Management Interview

Question &AnswerTetsuro Higashi, Chairman & CEO

Hiroshi Takenaka, President

4Q

Global economic conditions have been undergoing dramatic change, and this has had a great impact on
the electronic equipment sector as well. Could you please give us your impressions of how the business environment affects Tokyo Electron?

A

The semiconductor industry is undergoing steady consolidation, creating a much more oligopolistic
market. For a company like Tokyo Electron, which manufactures semiconductor production equipment(SPE), it is natural to anticipate that competition is going to get increasingly fierce. However, I regard
this competitive phase as the preparation stage for a subsequent period of renewed and rapid growth.
The global economy has contracted rapidly since

manufacturers delay or freeze new investments in plant

autumn 2008, and there are concerns that the current

and equipment. With unit prices falling and production

recession is likely to be a prolonged one, posing contin-

volume being cut back, the pace of structural reorgani-ued difficulty for management over the long term.

zation and consolidation in the global semiconductor

During recessionary periods, demand in the electronics

industry is accelerating, thus creating a more oligopolistic

industry for items such as PCs, mobile phones andindustry structure. For companies in the SPE industry,other electronic equipment drops off, andlike Tokyo Electron, this means a more competitive

Tokyo Electron Limited  Annual Report 09

business environment, and this situation seems to per-Therefore, even though current business conditions are

sist for some time. However, as is always the case duringharsh, I prefer to view this as a preparatory phase,eras of social and industrial change, it is important for

which is necessary in order to lay the groundwork for thecompanies to take a long-term perspective, striving tonext phase of growth. Tokyo Electron is continuing to

respond swiftly and appropriately to change in themake selective and aggressive R&D investments which

industry structure, and changes in customer needs. In

we believe will bring the strongest future growth. In this

this context, we consider it essential to develop and try

way, we expect to bolster the Company’s competitive-

new plans from a broader perspective.

ness in preparation for future growth.

The world is also experiencing a dramatic change inHaving said that, Tokyo Electron is also taking mea-

people’s values related to energy production and thesures to deal with the ongoing recession. During fiscal

environment. Thus, there is a rising need for technology

2009 (the year ended March 2009), we implemented costthat can help to solve today’s environment-related chal-

reduction plans to the fullest extent possible, and took

lenges. Semiconductor devices will be essential in thesteps to streamline operations. We have adjusted thedrive to develop high-performance networks and a more

allocation of personnel and assets to more appropriately

environmentally friendly society. As the devices attainmatch the scale of business activities and the prospects

even higher integration, and are introduced in a wider

for future growth. Other measures, such as cutting

range of applications and locations, it will stimulate

performance-linked bonuses and drastically adjusting themarket growth in the SPE industry over the medium-to-

number of contract employees, enabled Tokyo Electron tolong term. Furthermore, in order for semiconductors to

reduce fixed costs by ¥40.0 billion. These swift responses

meet expectations – for example, in terms of reducing

to a rapidly changing business environment allowed theenergy consumption – new technological breakthroughs

Company to greatly lower its break-even point, and post awill be required. Pushing the envelope of technologicalpositive profit figure for the fiscal year. In fiscal 2010 weadvance, both in process development and in the cre-aim to reduce fixed costs by an additional ¥30.0 billion

ation of new equipment, is one of the most importantand further strengthen the Company’s financial structure.

roles that Tokyo Electron can play in the industry.

Semiconductor
applications
MainframecomputerPC

Mobile phone

Digital consumer
electronics, etc.

GlobalNetwork Society

TEL Consolidated Net Sales(Billions of Yen)
1,000

Technology Innovation
800

Promoted
Globalization

600

400

Established development/
manufacturing functions

200

Distributor of other suppliers’ products
0

65

70

75

80

85

90

95

00

Annual Report 09

05

09

Tokyo Electron Limited

5

Managemment Interview

Q
A

What strengths does Tokyo Electron possess to address the current difficult business environment?
Joint product development capability with global customers, and a solid financial base will allow Tokyo
Electron to continuously offer highly reliable products that maximize the customers’ mass-production
capabilities and process performance at the best value.
Today, semiconductor devices must be even more reli-­miniaturization efforts in the development of next-genera-able, higher in performance and lower in energy con-tion memory chips. In 2008, Tokyo Electron developed asumption than ever before. Tokyo Electron provides SPE

form of double-patterning technology which offers notwhich helps chipmakers meet these demands. The

only a high level of process performance, but also supe-

Company bases its strength on an extensive, worldwiderior mass-production features.

base of customers which has remained very loyal.

