Briefing Summary of the Analyst / Investor Meetingndfor the 2 quarter financial results for the fiscal year ending March 31, 2011
Tokyo, November 5, 2010
Note: This memo is posted for reference purposes for the convenience of those who
were unable to attend the meeting and is not a verbatim record of all statements made at
the meeting. Please be aware that it has been compiled in a concise form at the
judgment of the Company’s Corporate Communications Group. Please also refer to thecautionary notes on the final page.
Overview of financial results provided by Mr. Ema, CFO•

We normally show photographs of endoscopic devices on the Quarterly Report. This time we arealso showing photos of our new digital cameras, the 645D and K-5, because they are very good
products.

•

Our dividend for the current interim period will amount to 30 yen per share. The dividend ratio on
a consolidated basis is 38.2%.We will announce the year-end dividend after we obtain the year-end
financial results.

Overview of operations provided by Mr. Suzuki, CEO•

Overall, we did well early in the 2nd quarter. However, the situation started to change at the end of
August, and we saw a slight decline in results in September.

•

Figures for October are not showing an upward momentum, and neither are those for November at
the moment. It seems to have become clear that electronics and optical products will not rise in the
3rd quarter.

•

Opinions about the 4th quarter are divided in the market at the moment. There seems to be an equal
split between those who believe that inventory adjustment will be completed in the 3rd quarter andgrowth will be seen in the 4th quarter, and those who think that inventory adjustment will notproceed as expected after Christmas because of weak consumption, and some indigestion will beevident in the 4th quarter.

•

My personal view is that demand will neither rise nor fall. I think inventory levels have not risen
as much as expected as of November, because companies stopped accumulating inventory at an
early stage. Stocks will be reduced modestly after Christmas, and consumer behavior will
gradually change in the period from January to March. The influence of the Chinese New Yearwill start to be seen, and seasonality will be lost. Personally, I don’t think we will see an upward
trend in the 3rd quarter, but I don’t foresee a major decline in the 4th quarter, either.

< Mask Blanks/Photomasks for Semiconductor Manufacturing>•

The product mix has improved thanks to leading-edge development. We are influenced by theappreciation of the yen, because 80% of our shipments are dollar-based. Consequently, the figures1

are unfavorable compared to those in the year-ago quarter and the last quarter. But overall they are
not so bad. Since foundries have been running at full production, they would be too busy to
manufacture new devices. New devices developed by fabless companies would not go into
production smoothly. But it seems that the situation has eased off a little and new devices are
moving. It seems that manufacturing of new chips has started to be done little by little.
•

With regard to the semiconductor photomask industry, companies such as TSMC, Intel, and others
who manufacture their own photomask in-house have been good. However, the overall trend ofmerchant manufacturers is not that good. I think the industry continues to be experiencing a kindof structural recession.

•

The result of our mask business was not good in the second quarter. Because the scale of our maskbusiness is small, it is susceptible to customer movements.

<Photomasks for Liquid-Crystal Displays (LCD)>•

It was not good. Normally, the second quarter should be a strong season, with demand for masks
for models to be released in the next spring. However, LCD manufacturers have slowed
production and TVs are not selling well. A variety of features including compatibility with 3D
vision have been highlighted and reflected in storefront displays, but they are not selling well. So
TV manufacturers have yet to decide what kind of models to release in the spring next year. It
seems, therefore, that they cannot start designing ones for the next spring.

•

The point is that manufacturers in Japan and South Korea are still wondering what kind of TVs
they should produce for the next year, and this problem is more serious than the falling unit prices.
They have made drawings but cannot make business decisions, resulting in poor demand formasks. This is what happened in the second quarter.

<Glass Memory Disks (MD) for Hard Disk Drives (HDD)>•

The HDD market entered an adjustment phase in late August. Drive manufacturers are seeing
inventory increases in both drives and disks. It seems that inventories are not decreasing, despite
adjustment. Makers are continuing to control production in November, but their inventory levels
are not going down. Nor are there many inquiries. Some component manufacturers say thatconditions will improve in January, but we are not so sure. It seems that manufacturers have three
weeks’ excess inventories.

