TOKYO ELECTRON ANNUAL REPORT 2017

PAGE7CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Interview with the CEO
Message from the CFO

Interview with the CEO

Review of Operations
and Business Outlook

Corporate Governance
CSR-Oriented Operations

Financial Section

Corporate Data

Message from the CFO

Message from the CFO

New Financial Model in Line with Equipment Market Expansion
Targeting World-Class Profitability and Capital Efficiency While Maintaining Downward Cost Flexibility

1. A New Phase of Growth in theSemiconductor and Display Industries

data that must be gathered, processed and distributed
in real time. This requires real-time data transmission
systems all throughout society. A decade ago, people

Tokyo Electron finished fiscal 2017, the year ended

mainly thought about things like vehicles in terms ofMarch 31, 2017, with very strong results. The gross profit

personal ownership. In recent years, however, we havemargin, operating margin and net income all reachedbegun to see the emergence of the sharing economy

new highs. Net sales in the semiconductor production

and other new approaches. As networks increasingly

equipment (SPE) segment also set a new record high.

connect all aspects of society, forming one, enormous

Previously, the growth potential of the semiconduc-interconnected system, the uses of semiconductors are

tor market had been called into question, but today

expanding in every field. These changes have been pro-both the semiconductor and display industries are

pelling the semiconductor and display industries into

booming. Using the 2008 financial crisis as an approxi-

a new phase unlike anything we have yet seen.

mate milestone, we can perceive a clear change inworldwide trends and our very lifestyles. An example of2. Medium-Term Management Plan Initiatives

this in everyday life is the increasing prevalence of

Tetsuro Hori
CFO, Executive Vice President

video content on social media. Enormous numbers of(1) Financial Goals

users take and simultaneously upload videos. All thatTokyo Electron announced its medium-term manage-

data is stored in the cloud; these users typically do notment plan in 2015. The plan’s targets for net sales,

keep it on their own PCs. A different example is Uber,

operating margin and ROE were based on two scenari-

Lyft and other ride sharing services, which have been

os regarding the future size of the wafer fab equipment

attracting a great deal of attention. These services use(WFE) market.

apps to display the current locations of their drivers,

TOKYO ELECTRON ANNUAL REPORT 2017

PAGE

8CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Review of Operations
and Business Outlook

Interview with the CEO
Message from the CFO

Interview with the CEO

Corporate Governance
CSR-Oriented Operations

Financial Section

Corporate Data

Message from the CFO

Message from the CFO
In light of changes in the semiconductor industry, how-ering the Group to find the right people for the right job onsites are located, we are building a framework to both main-

flexibly considering share buybacks. In step with recent

ever, we have now increased the WFE market size assumed

a worldwide basis. In Silicon Valley, diverse human resourc-

tain the competitiveness of our products and ensure thatprofit growth, we have paid a record high annual dividendin the plan’s financial model and raised the plan’s targets.

es are constantly interacting and influencing one another,

our customers can use our products with confidence.

per share (DPS) for three consecutive years. At the end of

We now aim to grow the Company even more than we set

leading to the creation of new ideas. Similarly, by promot-out to under the 2015 plan. From a financial standpoint,

ing global exchange within the Tokyo Electron Group, wehowever, even as the Company expands, we intend toare working to foster cross-pollination of ideas and spark

restrain fixed costs. The SPE market has long been regardedinnovation.

as particularly volatile. We are therefore taking care tomaintain downward flexibility in order to remain profitableeven if economic conditions deteriorate.

* Global application rate: The percentage of patent applications filed in Japan that are also filed inother countries

management plan, we raised the share purchasing subsidy
Taiwan15%offered through the employee shareholding association toSuccess in the SPE business requires the consistent15%. This was intended to align the interests of employees

release of innovative products to accommodate the latest

with those of other shareholders. The number of employeenext-generation technologies. For an SPE company, gener-shareholders has increased as a result, but participation inating profit while continually developing new equipment isthe employee shareholder association is still limited tothe key to sustainability. It is therefore essential to develop

employees in Japan. To address this, we are considering a

as we determine the specific uses for it. The equity ratio as

Europe 1%
China
10%

SouthKorea
17%

Our first priority for this cash is investment in Tokyo Electron’s
future growth. We will keep an eye on the macro economy

Patent Holdings by Country/Region

In addition, when we launched the current medium-term

fiscal 2017, Tokyo Electron had cash on hand of ¥315.3 billion.

of March 31, 2017 was 67%, and the Company has no interest-bearing debt. Although we have not ruled out capital

Japan
31%

procurement from external sources if necessary, I believe wecan generally meet our own capital needs internally.

U.S. 26%

4. In Closing
Technological innovation moves extremely quickly in theproducts and services that offer greater customer value andstock-based compensation system utilizing a trust thatc. IT Strategy

then make sure that customers fully appreciate that value.

would allow executive-level employees to receive capital

We are also focusing on reinforcing the Group IT system. By

motto of Intel’s Andrew Grove gets to the heart of what it

Our development divisions as well as sales and service divi-gains on Tokyo Electron shares even if they reside outside

doing so, we are working to enable the analysis of previ-means to operate in these industries: “Only the paranoidsions must all keep this in mind. Specific measures we areJapan. These measures are aimed at securing talented

ously unavailable information and data in order to acceler-survive.”

human resources globally.

ate decision making. The Tokyo Electron Group is composed

taking are as follows.

semiconductor and display industries. I truly feel that theFor fiscal 2018, Tokyo Electron targets net sales of ¥980

Furthermore, the Company conducts training for currentof six companies in Japan and 28 companies overseas. Bybillion, operating income of ¥216 billion (for an operating• Develop products and services with high profit margins

and future top-level managers, and has instituted a special

strengthening the Group’s IT systems, we aim to makemargin of 22.0%), net income attributable to owners of the• Avoid discounting to gain market shareselection and training program for future management

information from across the Group available and compre-

parent of ¥163 billion and net income per share of ¥993.44.*• Advance R&D and capital investment on scale with tar-candidates. This program includes training camps held sev-

hensible in a fast, unified way in order to more quickly iden-

The Company is growing, but we will stay vigilant and alert

geted future returns

eral times annually and lectures from outside instructors,

tify and address problems at each company.

to market changes as we work toward the goals of the• Optimize logistics and improve operational productivity

and ends with participants making proposals to current top• Make more efficient use of trade notes and accounts

management. The systematic development of successors isreceivable, inventories and other assets

essential to sustainable growth.

Through these initiatives, under the new financial model web. Intellectual Property Strategy

are targeting an operating margin of 26% (assuming a WFE

Since its establishment, Tokyo Electron has made securingmarket of US$45 billion) and ROE of 20–25%.

its intellectual property rights a priority. We file 600 to 800
patent applications in Japan each year. A major feature of(2) Non-Financial Goals

our intellectual property strategy is our relatively high globala. Human Resources Systemapplication rate.* The average global application rate among

In July 2017, Tokyo Electron launched a globally unified job

Japanese patent applicants is about 30%. In contrast, therank system based on job responsibilities. This system clari-Company’s rate is closer to 70%. By acquiring numerous pat-fies the position of every Group employee, better empow-ents in the countries where our customers’ manufacturing

medium-term management plan.

3. Capital Policy and Shareholder Returns* Results forecasts announced April 28, 2017

Since fiscal 2016, the Company has maintained the shareholder return policy of targeting a payout ratio of 50% andPolicy for Shareholder Returns

Dividend payout ratio: 50%
Annual DPS of not less than ¥150
We will review our dividend policy if the company does not generate net
income for two consecutive fiscal years

We will flexibly consider share buybacks