As the range of technological expertise and develop-

Tokyo Electron seeks to identify precisely the issues andment skills that Tokyo Electron should address expands,

requirements that each customer faces, and then works

we have begun working together with universities andclosely with the customer to develop products that match

materials companies, in consortium projects, in anthese needs. This allows us to develop highly efficient andaggressive effort to acquire the very latest in technology.

unique products and solutions for each customer, and to

The Company even cooperates on process integration

earn strong bonds of trust in return. As technology has

projects with other SPE manufacturers in strategic

improved, the role of a SPE manufacturer has expanded

collaborations that help us to generate high value-added

as well. The SPE company is expected to provide notproducts, while reducing development time andonly the wafer process technologies that help to makerelated costs.

chips smaller and faster, but also process develop-

Even though the R&D expenditure is rising with eachment, process integration, and even solutions topassing year, Tokyo Electron has established a solid

production line management, to improve the perfor-

financial base with enough funds to ensure that we canmance of the chips themselves, and methods forcontinue making these critical investments in productincreasing production capacity or reducing energy

development, even at times of economic recession.

consumption. Tokyo Electron has a strength in reputation

Thanks to the success of various measures that wefor providing process integration solutions using a wide

adopted in the past aimed at improving profitability, Tokyo

range of products. One good example involves

Electron has an extremely strong balance sheet, a total of¥210.2 billion in funds on hand as of the end of March
2009, and a debt-equity ratio of just 0.7%.
Tokyo Electron intends to further grow by providing thehigh-value added products that respond to customers’

Maintained a Strong Balance Sheetreal needs, while strengthening information gathering(Billions of Yen)capability, improving its competitiveness in case technolo-

300

gies and cutting costs.
200

207.8

203.6
155.8

151.4
127.0

100
65.3
48.4

53.0

FY02

FY03

140.0

134.4

115.4
99.5
65.1

42.7

40.2

36.1

FY07

FY08

3.8

0

FY01

■ Interest-bearing debt

6

210.2

FY04

FY05

FY06

FY09

■ Total liquidity on hand=cash and cash equivalents+short-term investments

Tokyo Electron Limited  Annual Report 09

Q

If Tokyo Electron leverages its competitiveness, what sort of growth are you expecting and how do you
intend to achieve it?

A

By helping customers to develop high-performance, high-speed, low-energy-consumption semiconductor
devices, Tokyo Electron is aggressively making efforts to acquire innovative technology. In the future, theCompany will remain a central player in the ICT (Information and Communication Technology) industry. We
aim to take advantage of a large variety of acquired technology to generate new business.
As efforts to integrate semiconductors continue, theseproductization, in segments that promise future growth.

devices will become not only smaller but more advanced,

In this way, we can continue to expand our share of theto the point that they will begin to pervade every corner ofbroader market.
Meanwhile, we intend to keep in mind the tremendous

the globe. Those advances will continue to be driven by
improvements in production equipment – a business thatvalue of the technology that we have compiled over thewill remain at the core of Tokyo Electron’s operations – asyears, in diverse product segments, and in customer

we strive to develop bold solutions to the market’s needs.

support capability. We will leverage these assets toToday, the pace of technological progress is more rapid

strengthen our position in the equipment-peripheral

than ever before, and the fate of business often depends

businesses and aggressively seek to enter new busi-

on a company’s success in developing the technology. If

nesses. Tokyo Electron is focusing on “peripheral” busi-

Tokyo Electron is to continue playing a central role in thenesses related to production equipment, such as spareindustry, it is very important that we try to anticipate future

part sales, maintenance, system modifications, and otherchanges and work ceaselessly to develop the most appro-“post-sales businesses.” One prospective new businesspriate products and solutions to the demands of the new

for the Company is the field of environment-related tech-era before competitors can do so. The Company will

nology. The market for solar power generation, for exam-

continue to enhance its development capability and tople, is likely to grow dramatically in the next few decades.

