Review of Operations
Semiconductor Production Equipment
The active capital investment in semiconductor production equipment that had continued
through 1999 and 2000 dropped off sharply from the beginning of 2001 under the impact of thedeteriorating semiconductor market. On an annual basis, the global semiconductor production
equipment market suffered significant negative growth. The backdrop to this slump was the weakpersonal computer and mobile phone markets, which drive demand in the semiconductor market.
After recording high growth in 2000, personal computer and mobile phone shipments slowed
down, resulting in a surplus of worldwide semiconductor inventories. Subsequently, the utilization
rate of chip manufacturer’s plants fell notably, minimizing non-critical capital investment.
Sales of the Semiconductor Production Equipment (SPE) division for the fiscal year ended
March 31, 2002, declined 47.4 percent to ¥325.7 billion. Contribution to consolidated net sales
dropped to 78.0 percent from 85.5 percent. Sales of FPD production equipment, which are also
included in the division’s sales, decreased 42.3 percent to ¥41.4 billion because of the reduction inplant and equipment investment in the wake of a softening of the FPD market. Division’s orders
sunk 67.0 percent to ¥207.2 billion, shrinking not only because of the lack of new orders but also
because of order write-offs.
Orders staged a recovery in the fourth quarter, however, supported by a resurgence in capital
investment primarily by major semiconductor manufacturers to build production lines for 300mm
wafers and to upgrade their lines to accommodate finer geometries to 0.13 µm. Although it will taketime for a full-fledged recovery in investment, this trend indicates that the semiconductor production
equipment industry is about to shift into a growth cycle. Orders for FPD production equipment,
which also have a cyclic nature, returned to a high level in spring 2002, reflecting an improvement ina balance between demand and supply in the FPD market.

2001

131.1

North Europe Korea Taiwan
America

22.3

40.9

59.9
23.2

50.5
28.3
Japan

60.5

94.7

96.7

140.2

196.5

SPE division’s Salesby Geographic Region(¥ Billions)

Other2002

Sales by third-party products imported into
Japan are included in Japan Sales.

Review by Geographic Region
SPE division sales declined in every region during the fiscal year. The drop was significant in
the Asian region, dropping 50.8 percent to ¥96.7 billion in Japan, 61.3 percent to ¥23.2 billion in theRepublic of Korea, 53.9 percent to ¥60.5 billion in Taiwan and 45.5 percent to ¥22.3 billion in other
Asian countries. Sales to the People’s Republic of China, which are included in the other Asiancountries category, increased thanks to sales orders from new customers. In the United States,sales decreased 32.4 percent to ¥94.7 billion, but total sales contribution for the division reached29.1 percent from 22.6 percent. Excluding FPD production equipment sales, semiconductor production equipment sales in the United States were the highest of all regions. Sales in Europe
amounted to ¥28.3 billion, down 43.9 percent.
Review by Product
Sales fell in every product category year on year. Nevertheless, there were some bright spots.
Although sales of 200mm wafer equipment continued to slide, sales of 300mm equipment grewsteadily. Sales of coaters/developers, etch systems and wafer probers for 300mm wafers wereespecially favorable. The division believes that sales of these products earned a larger share of themarket than those for 200mm wafers in what could be recognized as the first real step towards
300mm.
R&D Expenses and New Products
There are three technological transitions concurrently transforming our industry—finer geometries, a shift to new materials, and the larger 300mm wafers. To respond to these challenges, theCompany invested a record ¥53.8 billion in R&D to develop innovative, proprietary products and

20 TOKYO ELECTRON

processes despite the difficult operating environment. One of the areas in which progress wasmade during the fiscal year was a new concept of equipment incorporating the metrology technology of Timbre Technologies, Inc., acquired by the Company in the previous fiscal year, into TEL’slithography equipment. Pilot systems have entered the evaluation stage. In other state-of-the-art
research, we are pioneering key 70-nanometer node technologies.

325.7

619.0

355.1

242.2

380.2

SPE division’s Sales(¥ Billions)1998 1999 2000 2001 2002

Major products launched during the fiscal year under review included:• TELFORMULA™
In December 2001, we officially began accepting orders for TELFORMULA™, our new thermal processing system for 300mm wafers providing a flexible load size of up to 25 wafers. This
innovative high-speed thermal processing system has solved conventional batch processing systems issues by providing a significant reduction in production cycle time. With its high-productivity
and cost-advantages, we expect a strong growth in orders for the future.
• Trias™ SPA
In December 2001, we also launched Trias™SPA, a plasma nitridation system that enables
damage-free plasma processing to incorporate nitrogen in gate dielectric films. Use of this producteliminates the need for thermal annealing to remove crystal defects caused by plasma damage.
Trias™SPA has a high sales growth potential due to its extendability to other key processes foradvanced logic, DRAM and flash memory.
• SRTF
Single Wafer Rapid Thermal Furnace, announced in July 2001, is a revolutionary system, featuring superior repeatability and cost-effectiveness of hot-wall thermal processors. It has the flexibility of a single wafer production system, as well as boasting extremely low power consumption.
Commercialization of the 200mm system has been concluded, with a 300mm system currently
under development.
Restructuring of Business Operations
Prompted by the deterioration in earnings during the fiscal year, we reviewed and restructured
our business organizations. In Japan and the United States, we focused on manufacturing operations, reorganizing to achieve better productivity and improve efficiency. Further details on thisrestructuring, please refer to To Our Shareholders in this annual report.
Tokyo Electron (Shanghai) Strengthens Company’s Position in Growing China Market
In view of the high-growth anticipated in the Chinese semiconductor market, we decided tostrengthen our support services in that market for both our semiconductor and FPD production
equipment. Accordingly, Tokyo Electron (Shanghai) Limited was established in Shanghai during thefiscal year and operations commenced in April 2002. Although we have been providing customer
support services in China since 1996 on an agency basis, we have moved to a direct support service structure to further strengthen local services and increase our presence in the market. We alsoplan to extend our activity to include procurement within China. Tokyo Electron (Shanghai) beganoperations with an initial staff of 70, and plans to add more employees according to business conditions in China.