•

Our disks showed a year-on-year increase in terms of quantity. However, the figures are notfavorable because they are dollar-based, and so have been shrinking with the appreciation of theyen.

•

We are scrambling for rare earth supplies. We are trying to secure the materials by ignoring prices
to a certain degree. We have procured a reasonable quantity and our production will not beaffected in the short run. However, costs have increased and it looks difficult to pass the added
costs onto customers. China will not change its policy, so the quantity of materials available willremain limited for a considerable time. It looks likely to be a while before rare earths will be2

available from other sources, so the material will be in short supply for a period. Before that
period arrives, we have to achieve a technical innovation that will enable us to reduce the use ofrare earth while continuing to manufacture the same quality products. We have some ideas and areengaged in a number of tests. The difficulty is with cerium, because it is hard to polish glass
substrate properly with other substances. We must complete in six months a development that will
enable us to reduce our use of cerium. The cost did not increase until the second quarter, but it willrise in the third and fourth quarters, putting pressure on profits.
<Eyeglass Lenses>•

Demand is not bad, and demand in Japan has bottomed out. In the past, we were seeing growing
demand overseas and declines in Japan, but it is nearly flat in Japan now.

•

In local currency terms, we have a double-digit increase in sales in countries other than Japan. In
yen terms, however, our sales remained flat or increased only slightly in the 2nd quarter.

•

We produce most of our eyeglass lenses in Thailand. The Thai baht has been appreciating against
the euro and the US dollar. This trend is unfavorable in the short run. Thai baht used to be linked
with US dollar, but the situation has changed in recent years. Although we produce the products in
Thailand, it somehow seems as if we were producing them in Japan, because we are facing asituation that would have been caused by the appreciation of the yen. Costs generated in Thailand
are labor costs, which are not very high. However, costs have been rising partly because theconversion to the Thai baht is made before the conversion to the yen.

•

Apart from foreign currency exchange, approaches to the market are not so bad in Europe, Asia,and the Americas. Although unit prices have fallen, we are maintaining sales quantities.

•

Overall, it seems that the third quarter will not see an upward trend. It won’t be so different fromthe second quarter. But the fourth quarter will not see a big decline, either.

Overview of operations provided by Mr. Hamada, COO<Digital Cameras>•

We cannot expect a very good result for the third quarter. Cameras are not selling well, and thiswill continue. It seems that SLR cameras will grow by 20% over the previous year in terms ofboth production and sales. However, compact cameras will continue to experience sluggish growth
and will return to the level of 2008. I think growth of 3-4% over the previous year would be all we
can reasonably expect. While the economic slowdown and other trends have been cited, theproblem with compact cameras lies in the market structure. Compact cameras will not growsignificantly hereafter because the performance of cameras incorporated in smartphones andmobile phones will continue to improve. Compact cameras have become ubiquitous, so perhaps
this is no longer a growth industry.

•

Manufacturers created a variety of products this year again, but some production adjustment began
to be seen around August. It seems that winners and losers are being clearly divided this year.
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Production adjustment was made in the industry in August and September, which resulted inlower-than-expected growth of our optical lenses. We hope that manufacturers will not produce
too much for the Christmas season and will not build up inventories, so that there will be nodamage in the first and second quarters of next year. However, channel inventories of compact
cameras are likely to be accumulated in Europe, and there is no growth evident in North America.
So it seems the camera industry will not be particularly favorable.
•

SLR cameras have been growing in terms of quantity, but their share of the overall market is only
slightly over 10%, so the benefits are limited.

