TOKYO ELECTRON ANNUAL REPORT 2014

PAGE5CONTENTSCONTENTS

Financial Highlights

Business Overview

Top Message

Talking about
Tokyo ElectronTo
Stakeholders
To OurOur Stakeholders

Interview with the CEO

Review of Operations
and Business Outlook

Corporate GovernanceCorporate Citizenship

R&D / Intellectual Property

Financial Section

Corporate Data

Interview with the CEO

Fueling growth
opportunities

Q&A

Technological innovation createsvalue for stakeholders

Question 1

What did fiscal 2014
mean in terms of Tokyo
Electron’s operating
strategy?
Tetsuro Higashi
Chairman of the Board,
President & CEO

Fiscal 2014, the year ended March 31,
2014, was the 50th year since Tokyo
Electron’s founding, a big milestone for
the Company. We recorded a net loss of¥19.4 billion for the year, for which I
offer my apologies to our shareholders.

Otherwise, from the perspective of
establishing an operating platform forthe future, including business reorganization and the decision to merge with
Applied Materials, it was a very meaningful year, characterized by taking ontransformation aimed at the next fiftyyears.
Semiconductors have long played acentral role in industry, and their role
today continues to grow only moreimportant. As a leader in the markets for
production equipment of semiconductors and flat panel displays (FPDs), which

support the very foundation of modernsociety, we further strengthened ouroperating base, with an eye toward
growth and sustainable development
going forward. In fiscal 2014, we withdrew from the photovoltaic panel production equipment business,reorganized R&D sites and reduced our
stake in Tokyo Electron Device, which
operates the electronic components
and computer networks business,changing it from consolidated subsidiaryto equity-method affiliate. We took thesesteps to concentrate management

resources in our core semiconductor
and FPD production equipment businesses and thus increase profitability
and strengthen our financial standing.
We also made the major decision toenter into a business combination with
Applied Materials, aiming to strengthen
our operating base for the next 50years. We will use the strength of thisoperating base to realize further business growth and, through growth of theCompany as a whole, return profits toshareholders.

Question 2half century. This merger is a major stepin determining the direction of theCompany over the next 50 years andbeyond. I am sure that the two companies will work together to set andachieve ambitious strategic and financial goals.
As advanced information and communications networks become moredeeply engrained in society, growth
opportunities in the semiconductor anddisplay industries will continue toincrease dramatically. As such, theimportance of such industries as thebackbone supporting the global spread

Please describe thereasons and objectives
behind the decision tomerge with Applied
Materials.
Last September, we announced ourdecision to merge with AppliedMaterials, aiming to create a global
innovator in the semiconductor and FPD
production equipment industries andachieve continued growth over the next

Press conference announcing the merger
Tokyo Electron Chairman of the Board, President & CEO Tetsuro Higashi (left) andApplied Materials President and Chief Executive Officer Gary Dickerson (right)

TOKYO ELECTRON ANNUAL REPORT 2014

PAGE

6CONTENTS
CONTENTS

Financial Highlights

Business Overview

Top Message

Talking about
Tokyo ElectronTo
To OurOur Stakeholders
Stakeholders

Interview with the CEO

Review of Operations
and Business Outlook

Corporate GovernanceCorporate Citizenship

R&D / Intellectual Property

Financial Section

Corporate Data

Interview with the CEO

and display industries, will use theircomplementary strengths in technologies and products to create breakthrough technological innovation. By
doing so, we will solve customers’ highvalue problems better, faster, and atlower cost, achieving further corporate
growth and contributing greatly to thedevelopment of industry.

Question 3

entering a new cycle of expansion inwhich the growing use of such products
and services increases the value of thenetwork as infrastructure, and thisincrease in value drives further growth inusage. The scale of this potential market
is immeasurable.
Semiconductors support the construction of networks that enable thetransmission of such vast amounts ofdata and the development of mobiledevices. As such, the continued evolution of semiconductors is indispensible.
This means that the role of manufacturers will be more important than ever. We
must not only improve device performance by increasing speed and capacity while reducing power consumption,
but also develop breakthrough technologies that reduce costs. I’m sure that bycreating innovative new technologies
that contribute to the development ofadvanced information and communications networks, the SPE market will continue to grow.

Please tell us yourthoughts on the future
growth of the semiconductor production equipment(SPE) market and what
you think the drivers ofthat growth will be.
Last year, Cisco Systems shook theindustry with its forecast that in 2017,
half the world’s population will be connected to the internet, and annual global
IP traffic will reach 1.4 zettabytes*,
exceeding the total 1.2 zettabytes oftraffic between the birth of the internet
in 1984 and 2012 in just one year. Ourdigital network-based society is on theverge of a new period of expansion withthe arrival of the zettabyte era.
In recent years, the term “Internet ofthings” has been cropping up more andmore. As all kinds of “things” connect tothe internet, the expansion of new products and services that make sophisticated use of vast amounts of data isexpected in virtually all fields. We are* 1.4 zettabytes: An amount of data equivalent to thestorage capacity of 362 billion DVDs.

