TOKYO ELECTRON ANNUAL REPORT 2018

PAGE4CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Interview with the CEO

Review of Operations
and Business Outlook

Innovation Drives the Evolutionof Semiconductors

Corporate GovernanceInterview with the CEOInterview with the CEO

Setting Our Sights Even Higher
Working toward a World-Class ROE and Operating Margin

Question

01

Tokyo Electron achieved record-high profit fora second consecutive year. Could you tell us
more about your progress under the­medium-term management plan?

I am very pleased that we have reached record-on this policy, we have already built an unassailable

high profit for a second consecutive year. I believe

position in coater/developers. Furthermore, in 2015,

this is a result of the initiatives we’ve been advanc-we designated etch, deposition and cleaning as key

ing under the medium-term management plan.

fields. By stepping up product competitiveness,

Tokyo Electron aims to grow in fields where tech-

responsiveness to customers and operational effi-

nological innovation and market growth are expect-ciency, we have been striving to achieve a “Best ined, and where we can leverage our strengths. BasedClass” position in the industry.

Toshiki Kawai
President & CEO

Financial Section
Investor Information

TOKYO ELECTRON ANNUAL REPORT 2018

PAGE

5CONTENTS

Business Overview
and Financial Highlights

To Our Stakeholders

Interview with the CEO

Review of Operations
and Business Outlook

Innovation Drives the Evolutionof Semiconductors

Financial Section
Investor Information

Corporate GovernanceInterview with the CEO

Interview with the CEO
Looking at the past three years, the wafer fab

a result of these efforts. Moreover, sales in the26.5% even if the WFE market contracts to US$55

thereby accelerating the development of next-equipment (WFE) market has seen unprecedent-

field solutions business (encompassing sales ofbillion due to shifts in the semiconductor supply

generation technologies. In the deposition equip-

ed growth, expanding from around US$30 billion

parts and used equipment, modifications andbalance or other temporary changes.

ment business, we are building new production

to more than US$50 billion. In this environment,

maintenance services) grew to 22% of total net

we have built a framework for nimble, efficientsales. This was bolstered by our number of units

medium-term management plan basic strategy

future demand growth. At the same time, we aredevelopment, reorganizing our development andinstalled—among the highest in the industry—of becoming “Best in Class” is unchanged. To con-working to effectively control fixed costs and theproduction groups and business units, establish-

and outstanding support capabilities. Going for-nect expanding business opportunities to theratio of SG&A expenses to consolidated net sales.

ing the Process Integration Center, and integrat-ward, backed by market expansion as well as ourgreatest possible growth, we have raised our tar-In these ways, we will achieve the targets of theing the strengths and best known method (BKM)

industry-leading technological prowess and high-gets for capital expenditure and R&D spending

new financial model as well as our medium- toof each product. In addition, by advancing joint

ly competitive products, we will achieve evenand are increasing our development and produc-long-term ROE and operating margin targets.

development with customers, we have worked togreater growth.

tion capacity. In the etch system business, we will1

provide high-value-added products more rapidly
than ever before.
Net sales, profit margins and market share in all
our key fields have increased significantly as

1 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 into chips,
assembled and inspected again. WFE refers to the production equipmentused in front-end production and in wafer-level packaging production.

Although we revamped the financial model, thebuildings, increasing capacity to be ready for

introduce an automated warehousing system andan additional production line at our factory andFor details on the medium-term management plan,
please visit our website.
www.tel.com/ir/policy/mplan/

begin operations at a new development building,

New Financial Model (Fiscal 2021)

WFE
market size

US$Net sales¥1,500 billion¥1,700 billion

26.5%

28%

Question

02

What factors went into the new financial
model you announced in May 2018?

Operating margin
With the arrival of the IoT and AI era, the semi-55 billion

US$The roadmap to these targets is the new finan-conductor and flat panel display (FPD) industries

cial model for fiscal 2021. The new model raises

are entering a new period of growth; in a few

the assumed size of the WFE market to US$62years, Tokyo Electron expects the WFE market tobillion and sets targets of ¥1,700 billion in net

surpass US$60 billion. We see this as an excellent

sales and a 28% operating margin. At the same

growth opportunity and are aiming for world-time, we will build a management structure withclass ROE and an operating margin of 30% ordownward cost flexibility that can secure ¥1,500

higher in the medium to long term.

billion in net sales and an operating margin ofROE

30–35%62 billion

TOKYO ELECTRON ANNUAL REPORT 2018

PAGE

6CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Interview with the CEO

Review of Operations
and Business Outlook

Innovation Drives the Evolutionof Semiconductors

Corporate Governance

Financial Section
Investor Information

Interview with the CEOInterview with the CEOQuestion

03

Please elaborate on the new growth phase thesemiconductor and FPD industries are entering.

cloud computing. Technological innovation into the challenges posed by next-generation

semiconductors is an absolute necessity for the­technologies, but the next several generations,development of these services. In FPDs, in addi-and work not just to enhance the performance oftion to TVs and mobile devices, new applicationsindividual machines, but provide solutions thatlike augmented reality (AR), virtual reality (VR)optimize entire production processes. Expectations

and flexible displays are emerging. Accordingly,

are now rising for production equipment manu-

improving display resolution and energy efficien-

facturers to innovate on all fronts—from short-

cy is of growing importance.