•

Pentax cameras delivered some profit in the first quarter, but we were not very optimistic about thesecond quarter because it is a bad season. The result was a modest loss, almost in line with our
expectations. In the third quarter, which is our peak season, we will release a significant number of
new products: two SLR camera models and three or four compact cameras. We have alreadydelivered them to stores in each region. We do not yet know how well they will sell, but the K-5, a
middle-grade product, has been strong partly because of limited quantity. The 645D medium
format digital cameras, for which we made bullish projections, have been selling as well as we
expected, attracting customers all over the world. At the moment, we are delivering the K-r, anentry model SLR camera offered in 100 different color combinations, and compact cameras. So
we have yet to see how well they sell. However, we cannot permit ourselves to fail with thesemodels, so we will focus our efforts on sales promotion.

<Medical Endoscopes>•

The second quarter was not good. In the United States, a medical reform bill introduced by the
Obama administration will take effect and colorectal examinations will be free next year. So weare not enjoying any positive effect from the reforms yet this year. Doctors and hospitals are notbuying our products at the moment.

•

As for Europe, Southern European countries including Greece, Spain, and Portugal are struggling.
The United Kingdom has just adopted a budget freeze and will spend little money until the end of
the year. Despite this background, however, Pentax did not see a significant year-on-year decline.

•

We enjoyed growth in Asia, but the overall results proved unfavorable because of the big decline
in the United States.

•

With respect to the market, the United Kingdom is due for a recovery. It may take place early in
2011. We have been expanding sales in Asia, resulting in double-digit growth. As for the UnitedStates, colorectal examinations will be free next year as I mentioned. So there will be a recovery
eventually, although there may be a time lag. Conditions should improve little by little toward thesecond half.

<Intraocular Lenses (IOL)>•

We have made inroads into Europe and the United States and we are expanding sales worldwide.
Growth has been consistently in the double digits.
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<Contact Lenses>•

We have more than 170 stores in Japan and growth is consistently in the double digits.

<Microlenses>•

Demand for pickup lenses has declined slightly because TVs and DVD players are not selling well.
Demand will recover in the medium and long terms.

Q&A
Q: Please tell us about your plan to increase production capacity for glass substrates for HDD.
A: (CEO Suzuki) Basically, we have not changed the plan significantly. It seems at the moment that
our competitor has postponed their plans to increase their production capacity. We will go ahead
with our plan and commence full production in the spring of next year. We are not sure if the
production lines will be filled with orders soon, but anyway we will start full operation of the plant.
Q: I think your photomask division will encounter a number of business opportunities for EUV, 11G,
chromeless, and organic EL in the near future, or in the long run. Please tell us how they willchange and are linked to business opportunities for HOYA in the future.
A: (CEO Suzuki) Speaking generally, in the real leading-edge domain, photomasks may be subject tocaptive manufacturing by semiconductor manufacturers. A good example is EUV. Most
semiconductor manufacturers committed to EUV assume that they produce photomasks on theirown. In the past, merchant manufacturers of photomasks like us tended to lead the way, but I think
the business environment for photomasks will change. But mask blanks are the exception, because
no semiconductor manufacturer does captive manufacturing of mask blanks. I think the business
opportunities for EUV will not emerge on the schedule currently anticipated. Companies have yet
to start working on the required bridging technology. It will be some time before they start
discussing what is required for the bridging technology. It is at this point that we merchant mask
manufacturers will have to strive again. It is at this point that we will have a chance to win, that is, abusiness opportunity. In the long run, merchant mask manufacturers will have a difficult time.
Anyway, it seems that the semiconductor industry will remain weak for a while.
With regard to 11G, companies in South Korea seem to be proactive, but manufacturers of
production equipment have ceased development. So I personally think that 11G will not appear in
the near future. I think things have not gone that far actually.
Organic EL will need a little more time. But anyway, organic EL is the one it should be in the end.
Q: Please give us your comments about lanthanum, the rare earth used as an additive for optical lenses.
Also, you mentioned that you are trying to secure a certain amount of cerium used as a polishingmaterial. Will you have enough of it for the whole of next year? Is lanthanum costly?
A: (CEO Suzuki) For optical glass, we use a variety of rare earth elements such as lanthanum andneodymium, but the amount we use is not that much. We add them to silica-based optical glass to5

