AN UNCOMPROMISING DEDICATION TO COMPLETECUSTOMER SATISFACTION
The greatest strength of Tokyo Electron is a firm commitment tocustomer satisfaction that has defined the company since its

MARKET SHARE BY PRODUCTCATEGORYTokyo Electron ranks among the leaders interms of market share in every category ofsemiconductor production equipment it
produces, based on Tokyo Electron data.

foundation. Our sales and marketing team identifies the trueneeds of each customer. Support service teams make sure that
our equipment is operating reliably and according to specifica-

Tokyo Electron Products World Market Share(2005)

tions at customers’ factories. Our R&D engineers take the lead indeveloping products and technologies that closely meet theNO. 1

NO. 1

Coater/Developer

Plasma Etch System(Dielectric Etch)

NO. 1

NO. 2

Thermal Processing
SystemSingle Wafer CVD System(Non-tube LP-CVD)

NO. 2

NO. 1

Cleaning System(Wet Bench,Spray Processor, Scrubber)

Fully Automatic
Wafer Proberrequirements of each customer. Backed by the “customer-first”
stance of every element of our organization, Tokyo Electron
equipment is performing key functions at semiconductor fabs
throughout the world.

RETAINING A PROMINENT MARKET POSITION THROUGH
OUR “NUMBER ONE” STRATEGYTokyo Electron is constantly differentiating itself by creating
innovative technologies. We concentrate resources on targeted
product categories with the aim of becoming number one. This
policy has made us the leader in developing next-generation

Source: Tokyo Electron survey

technologies for various types of equipment. By acquiring exclusive know-how needed to take technologies to the next stage,
we can preserve a clear competitive edge.

POWERFUL STRENFOR FIRM POSITION

THE WORLD’S MOST ADVANCED SERVICE SUPPORT FRAMEWORKSemiconductor and FPD production equipment depends heavily on many state-of-the-art
technologies. An equally sophisticated service support framework is essential to ensuring thestable operation of this equipment in customers’ factories. To provide this capability, Tokyo
Electron has service bases in 12 countries that help raise productivity by supplying support
closely meeting the requirements of each customer.

Worldwide Operations (As of July 1, 2005)

INCREASED MARKET SHARE IN
SPE MARKET
One measure of customer satisfaction is a
supplier’s market share. In the semiconductor
wafer fab equipment market, our share increased from 11.6% in 2003 to 12.9% in
2004. This demonstrates the excellent reputation of our high-throughput equipment andreliable support system for 300mm wafers,
which have become the industry standard.

U.S.
AlbanyAustinAlbuquerqueBeverlyBoise
Burlington
DallasFishkill

EuropeHillsboro
Los Angeles
Manassas
MarlboroughPhoenix
Richmond
Santa Clara

Avezzano
Catania
Crawley
Dresden
Grenoble
Kiryat Gat
Leixlip

Asia
Migdal HaEmek
Milan
MunichNijmegen
ParisRousset

Pundang
CheonanCheongju
Gumi
IcheonKiheung
PucheonHsin-chu

Worldwide Wafer Fab Equipment Market
and Tokyo Electron’s Market ShareTokyoOsaka
Iwate
Kanagawa
Yamanashi
Kumamoto
SagaMiyagi
Hyogoetc.

■ Sales & Service (including on-site)■ R&D/Manufacturing/Engineering(Calendar Year)
(%)

Japan
BeijingShanghaiSuzhouTianjin(Billions of U.S. Dollars)

1530102051002002

2003

2004

0

■ Wafer fab equipment market
Source: Gartner Dataquest
Tokyo Electron share(April 2005) GS05219

GTH
ING
TOKYO ELECTRON LIMITEDANNUAL REPORT 0506 >> 07

MAKING AN EVEN ST
FINANCIAL POSITIONGREATER FINANCIAL SOUNDNESS
During the surge in IT-related demand and investments a few
years ago, Tokyo Electron added assets and costs that are nolonger suitable for today’s operating environment. To improve
operating efficiency, we have constantly worked on achieving theproper level of employees, inventories and capital expenditure.
Due to these initiatives, the days required to turn over tradenotes and accounts receivable and inventories have decreased
over the past two years even as sales climbed, producing asignificant increase in operating cash flows.

IMPROVEMENT IN THE
OPERATING INCOME MARGIN
Structural reforms have produced a substantial increase in the operating income margin.
While the cost of sales rose along with sales,selling, general and administrative expenses
were down 5.0% due to measures to control
headcount, lower depreciation expenses bycarefully managing capital expenditures, andother factors. The result was a noteworthy
jump of 9.9 percentage points in the operating
income margin compared with fiscal 2003.

Operating Income Margin,
Consolidated Net Sales and Selling,
General and Administrative Expenses(Billions of Yen)

(%)

750

125008250

4MORE STRUCTURAL REFORMS
For some time, we have been enacting structural reforms
aimed at reducing manufacturing lead times, cutting costs andother goals. Now, along with work involving existing themes,
we are focusing on the additional priority of further improvingquality. The objective is to use these reforms to raise profitability and build a powerful financial position that can generate consistent cash flows.