Question 4tion (Figure 1).
Tokyo Electron is building a solid
market position through product development targeting these new technologies. For finer patterning, the Company
is introducing coater/developers withnew defect-reducing features, ALD systems that achieve both nano-scale
deposition and high productivity, andsingle wafer cleaning systems with
reduced pattern damage to achieve differentiation and expand sales.
Furthermore, in the production of newstructure devices, such as FinFET and3D NAND flash memory, Tokyo Electron
is receiving high marks for its etch systems featuring low damage and its dry
cleaning systems.
We regard these inflection points asopportunities for business expansion.
We will make timely product releases torespond to these new technologies andaccelerate even further the technological innovation that customers seek togenerate further growth.

Tell us about Tokyo
Electron’s growthstrategies for theSPE business.
The semiconductor industry is facing
the greatest inflection point in its history.
Until now, semiconductors have developed according to Moore’s Law throughconstant miniaturization. However, as
we approach the physical limits of miniaturization, we are now encounteringvarious technological barriers that cannot be overcome merely by further
developing existing technologies. To
break through these barriers, besides
conventional miniaturization, various
innovative new technologies are emerging. These include 3D NAND flash,
STT-MRAM (a form of magnetic memory),
FinFET 3D transistors, advanced packaging, and multiple patterning that uses
existing lithography to form finer patterns by applying etching and deposi-

Advanced packaging

Figure 1:
Diverse technologicaldevelopment that supports
semiconductor device
innovation and leads
the SPE market

Silicon photonics

More than Mooreof these networks is growing. For thepeople of the world to enjoy the benefitsof these developments, however,advanced technological innovation andexhaustive cost reductions are of pressing importance. In that sense, the semiconductor industry stands at its greatest
inflection point ever.
By joining forces, the two companies,
both world leaders in the semiconductor

Emerging memory

450 mm

TSV/WLP

New material
New structure

ReRAM
Flip chip

STT-MRAM

3D NAND

Carbon material
Ge/III-V channel

Patterning
FinFET 3D transistor
DSA

EB direct writing

EUV
Multiple patterning

More Moore

TOKYO ELECTRON ANNUAL REPORT 2014

PAGE

7CONTENTS
CONTENTS

Financial HighlightsBusiness Overview

Top Message

Talking about
Tokyo ElectronTo
To OurOur Stakeholders
Stakeholders

Interview with the CEO

Review of Operations
and Business Outlook

Corporate GovernanceCorporate Citizenship

R&D / Intellectual Property

Financial Section

Corporate Data

Interview with the CEO

Question 5

Please tell us about theoutlook for the FPD
production equipment
business.
The market for FPD production equipment is firm, reflecting active capital
investment in small- and medium-sizedpanels for smartphones, tablets andother mobile devices as well as accelerating investment for large-sized panels
in China. The display technology
required for smartphones, 4K TV andother cutting-edge devices is growing
more advanced, and the use of lowtemperature polysilicon (LTPS) and indium gallium zinc oxide (IGZO) isadvancing in thin-film transistors (TFT) toachieve higher functionality, including
higher definition, higher image quality
and lower power consumption. In
response to these technological chang-es, Tokyo Electron is introducing etchsystems that employ new plasma technology, building a competitive edge inthe production equipment market forlarge panels.
The use of OLED displays, heralded
as the next generation of display, isexpected to soon expand from present
applications in mobile devices to larger
panels, including large-sized TVs. In thefirst half of 2014, Tokyo Electron begansales of inkjet printing systems for manufacturing generation eight (Gen8) OLED
panels. This system achieves materials
usage efficiency that is far higher thanthat of the conventional evaporation
method, and is expected to contribute
greatly to the production of larger panels for TVs and the reduction of costs.
Going forward, I think we will see morediverse applications, including flexible
and wearable displays, and continued
technological innovation geared towardeven better image quality.

Question 6

After the merger,
how will you combine thedistinct corporate culturesof Tokyo Electron andApplied Materials?
To ensure the success of such a largescale, cross border merger, mutual
understanding will be extremely important. To achieve optimal corporate operations beginning as soon as the merger
takes effect, immediately after the merger was announced, we set up a team
together with Applied Materials to prepare. The various departments of thetwo companies are engaged in regulardialog to understand one another’s
ways of doing business. I’m sure that
this will enable us to realize optimaloperations. From a similar perspective, I
think that the presence in Japan of Gary

Question 7

What effect does the merger
with Applied Materials haveon your policy regarding
shareholder returns anddividends?
By merging the two companies, wewill be able to create more competitive
products and generate even greater

Dickerson, who will be the CEO of thenew company, will be of great benefit.
For the company to succeed, there is nodoubt that the CEO will need a thoroughunderstanding of Tokyo Electron’s operations and corporate culture.
We are also in the process of nailing
down the new company’s corporate
mission, vision and values. These form
the foundation of operations, and weare working to incorporate the best ofboth companies. I’m confident that bycommunicating the direction and idealsof new company to employees andsharing principles of action andcommon motivations, the employees
from both companies can progress
together toward the uniting goal ofbecoming a global innovator. We hopeto put in place a corporate culture
framework that sets the world standard
and endeavor with all employees fromboth companies to make the merger asuccess.

profits, so I expect shareholder returns
to increase significantly. We also plan
to carry out share repurchasesamounting to US$3 billion withintwelve months of the merger’s completion, which, together with new synergies, will be accretive to earnings
per share exiting the first year. Serving
the interests of shareholders will continue to be a top priority of the newcompany, and we will remain focusedon increasing shareholder value.