improve performance. So we don’t need hundreds of tons and we are not that concerned about it in
the short run. Regarding the cost of lanthanum we use for optical glass, I think its impact isrelatively small in terms of cost because the amount we use is small. As for cerium as a polishingmaterial, the Chinese government will determine the quantity for the export license in December.
We cannot judge how much more we can secure until we know the quantity.
Q： Please tell us how you see the changes in the amount of production and price of glass substrates
from the third quarter of this year to the first quarter of next year. And what is your medium-term
prospect for demand for glass substrates?
A: (CEO Suzuki) In terms of quantity, demand for glass substrates has grown by around 15% this year.
Demand will grow at this rate even if it is high in the first half of the year and low in the second half,and even if we remain as pessimistic as we are now. Someone has to supply glass substrates. So
there will be a supply shortage in the first half of next year unless we open a new plant or unless ourmarket share decreases greatly. I don’t think it is reckless to start operating a new plant based on
this thinking. Above all, major HDDs are now switching to those with 500GB capacity. New
products will have quality if they are manufactured at a new plant. If we have excess capacity in the
new plant, we should cut the operating rates of old plants. I believe that is more reasonable. This is
why we would like to start operating the new plant.
The price increase of cerium will increase the cost by 6-9%. We are now discussing how to share
the burden with our customers.
Q: In the second quarter, profit of the Information Technology segment increased by approx. one billion
yen and that of the Lifecare segment decreased by one billion yen. Could you analyze the profits?
A: (CFO Ema) Net sales of the Information Technology segment increased by 223 million yen over thesame period in the previous year. Since foreign currency rates resulted in a decrease of 1.4 billion
yen, net sales increased by slightly more than 1.6 billion yen in local currency terms. Above all, theimpact of the euro rate greatly diminishes sales. With optical lenses and optical materials combined,
the net sales increased by about 20% year on year, and the profit rose by approximately 50%,although there was a special factor in the same period in the previous year. With respect to glass
substrates, net sales increased by a few percent year on year and operating income increased by tensof percents. We sold media production to Western Digital (WD), and no longer have the media
business. However we still have a supply obligation. It means we purchase the products and sellthem when we receive an order. What is contributing to the higher profits in the Information
Technology segment is the increase in profits from optical products and glass memory disk
substrates. Net sales of the Lifecare segment increased by 263 million yen, but since foreign
currency rates resulted in a decrease of 3.4 billion yen, net sales increased by about 3.7 billion yen
in local currency terms. Profit decreased by one billion yen in this segment. To give a breakdown,
both sales and profits increased for contact lenses and intraocular lenses, while profits from eyeglass
lenses and endoscopes were down. Profits from eyeglass lenses decreased by one billion yen from6