ening lead times between R&D and mass

As the technological requirements of semiconThe world is now at the start of a fourth industrial

The core of these new services will be data

revolution (Industry 4.0), centered on IoT and big

processing and analysis, namely, cloud computing

data. As systems for analyzing and utilizing theand AI. Furthermore, autonomous driving, smart

vast amounts of data generated by network-con-fabs and other services with low tolerance fornected “things” are created, numerous new ser-data transmission delay will require edge com-vices are expected to emerge that will change

puting, in which data is processed somewhereindustrial structures and society itself.

physically closer to the user than in conventional

ductors and FPDs grow more sophisticated andproduction to creating new services using AI andbig data.

their applications broaden, our customers’ needs
are taking on new dimensions. We must now

For details on the innovation driving the evolution of semiconductors,
please refer to pages 9 and 10.

advance product development looking not onlyQuestion

1760s–First industrial revolution
Mechanization improves productivity
James Watt invents a new type of steam engine

100 years

1860s–

Second industrial revolution
Heavy industry and petrochemicalindustries develop, and major innovations occur in mass production
and transport

One of Tokyo Electron’s greatest strengths is that

Second, by reinforcing support at customer

it deals in not just hardware, software, process

factories and seamlessly linking them with ourtechnology or services, but all four. Leveraging

R&D divisions and business units, we will help ourthis strength, we will help customers improvecustomers shorten lead times between semicon-

Third industrial revolution

their entire production processes and thereby

ductor device development and mass production.

The use of semiconductors spreads,
and computers enable automation

enhance their production line operations.

100 years

1970s–

Mass transport using steam
locomotives

Early automobiles

IBM 5160

50 years

2010s–

04

As customer needs change, how will Tokyo
Electron leverage its strengths?

Fourth industrial revolution
The arrival of the IoT and AI era, inwhich all kinds of things are connected via the internet
IoT

AI

Third, building on the insight and data gleaned

First, using our diverse product lineup and pro-from our installed base of 66,000 units—amongcess technologies, we will advance joint develop-

the largest in the industry—we will offer new

ment with customers from an early stage toservices that present high added value for cus-

quickly provide solutions that take the entire pro-tomers by, for example, increasing equipment

duction process into account. Last year, weuptime and production yields.

established the new Process Integration Center asAs customers’ needs grow on multiple fronts,

part of these efforts, and its initiatives are alreadyvery few production equipment manufacturers

generating positive feedback.

worldwide can meet their growing expectations.

TOKYO ELECTRON ANNUAL REPORT 2018

PAGE

7

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Interview with the CEO

Review of Operations
and Business Outlook

Innovation Drives the Evolutionof Semiconductors

Corporate Governance

Financial Section
Investor Information

Interview with the CEOInterview with the CEOTokyo Electron is one of the few that can. If wecapabilities, I am ­confident the opportunities forleverage our innovative technological and support

Tokyo Electron to grow and excel will only expand.

Question

05

Please tell us about Tokyo Electron’s sustainability initiatives.

Employees are the source of sustainable corpo-

In addition, as the social responsibilities incum-

rate value creation and growth. Since I wasbent on companies increase, we hope to draw

appointed CEO, I have sought to ensure thatinspiration from the United Nations’ Sustainable

Tokyo Electron enriches the lives of its employees

Development Goals (SDGs) and other standards

and their families. To ensure that every employee

to step up our ESG initiatives. Seeking to enhanceis highly motivated and to secure outstanding

governance efficacy, we have brought in a newpeople, we have introduced a new global humanoutside director and are discussing long-term

resources system and continue working to makestrategy from diverse viewpoints. Turning to thejob responsibilities clearer and evaluations fairer.

environment, in addition to reducing the environ-Furthermore, we have adopted an incentive planmental footprint of our own products, we arelinked to medium-term performance as part ofadvancing initiatives to help reduce the power

efforts to enable employees and management toconsumption of the semiconductor devices man-work as one toward increasing corporate value. I

ufactured using our products.

have also visited factories and overseas GroupThrough such measures, we aim to ensure thatcompanies to speak with our people there,

Tokyo Electron is highly sustainable and fulfills its

actively seeking to deepen engagement withcorporate social responsibilities.

front-line employees. I am confident that these
initiatives to bring out the very best performancein each employee will contribute to sustainablegrowth.

For details on Tokyo Electron’s ESG-related initiatives,
please refer to pages 11–14 and our Sustainability Report 2018.

Question

06

What is your approach to using cash on hand?

Our greatest priority for cash on hand is invest-

set a target dividend payout ratio of 50%. For fis-ment in growth aimed at the ongoing creation ofcal 2018, we paid an annual per-share dividend ofinnovative technologies. We will focus on areas¥624, marking a record high for a fourth consecu-

where we can effectively utilize Tokyo Electron’s

tive year. We will flexibly consider stock repur-technologies and strengths and expect futurechases, taking a comprehensive view of suchmarket growth. Furthermore, we will put

factors as investment needed for growth, cash on

increased effort into R&D related to promisinghand and the macroeconomic environment.

core technologies to maximize their potential.

Going forward, we will continue to strive to sus-

Turning to shareholder returns, we have adopted a performance-linked dividend scheme andtainably increase corporate value and maximize
shareholder value through profit growth.