deliver products that the market needs, in a timely fash-

But in order for our society to enter an era in which solar

ion, thereby maintaining or even increasing our leading

power generation is truly ubiquitous, further advances inmarket share in each product segment. As a means oftechnology will be essential to improve the efficiency ofboth improving product quality and reducing cost, we willenergy conversion from solar energy to electrical energy,

also continue ongoing efforts to reform production activi-

and to develop production equipment that can mass-ties, considering the design concept in the initial develop-

produce photovoltaic cells efficiently. These advances

ment phase to achieve the maximum possible benefit

would greatly bring down the cost of solar power genera-

once the product enters the mass production phase.

tion. Tokyo Electron is dedicating its efforts to the devel-

We also need to recognize that the market, in which

opment of such technologies, in the hope that theTokyo Electron operates, comprises only a part of theCompany can provide high added-value and build aoverall SPE market. The Company will redouble its effortsbusiness with strong growth prospects.

to acquire the necessary technologies, and accelerate

Achieved record sales and profit
Achieved 18.6% operating margin

Toward More Growth

New growth strategy

Restored operating margin to 10%
Second medium-term management plan
First medium-term management plan

Structural reform period•Reduced fixed expenses•Adjusted inventory

FY2002 – FY2004•Develop new businesses•Further improve operating margin•Enhanced new product creation•Strengthened manufacturing•Improved business efficiency

FY2005 – FY2008

FY2009 –Annual Report 09

Tokyo Electron Limited

7

Managemment Interview

Q

You mention post-sales businesses as an area of focus for Tokyo Electron. Could you discuss thesebusinesses in a bit more detail?

A

Many customers have asked Tokyo Electron to help them realize the maximum productive use fromtheir existing equipment. This has convinced us that there is excellent potential for growth in the
post-sales market. With a newly established organization for post-sales business, we are taking active
steps to cultivate and address this potential market as never before, as a way of expanding revenues.
There are currently over 50,000 pieces of Tokyo Electron­semiconductor manufacturers will close production facili-

production equipment in operation at customer plants

ties, and find themselves with a considerable stock ofworldwide. Therefore, post-sales operations offer a poten-

used production equipment that they would like to con-tially vast market for the Company. In the past, this busi-

tinue using productively at a different production site. This

ness was mainly at the request and initiative of theis likely to create rising demand for some sort of operation

customer. Tokyo Electron is now taking the initiative, andthat can modify equipment which Tokyo Electron sold

we hope to build the business into a substantial source ofand delivered to a customer in the past, re-install it in a

future revenues.

new location and put it back into useful operation. Our

In April 2009 we combined all post-sales operations

customer base is also shifting, from a U.S. and European

into a single business unit. In the past, these operations

orientation in the past to a heavier focus on Asia. There-

were fragmented, with each product and business unit

fore, the Company will need to provide Asian customers

operating its own separate, independent post-sales struc-with increased levels of support and service. In doing so,ture. By changing this to a single structural unit which

we have an excellent opportunity to expand in markets

operates across product segments, we hope to increasethat are likely to see rapid future growth.

business opportunities and reduce costs to optimize

Tokyo Electron is also trying to play a role in the issue ofbusiness operations and maximize their future profit

environmental conservation, by actively developing tech-contributions. Some of the specific measures include a

nology and measures to address global warming, andreview of terms and condition for the sale of consumables

striving to reduce the environmental footprint of its prod-

and spare parts, as well as the system for maintenanceucts by redesigning and developing production equipment

contracts. We are also reorganizing our product service

with less of an environmental impact. As equipment-bases, both in Japan and overseas, and seeking ways torelated businesses become increasingly central to our

maximize the profit generated by a single product over its

operations, we expect this to not only boost sales andentire operating life cycle. It is expected that someprofit overall, but also to bring stable earnings.