the same period in the previous year. We do not have to be oversensitive about these trends because
there are seasonal factors. In this way, however, when consolidated within the segment, sales haveincreased slightly while profits have decreased somewhat.
Q: You said “EUV will not emerge on the schedule currently expected.” However, you said in the last
meeting that “EUV is perhaps emerging sooner than we thought.” Was there any change?
A: (CEO Suzuki) I think I told you last time that, apart from the question of whether EUV comes or not,semiconductor manufacturers have decided to go for it. I told you that they have decided to start
low-volume production of EUV by 2013, and that they also tried double exposure but it turned out
to be difficult because cost is too high and there are many problems, so they decided to go for EUV
because it was the only remaining option. However, “deciding” to do something is one thing andactually “succeeding” in doing it is another. It seems that, as they proceeded with what they had
decided to do, they found it was not easy, and they are facing some insoluble problems. I believe
they want to overcome constraints and move forward, but it is clear that they won’t be able toovercome the constraints within the expected time frame. It seems that they are twisting and turning
trying to find a way to work it out. I think that the EUV will not emerge on the anticipated schedule
because there are a number of problems that cannot be solved easily.
Q: Inventory has increased although net sales are almost on a par with the same period in the last year.
What is the breakdown of your inventory? What about the operating rate for glass substrates?
Please also tell us your depreciation plans.
A: (CFO Ema) Our inventory for the second quarter is about 62 billion yen (see page 4 of the Quarterly
Report). As for whether this level is high or low, page 12 of the Fact Book 2011 shows the“inventory turnover/month,” which was 3.1 months for the second quarter. The fewer the number ofmonths, the better, and the figure is normally 3.1 or 3.2 months. Judging from this, the turnover
trend does not seem to be bad. The Quarterly Report also shows that the amount of “raw materials
and supplies” as of the end of September was very large, at 22.3 billion yen. This is due to the issueof rare earth. Use of rare earth will increase the cost. However, we have been trying to secure as
much of it as we can, believing that accepting a high cost would be much better than shutting down
operations at the plant.
When we announced the financial results for the first quarter, we told you that the amount of ourcapital expenditure would be 46 billion yen and that depreciation cost would be 34 billion yen. The
figures have not changed, but the depreciation cost may be delayed because it is based on
acceptance inspections. So we guess it will be somewhere between 33.5 billion and 34 billion yen.
(CEO Suzuki) I think in absolute terms, our inventory is not large. We have special factors. In
addition to the rare earth problem, we have a supply obligation in the media business. This means
that, even after selling the business, we have to continue to supply media products for a specified
period. So we purchase the products and sell them when we receive an order. For this reason, webuild up inventory a little ahead of schedule. In addition, partly because we have slightly shifted the7period for manufacturing products for the Christmas shopping season this year, we put the products
into the pipeline in a period that includes the end of the second quarter. It is probable that ourinventory tends to increase due to these three factors. We have no substrate inventory. Camera
inventory is slightly large as of the end of the second quarter, as we put new products into thepipeline and clear the inventory of old products at the same time. However, the inventory level is
not too high.
(CFO Ema) With respect to the component business, much of our work is based on orders. On thecontrary, we have inventory of consumable goods (eyeglass lenses, contact lenses, and cameras).
The amount of sales is almost identical between the Information Technology and Life caresegments. The Information Technology segment has a small inventory of products, and consists
mostly of raw materials and supplies, while in the Life care segment the inventory of products islarger than that of raw materials and supplies. Viewed in this way, our inventory is easier tounderstand.
Q: What do you think now about the chances of achieving the profit level you targeted in the current
period, changes in your thinking, and your comments “We want to do four digits next year?”
A: (CEO Suzuki) I think you are talking about the comment “We would like to aim for operating
income of 80 billion yen.” At the time of the comment, the foreign exchange rate was nearly 90 yen
to the dollar. I said that would make it possible to achieve 80 billion yen. But it will be impossibleat the current rate of 80 yen to the dollar. However, this does not mean that our business structure ismuch worse than expected. Rather, the target is impossible because of the foreign exchange rate.
We are not sure about next year yet.
Certain statements contained in this report constitute forward-looking statements
regarding the company’s future performance and environment of the industry in which
the company is involved. Forward-looking statements are based on the judgment of thecompany and corporate group obtained based on information obtainable at the time thestatements are made and they also contain risks and uncertainties. The company does
not guarantee the completeness or accuracy of the content. Consequently, you areadvised to refrain from making investment judgments relying entirely on these
forecasts. Actual performance and the industry environment may differ materially fromthose expressed by the forward-looking statements for a number of reasons. You arerequested to make final decisions regarding investment, etc., on your own. Please beaware that we cannot take responsibility for the outcome of investments.

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