2019;
how is the medium-term management plan progressing?

Tokyo Electron has been working to expand sales

and support capabilities, the field solutions busi-

and profit in the key fields of etch, deposition andness (encompassing sales of parts and usedcleaning. We are focusing on these fields over theequipment, modifications and maintenance ser-medium term in expectation of ongoing techno-vices) has grown substantially. As a result, sales

logical innovation and market expansion, andand profit growth has outpaced market growth,because they offer opportunities to leverage ourand we have reached the ROE target establishedaccumulated technologies and business expertise.

in the medium-term management plan. We areOver the last five years, the wafer fab equip-very pleased with these achievements, which

ment (WFE) market has rapidly expanded from

reaffirm that our business strategies are progress-around US$30 billion to almost US$60 billion. In

ing as planned. Going forward, we will continuethat time, Tokyo Electron has reorganized its

to improve product competitiveness, responsive-business units to combine best known methods

ness to customers and productivity to realize

for various products while advancing highly effi-­further business expansion.

2

cient product development through coordination
between development and account sales divisions. These and other efforts have steadilygrown our market share and significantly
improved the profitability of our products. Inaddition, thanks to increases in our installed base1 	Gross profit, operating income and net income attributable to owners of
the parent reached record highs.
2 	Wafer fab equipment (WFE): The semiconductor production process isdivided into front-end production, in which circuits are formed on wafers
and inspected, and back-end production, in which wafers are cut intochips, assembled and inspected again. WFE refers to the production equipment used in front-end production and in wafer-level packaging production.

Toshiki Kawai
Representative Director
President & CEO

Corporate Governance

Financial Section
Investor Information

TOKYO ELECTRON ANNUAL REPORT 2019

PAGE

5CONTENTS

Business Overview
and Financial Highlights

To Our Stakeholders

Interview with the CEO

Review of Operations
and Business Outlook

Corporate Governance

Financial Section
Investor Information

Interview with the CEO

Interview with the CEO

Question

02

After several years of expansion,
the WFE market is expected to contract in 2019.
What changes are occurring in Tokyo Electron’s business environment?

Over the past two years in particular, we havedata centers is on hold as companies wait for theseen brisk investment in expanding DRAM andrelease of new CPUs and peripheral devices suit-

NAND production capacity, reflecting increased

able for 5G applications.

memory in mobile devices and a shift in demand

Due to the shrinkage of the WFE market, Tokyo

from HDDs to SSDs for personal computers andElectron forecasts a year-on-year decrease in net

data centers. There has been a great deal ofsales in fiscal 2020. The importance of semicon-

greenfield investment in NAND, due to the shift

ductors going forward, however, is not goingfrom 2D to 3D device structures. Semiconductor

anywhere. Taking the current market adjustment

demand remains robust, but supply of CPUs,

as an opportunity, in fiscal 2020, we are steadily

which are necessary for use with memory devic-

investing in strategic technological developmentes, has fallen behind, so memory device manufac-

and human resources, with a focus on future

turers are temporarily adjusting their capital

growth. Maintaining industry-leading technologi-investment. Furthermore, another factor behindcal innovativeness is, I believe, crucial.

the contraction is likely that some investment inQuestion

03terms. With such developments as the IoT and 5G,

making our target simply “over 30%.” We aim to

all kinds of things will be connected to networks,

realize growth in line with this model within fiveand data traffic will grow exponentially. At theyears. Previously, we linked our sales targets tosame time, the establishment of systems to pro-projected WFE market size, but the new model

cess and analyze vast amounts of data, including

intentionally drops this linkage. This decision

data centers and AI, will accelerate the transitionreflects a shift in focus from the WFE market size

to the big data era. The expansion of applications

estimates of external research institutions to theand technological innovation in semiconductor

SAM3 in which we are focusing our efforts onand FPDs will power this transition.

business expansion and improved profitability.

We amended our financial model to reflect thisGoing forward, we will strive to achieve an oper-medium- to long-term outlook. We retained theating margin of over 30% and ROE of over 30%.

projections of the model announced last year for3 SAM: Served available market

net sales and operating income and supplemented these with a new scenario of ¥2 trillion in net
sales. We also removed the upper limit on ROE,

Could you explain how you arrived at the newfinancial model announced in May 2019?