Aiming for Higher Goals

Strengthening Post Sales Operations
OverhaulRelocation
Refurbish

Environment-friendly

On-call service

Worldwide TEL products in operation
50,000 systems
More new business opportunities, respond to
demand for longer usage of equipment withdiversified applications
Modification/Upgrade

8Tokyo Electron Limited  Annual Report 09

RepairParts/Consumables
Service contract
Preventive maintenanceQ

You also mentioned the photovoltaic (PV) cell production equipment business. Could you please tell us alittle more about this new business?

A

The market for photovoltaic cells is now entering its very early phase of growth. By accelerating ourefforts to develop new, revolutionary technology, Tokyo Electron is not only making a valuable social
contribution, but also hopes to develop a third major pillar of company earnings.
The technologies that have driven economic growth today

company has earned a high reputation for its establishedhave a very noticeable impact on the environment, andtechnology. Oerlikon Solar is eager to leverage Tokyo

since this is now beginning to cause environmental

Electron’s expertise in the market for production equip-

destruction on a global scale, it is clear that we are reach-ment, our strong technology and our large, establisheding the limits of economic growth under the old model.

customer support network in the Asia and Oceania

From a longer-term perspective, the only way that we canregions. Tokyo Electron will provide customer support for

maintain economic growth is to develop innovative tech-

Oerlikon Solar’s thin-film silicon PV cell production lines

nologies that will help to gradually reduce the environ-as well as installation, set-up support and maintenancemental burden of our economic activities.

services. Together with Oerlikon Solar, we will be able to

Today, photovoltaic (PV) cells are attracting a great dealcreate the sort of production equipment and supportof attention because they promise a clean source ofservices that the market demands, and to cultivate theelectric power generation which can help address thenext-generation technology that customers require. We

issue of global warming, and there is strong interest in

expect tremendous growth potential in this field in thedeveloping large-scale electric power generation facilities

medium- to long-term.

using this technology. Since PV cells are almost ideal as a

Up to now, the cost of solar power generation has been

way of generating power while preserving the environ-higher than the cost generated by either thermal power orment, they are a perfect match for the environmental

nuclear power, and the PV cell market has been sup-policies adopted by many governments around the world.

ported by subsidies from each country. There is a strong

Therefore, the market for production equipment used toneed for technological developments which can help

manufacture PV cells is likely to grow substantially overbring down the cost of solar power generation in order tothe long term.

help it achieve deeper market penetration. As a manufac-

At Tokyo Electron, we have been conducting a wide

turer and developer of PV cell production equipment,

range of basic research into issues that relate to PV cellTokyo Electron is making strenuous efforts to develop

production. In February 2008 the Company formed a

revolutionary new types of process technology that canjoint venture with Sharp Corporation to specialize in devel-

improve the efficiency of power conversion from solar

opment in this field, and announced plans to enter theenergy to electrical energy, and trying to enhance ourmarket for PV cell production equipment. We are cur-superiority of mass-production capabilities of production

rently working to develop higher- performance plasma

equipment in an effort to reduce the cost of electric power

CVD system, which will be essential in order to manufac-

generated using PV cells to a level low enough to make itture thin-film silicon PV cells.

a cost-competitive option. Once that happens, it will

In February 2009, Tokyo Electron signed an exclusive

stimulate the shift to a less “carbon-dependent society.”

representative agreement with Switzerland’s Oerlikon

In this way, Tokyo Electron is confidently taking on the

Solar for its end-to-end thin-film silicon PV solution in Asia

important mission of leading the way in solar energy

and Oceania. Oerlikon Solar is the world’s leading manu-

development, and striving to be a company that contrib-

facturer of production equipment for thin-film PV cells.

utes value and technological prowess, both to the industry

Over 900,000 PV panels have been produced to datesectors we participate, and to society as a whole.

using Oerlikon Solar’s production equipment, and theAnnual Report 09

Tokyo Electron Limited

9