TOKYO ELECTRON ANNUAL REPORT 2019

PAGE7CONTENTS

Business Overview
and Financial Highlights

To Our Stakeholders

Review of Operations
and Business Outlook

Interview with the CEO

Corporate Governance

Financial Section
Investor Information

Review of Operations and Business Outlook

Review of Operations and Business Outlook

Semiconductor Production Equipment (SPE)FPD Production Equipment

2018 Business Environment

Share of Net Sales

2018 Business Environment

Share of Net Sales

Investment in semiconductors for mobile devices and data centers was robust, backed by growing data traffic due in part to the spread of streaming and downloadable video services. Underthese conditions, capital investment, especially in DRAM, saw significant growth. As a result, the2018 global market for wafer fab equipment (WFE)1 grew 16% year on year to a record high ofabout US$59 billion.

Capital investment in small- and medium-sized panels edged down year on year, reflecting
stagnant demand for OLED panels for smartphones and other mobile devices. However, capital
investment in generation 10.5 LCD panels for large-sized TVs over 65 inches increased significantly year on year. As a result, the equipment market for TFT array processes,1 in which Tokyo
Electron operates, remained strong at about US$9.8 billion.

8.7%

1 T FT (Thin-film transistor) array process: The process of manufacturing the substrates with the electric circuit functions that drive displays

1 Wafer fab equipment (WFE): The semiconductor production process is divided into front-end production, in which circuits are formedon wafers and inspected, and back-end production, in which wafers are cut into chips, assembled and inspected again. WFE refers tothe production equipment used in front-end production and in wafer-level packaging production.

91.3%

Fiscal 2019 Business Overview
Segment net sales rose 48.2% year on year to ¥111.2 billion.

Fiscal 2019 Business Overview

T he segment profit margin reached 21.8%, a record high, due to product differentiation in eachgeneration.

Segment net sales grew 10.6% year on year to ¥1,166.7 billion.
• By application, sales of equipment for DRAM grew substantially year on year.

Segment Net Salesand Profit Margin(Billions of yen)

(%)

29.8

1,200

1,166.7
1,055.2

1,000

24.4

28.0

800

302520749.8
600

15400

10200

5001718

Segment Net Salesand Profit Margin• By product, etch systems saw especially large growth in both market share and sales, due insignificant part to increased market share of products for key 3D NAND processes.

19Segment Net Sales
Segment Profit Margin
Segment profit corresponds to income before income
taxes on the consolidated statements of income.

• Sales in the field solutions business (encompassing sales of parts and used equipment, modifications and maintenance services) rose 14.8% year on year to ¥288.2 billion, reflecting
growth in parts sales.
T he segment profit margin decreased from 29.8% in the previous fiscal year to 28.0%, due toaggressive investment aimed at medium- and long-term growth.

Business Outlook
Semiconductor demand is expected to expand over the medium to long term, due to dramatically increasing data traffic resulting from the adoption of such technologies as IoT and AI. Within
the SPE market, Tokyo Electron particularly expects ongoing innovation and market expansion inetch, deposition and cleaning systems, and has designated these as its three key fields. By differentiating our technologies and services in these fields, we aim to grow sales and profit.
As the miniaturization of DRAM and logic chips continues and the number of layers in 3D
NAND increases, the use of new materials and increasingly complex device structures are creating greater technological challenges. To turn these business opportunities into growth, in thearea of etch, we will strengthen our competitive advantage based on process performance andproductivity in HARC,2 interconnects and patterning processes. In deposition, we boast technologies for batch, semi-batch and single wafer processes, and we will leverage this strength to offer
optimal deposition methods while advancing the development of technologies for new materials. In cleaning, we will provide technologies to reduce fine pattern collapse and remove foreign
particles and residue that reduce yields. In these ways, Tokyo Electron seeks to expand its SAM3
share in its three key fields.
In the longer term, the importance of co-optimizing multiple processes will grow, creating
greater needs for services that help increase uptime and yields. Tokyo Electron will leverage theinsights provided by its diverse product lineup to conduct joint development with customers
from the early stages of each new technology node. By doing so, we aim to be at the forefront
in offering integration technologies that realize co-optimization. In addition, by providing services with higher added value, such as remote equipment maintenance and equipment diagnosis
using AI, we aim to achieve further business growth.
2 HARC (High aspect ratio contact) process: A process for forming deep holes or trenches that requires advanced processing technology
3 SAM: Served available market• Tokyo Electron expanded its highly profitable PICP™2 etch systems from small- and mediumsized panels to generation 8.5 panels.

(Billions of yen)

(%)

120

30
2 PICP™: A plasma source that produces extremely uniform high-density plasma on panel substrates

111.2
100

2580

75.0

21.8

17.7

60

20

15

49.3
1040

9.4
20

500

1718• Tokyo Electron used its track record in generation 10 panels to secure a large share of theequipment market for generation 10.5 panels.

19Segment Net Sales
Segment Profit Margin
Segment profit corresponds to income before income
taxes on the consolidated statements of income.

Business Outlook
In the FPD market, technological innovation is expected in both products for mobile devices andfor TVs. In response to increasingly advanced technological requirements, Tokyo Electron aims toachieve differentiation using its superior process technologies to expand its market share andraise the operating margin to 30%.
In small- and medium-sized panels for mobile devices, in addition to such technologies as
LTPS3 and IGZO4 that enable even greater resolution, self-lighting OLED panels and foldable
devices made with flexible displays are expected to gain broader utilization going forward. Thesechanges will drive an increase in the number of masks and dry etch processes as well as a needfor more precise patterning. Tokyo Electron will further enhance the performance of its dry etchsystems and coater/developers to leverage these expanding business opportunities and achievebusiness growth.
Looking at large-sized panels, a shift from LCD to OLED is expected across a wide range ofapplications, including televisions, high-end monitors, and displays installed in vehicles and public places. Tokyo Electron will maintain its competitive advantage in generation 10.5 panels while
expanding its PICP™ etch systems, which provide superior processing uniformity, from smalland medium-sized panels to generation 8.5 and 10.5 panels. Furthermore, Tokyo Electron has
begun sales of inkjet printing systems, which until now it has sold only for large-sized panels, forgeneration 4.5 panels in anticipation of expansion in OLED panel applications. Tokyo Electron’s
inkjet printing systems can be used to manufacture high-resolution panels for 8K TVs and monitors. Leveraging the overwhelmingly high productivity of the inkjet method, Tokyo Electron willtake advantage of the coming mass production of OLED displays.
3 LTPS: Low temperature poly-silicon
4 IGZO: An oxide semiconductor containing indium, gallium and zinc