21Computer Network

17.0

14.1

12.4

12.9

15.3

CN division’s Sales(¥ Billions)1998 1999 2000 2001 2002

F5 Networks, Inc.
• Server Load Balancer

Net sales of the Computer Network (CN) division increased 21.2 percent to ¥17.0 billion supported by the division’s product strategies. The popularization of broadband communications has
raised several major issues for companies. They must achieve higher speed and greater security, as
well as cope with the storage and management of the explosive increase in the volume of data
being transferred via the Internet. One of the first to begin introducing products for these fields, theComputer Network division utilizes its accumulated technical capabilities to provide not only highperformance products but also the best business solutions for its customers.
In the network-related product segment, sales of Gigabit Ethernet switches from Extreme
Networks continued to expand favorably. Sales of Internet traffic management products from F5
Networks also advanced, increasing 1.8 times over the previous fiscal year, partially due to theintroduction of an Internet Protocol (IP) application switch incorporating the latest technology. The
especially strong spotlight on security, an essential component of Internet business, helped triple
sales of securities products from nCipher. During the fiscal year, the division also added the Caw
Networks’ Stress Testing Appliance to its lineup to reinforce its solutions for creating trouble-free
web sites for mission critical environments. This product allows the newly created web site to betested before its launch in a simulated environment that closely approximates real conditions.
The growing volume of data traffic enabled by broadband has brought storage area network(SAN) technology into the realm of practical use. Able to store huge volumes of data without placing
a burden on the network, SANs also allow for easy recovery of data should it become corrupt ordamaged. Accordingly, sales of Brocade Communications Systems’ Fibre Channel Fabric Switches,
which are key to constructing SANs, increased 1.6 times over the previous fiscal year. In responseto the growing interest in remote backups that save data at a distant location in the event of systemproblems, the division began handling the IP storage switches of Nishan Systems, expanding therange of its SAN solutions. These switches make possible the location of a SAN in a remote area.
Growing demand for video and audio transmission through networks prompted by the shift tobroadband on the Internet supported a four-fold increase in sales of Ruff Systems over the previous
fiscal year. Ruff Systems, which was developed jointly with the Communications ResearchLaboratory, an independent administrative institution, enables transmission of high-quality, uncompressed video under WindowsXP in an IPv6 environment, the next-generation Internet environment.
Leveraging capabilities in networks, SANs, and video transmission technologies, which are
the areas of expertise essential to the Internet, the division will continue to utilize its ability to discover and introduce state-of-the-art products in providing indispensable solutions for the Internet age.

nCipher Corporation Ltd.
• Hardware Security Module• SSL Accelerator

Nishan Systems• IP Storage Switch

Note: Product names and company names are trademarks or registered trademarks of their respective holders.

22 TOKYO ELECTRONSony Corp.
• High Performance Tape LibraryElectronic Components

73.789.2

72.1

57.7

60.1

EC division’s Sales(¥ Billions)1998 1999 2000 2001 2002

Net sales for the Electronic Components (EC) division declined 17.4 percent to ¥73.7 billion
amid weak demand for semiconductors in Japan. The division’s product lineup includes semiconductor products, board computer products, software, and other electronic components.
Semiconductor products accounted for 88 percent of divisional net sales. This category
includes semi-custom ICs, primarily Xilinx’s programmable logic devices (PLDs), that are finding
wider application in the market because of the trend to higher performance in electronic products
and the shortened product cycle; application-specific standard products (ASSPs) for communications-related applications; and other ICs. In its semiconductor product lineup, the division focuseson products with growth potential in information network-related fields and high-value-added products that require technical support. Despite these strategies, their sales fell substantially during thefiscal year because of deteriorating performance among electronic manufacturers, capital investment restraint, and other factors. Sales of board computer products, software, and other electroniccomponents also decreased. One of the highlights of this otherwise difficult year was the division’s
reception of an award from Microsoft as the “Windows Embedded Partner of the Year”. Microsoft’sproducts accounted for 87% of the division’s software sales.
Against the backdrop of the rapid development of broadband services, the division is seeking
out products focused on information network-related fields and the digital consumer market that isemerging as a result of the digitization of consumer appliances. During the past fiscal year, the division newly concluded distribution agreements with such global semiconductor companies as Texas
Instruments and Infineon Technologies.
The division operates design & development centers where its broad experience is used todevelop semi-custom ICs on a contract basis that meet the specific needs of customers. During thepast fiscal year, the division opened a new design & development center in Sendai to strengthen its
design and development organization. Design & development centers are also concentrating on thedesign and development of original products based on communication interface and memory control technologies.
Looking forward, the division will continue to emphasize the discovery of new suppliers andproducts. In addition, the division will work to establish a strong foundation as a “technology” trading company by sales and marketing high-value-added products that require technical support, utilizing its technical capabilities to design and develop semi-custom ICs, and strengthening development of original products.

Note: Product names and company names are trademarks or registered trademarks of their respective holders.

23