TOKYO ELECTRON ANNUAL REPORT 2020

PAGE7CONTENTS

Business Overview
and Financial Highlights

To Our Stakeholders

Interview with the CEO

Review of Operations
and Business Outlook

Corporate Governance

Financial Section
Investor Information

Review of Operations and Business Outlook

Review of Operations and Business Outlook
2019 Business Environment

Semiconductor
Production
Equipment(SPE)

Investment by logic chip manufacturers and foundries in expanding production capacity forleading-edge technologies was robust, reflecting growth in demand for high-performance processors used in data centers and 5G smartphones. In contrast, memory chip manufacturers’investment underwent an adjustment following several years of investment to increase production capacity. As a result, the global market for wafer fab equipment (WFE),1 which had seen
uninterrupted growth since 2013, shrank 8% year on year to about US$55 billion.

Segment Net Sales
and Profit Margin(Billions of yen)

(%)

29.8

30

1,055.2
1,000

28.0

1,060.92525.5
800

20600

15400

10200

5001819

Capital investment in generation 10.5 panel for LCD TVs remained strong. However, investment
in OLED display softened, reflecting the end of a cycle of investment in the previous year.
Although investment in generation 6 panels for OLED display began to improve in the second
half of 2020, on a full-year basis, the equipment market for TFT array processes,1 in which Tokyo
Electron operates, shrank 25% year on year to about US$6.5 billion.
1 TFT (Thin-film transistor) array process: The process of manufacturing the substrates with the electric circuit functions that drive displays

Fiscal 2020 Business Overview

Fiscal 2020 Business Overview

S egment net sales came to ¥1,060.9 billion. While net sales and profit fell year on year due tothe contraction of the WFE market, both exceeded forecasts.
• By application, sales to memory chip manufacturers declined, but sales to logic chip­manufacturers and foundries grew.
• By product, the portion of net sales accounted for by coater/developers increased, reflecting
the growth in investment by logic chip manufacturers and foundries.
• Sales in the field solutions business (encompassing sales of parts and used equipment,­modifications and maintenance services) rose 5.7% year on year. Sales of parts and services
remained firm due to growth in the installed base and the high utilization rate of customers’ fabs.

Segment net sales fell 40.6% year on year to ¥66.0 billion. This was mainly because the market
contracted 25% year on year and some sales were delayed due to the impact of COVID-19.
The segment profit margin decreased 5.8 percentage points from the previous fiscal year to16.0%. While the profit margin fell with net sales, efforts to secure downward flexibility helped
maintain profitability.

Share of Net Sales

5.9%

The segment profit margin decreased from 28.0% in the previous fiscal year to 25.5%, as wecontinued forward-looking aggressive investment aimed at medium- and long-term growth in
the midst of the adjustment in the WFE market.

94.1%

1,166.7

FPD Production
Equipment

1 Wafer fab equipment (WFE): The semiconductor production process is divided into front-end production, in which circuits are formedon wafers and inspected, and back-end production, in which wafers are cut into chips, assembled and inspected again. WFE refers tothe production equipment used in front-end production and in wafer-level packaging production.

Share of Net Sales

1,200

2019 Business Environment

20Segment Net Sales
Segment Profit Margin
Segment profit corresponds to income before income
taxes on the consolidated statements of income.

Business Outlook

Business Outlook

The transition to a data-driven society is accelerating, reflecting the adoption of IoT, AI and 5G,
as well as the growing use of remote work arrangements, distance learning and remote medicine. Accordingly, demand for the semiconductors that enable such a society is expected toexpand over the medium to long term. Within the SPE market, Tokyo Electron particularly
expects ongoing innovation and market expansion in etch, deposition and cleaning systems, andhas designated these as its three key fields. By differentiating our technologies and services inthese fields, we aim to grow sales and profit.
As the scaling of DRAM and logic chips continues and the number of layers in 3D NAND
increases, the use of new materials and increasingly complex device structures are creating
greater technological challenges. To turn these business opportunities into growth, in the area ofetch, we will strengthen our competitive advantage based on process performance and productivity in HARC,2 interconnects and patterning processes. In deposition, we boast technologies forbatch, semi-batch and single wafer processes and will leverage this strength to offer optimal
deposition methods while advancing the development of technologies for new materials. Incleaning, we will provide technologies to reduce fine pattern collapse and remove foreign particles and residue that degrade yields. In these ways, Tokyo Electron seeks to expand its SAM3
share in its three key fields.
In the markets for power devices and discrete semiconductors for IoT and automotive applications,which are expected to see continued growth, we will increase our market share by introducing reengineered equipment leveraging technological assets from products we previously manufactured.
Furthermore, the importance of co-optimizing multiple processes is growing, creating greater
needs for services that help increase uptime and yields. Tokyo Electron will leverage the insights
provided by its diverse product lineup to conduct joint development with customers from theearly stages of each new technology node. By doing so, we aim to be at the forefront in offering
integration technologies that realize co-optimization. In addition, by providing services withhigher added value, such as remote equipment maintenance and equipment diagnostics using
AI, we aim to achieve further business growth.

In the FPD market, efforts to enhance display resolution, functionality and design are expected
to drive continued technological innovation. In response to increasingly advanced technologicalrequirements, Tokyo Electron aims to achieve differentiation using its superior process technologies to expand its market share and raise the operating margin to 30%.
In small- and medium-sized panels for mobile devices, in addition to such technologies as
LTPS2 and IGZO3 that enable even greater resolution, self-lighting OLED display and foldable
devices made with flexible displays are expected to gain broader utilization going forward. Thesechanges will drive an increase in the number of masks and dry etch processes as well as a needfor more precise patterning. Tokyo Electron will further enhance the performance of its dry etchsystems and coater/developers to leverage these expanding business opportunities and achievebusiness growth.
Looking at large-sized display, a shift from LCD to OLED is expected across a wide range ofapplications, including TVs, high-end monitors, and displays installed in vehicles and public places. Tokyo Electron will maintain its competitive advantage in generation 10.5 panels while
expanding its PICP™4 etch systems, which provide superior processing uniformity, to generation
8.5 and 10.5 panels.
Tokyo Electron has released inkjet printing systems, previously marketed only for generation
8.5 and 4.5 panels, for generation 2 panel development lines in order to accelerate technologicaldevelopment aimed at adoption for mass production. Our customers have been evaluating theinkjet printing system. In the medium to long term, we aim to further improve profitability
based on differentiation in dry etch systems and coater/developers as well as the contributionsof inkjet printing systems.

2 HARC (High aspect ratio contact) process: A process for forming deep holes or trenches that requires advanced processing technology
3 SAM: Served available market

Segment Net Sales
and Profit Margin(Billions of yen)

(%)

12030

111.2
100

2580

75.0
60

20

21.8
66.0

17.7

1516.0401020

500181920Segment Net Sales
Segment Profit Margin
Segment profit corresponds to income before income
taxes on the consolidated statements of income.

2 LTPS: Low temperature poly-silicon
3 IGZO: An oxide semiconductor containing indium, gallium and zinc
4 PICP™: A plasma module that produces extremely uniform high-density plasma on panel substrates