Financial Model (within 5 years)

Net sales
In addition to the adjustment in investment byHowever, as when we announced our previous

semiconductor manufacturers, we continue tofinancial model last year, we still expect contin-monitor risks to the macro economy, such as theued growth in the semiconductor and flat panel

U.S.-China trade friction and Brexit negotiations.

display (FPD) markets over the medium and longFor details on the medium-term management plan,
please visit our website.
www.tel.com/ir/policy/mplan/

OperatingmarginROE¥1,500 billion ¥1,700 billion ¥2,000 billion

26.5%

28%>30%>30%

TOKYO ELECTRON ANNUAL REPORT 2019

PAGE

6CONTENTS

Business Overview
and Financial Highlights

To Our Stakeholders

Interview with the CEO

Review of Operations
and Business Outlook

Corporate Governance

Financial Section
Investor Information

Interview with the CEOInterview with the CEO

Question04

How does Tokyo Electron aim to grow inthe medium- to long-term in order to achieve
the new financial model’s targets?

Question05

What led to the decision to implementa share repurchase of up to ¥150 billion,
and what is your approach to using cash on
hand going forward?

The big data era is upon us, requiring even higher-­conduct joint development with customers fromperformance semiconductors and FPDs. In turn,the early stages of each new technology node. In

Our shareholder return policy is to maintain a­constantly evolving challenges our customers

the technological requirements facing production

addition, by identifying and addressing techno-

payout ratio of 50% of net income attributable toface. In addition to our internal research andequipment manufacturers are constantly growing

logical needs and product requirements before

owners of the parent and flexibly consider sharedevelopment, we will collaborate with consortia.

more sophisticated. Boasting diverse technolo-

mass production, we will further improve the effi-repurchases. Based on this policy, annual cash

We are often asked about M&A, and we do notgies and a wide-ranging product lineup, Tokyo

ciency of technology marketing and development.

dividends for fiscal 2019 came to ¥758 per share,rule out the possibility. M&A could be an option

Electron is among the few manufacturers that

We will reflect the technological expertise gained

a record high. The share repurchase announced inprovided we can realistically expect solid returncan meet these rising expectations. We are focus-

through these initiatives in next-generation

May 2019 is also in line with this policy. The deci-on investment, medium- to long-term businessing on fields where we expect ongoing techno-

equipment to create a virtuous cycle, enhancing

sion to implement the buyback stems from ourexpansion, clear benefit to our stakeholders andlogical innovation and market growth, and incustomer satisfaction and advancing develop-

belief that our growth potential was not ade-increased shareholder value. When approachingwhich we can leverage our strengths, working toment, always a step ahead of the competition.

quately reflected in our stock price, as well as oursuch opportunities, however, we will also consid-

confidence that Tokyo Electron will realize profit

er the potential for business collaboration. We will

growth going forward.

continue to manage our balance sheet appropri-

increase our market share and profitability.

Furthermore, we are targeting stable growth in

As you know, Tokyo Electron is a manufacturer.

the field solutions business by leveraging theWe believe that constantly striving to provide theinsights provided by our installed base, which is

As for uses of cash on hand, investment inbest products and best services on the market isthe largest in the industry. Increasingly sophisti-

future growth is our foremost priority. Tokyo

to generate cash, maintain necessary cash on

the key to sustained growth. In line with thiscated process technologies are more reliant on

Electron’s growth depends on continuously cre-hand and preserve capital for growth invest-

belief, we will invest ¥400 billion in research andproper maintenance to ensure that equipment

ating innovative technologies that solve thements going forward.

development over the coming three years. We

consistently operates at optimal performance. By

will also enhance development and production

realizing high-value-added services, such as pre-capabilities in etch and deposition, where we

dictive maintenance using equipment operational

expect outsized growth. Tokyo Electron possess-data, we will provide support that maximizes

es technologies related to such key processes as

uptime and improves yields for our customers.

lithography, etching, deposition and cleaning. To

Through these measures, we aim to achieve theleverage these strengths and provide solutions

targets of the new financial model and increasethat co-optimize multiple processes, we will

corporate value over the long term.

ately with due consideration placed on our ability