02003

2004

2005

0

■ Consolidated net sales
Operating income margin■ Selling, general and administrative expenses

RONGER
Trade Notes and Accounts Receivableand Inventory Turnovers(Days)

150

100

HIGHER PRODUCTIVITY
AND EFFICIENCY50Tokyo Electron achieved a significant improvement in operating efficiency even while meeting a large increase in demand for its products
during the past fiscal year. Shorter manufacturing lead times, a review of the productdesign process and other improvements
made this possible. The result was increases
in productivity and efficiency. In particular,
consolidated net sales per employee was up aremarkable 55.0% compared with fiscal 2003.

Consolidated Net Sales per Employee,Consolidated Net Sales and Employees(Billions of Yen)

(People)15,000

900
59.7

71.0
(Millions of Yen)

45.8
10,000600

30005,0002003

2004■ Consolidated net sales■ Employees

2005

0Consolidated net sales
per employee

02003

2005

■ Trade notes and accounts receivable turnover■ Inventory turnover

IMPROVE TRADE NOTES AND
ACCOUNTS RECEIVABLE AND
INVENTORY TURNOVERS
Inventories tend to rise in tandem withsales. However, through extensive measures
to maintain sound inventories, in terms ofvolume and composition, we have worked tohold inventories at a suitable level. Benefits
have been dramatic. Inventory turnover,based on shipments, improved from 89 days
as of March 31, 2003 to 72 days one year
later and 56 days as of March 31, 2005.
To collect receivables associated withproduct sales faster, we had to devise ways
to reduce time needed for final adjustments
following the installation of a product. We aremaking progress by standardizing our equipment and raising quality. At the same time,
we are negotiating with customers to shorten
payment terms. Trade notes and accounts
receivable turnover, on a shipment basis,
improved sharply to 114 days as of March
31, 2005 compared with 159 days as ofMarch 31, 2004 and 135 days as of March
31, 2003.

FREE CASH FLOWS GENERATION
AND DEBT REDUCTION
Success at holding accounts receivable andinventories to proper levels means that weneed less additional working capital whensales rise. Capital expenditures are also kept
at the proper level by concentrating theseinvestments mainly on R&D activities and IT
infrastructure components that can raise
productivity. Together, these actions helped
generate more than ¥100 billion in free cash
flows in fiscal 2005. This cash was proactively
used during the past fiscal year for new
product development activities and interestbearing debt reductions. We achieved
negative net debt that gave us virtually debtfree operations.

Free Cash Flows andInterest-bearing Debt
(Billions of Yen)

160

120

80

400–40

2003

2004

2005

■ Free cash flows
Interest-bearing debt

TOKYO ELECTRON LIMITEDANNUAL REPORT 05

08 >> 09

MEETING THE DEMAND FOR INVESTMENTS INTECHNOLOGY AND NEW PRODUCTS
Our customers need to make semiconductor devices withgreater scales of integration, more functions, higher speeds andlower power consumption, all at high volumes and with excellent
productivity. At the heart of our ability to meet these demands is
our Process Technology Center, which has an environment
identical to the wafer fabs of our customers. Here and at otherlocations, we work with customers from around the world,

SEMICONDUCTOR-RELATEDMARKETS STILL HAVEENORMOUS GROWTH POTENTIAL
Increasing applications for semiconductors
are fueling explosive growth in the volume ofdevices shipped. That translates into substantial demand for manufacturing equipment. At the semiconductor industry’s nextpeak, which is forecast to be around 2008,
projections show that markets for semiconductors and production equipment will be
about 30% larger than the recent peak.

Worldwide Semiconductor Revenue(Calendar Year)consortiums, universities and other partners to develop sophisti(Billions of U.S. Dollars)cated technologies. Developing semiconductor manufacturing

300

technology is becoming increasingly sophisticated. By leveraging
our technological leadership, we will continue to develop equipment that provides the solutions customers require.

200

AIMING FOR FURTHER GROWTH
Our primary goal is to attain further growth in corporate value.

100

Following up on structural reforms enacted in recent years, weplan to take initiatives to generate record earnings each time

098

9900

0102

03

0405

the semiconductor industry reaches a cyclical peak.
Source: Gartner Dataquest (April 2005) GJ05220

NEW APPLICATIONS DRIVE
DEMAND FOR SEMICONDUCTORS
Growth of the semiconductor market has been
driven mainly by the PC. Looking ahead, themarket will be backed by a multitude of otherapplications as well, like mobile devices, automotive electronics and digital consumer electronics.

ENVISIONING FURTHBY INNOVATIVE TECHOUR GOAL – RECORD EARNINGS
We continue to concentrate on reducing costs and shortening manufacturing lead times in our ongoing
structural reform program. At the same time, we are active in two other areas to lay the groundwork
for continued growth. One is becoming more competitive by adding more value to our existing productlineup. The other is expanding after-sales businesses, such as the sale of parts and equipment
refurbish. Furthermore, we expect that the results of development projects now under way will contribute to additional earnings growth at the next stage by providing new products to new market sectors.

Scenario to Increase Profitability
2003

2004

2005

2006

Structural Reforms

20072008

Phase 220092010

2011

Phase 3

Image of SPE business environment

New products to new markets
Differentiate existing products
Expand post-sales service revenue
Enhance financial structure and increase profitability by improving operating efficiency

Device and Production Equipment Needs
Applications

Device Needs>>>>

Mobilecommunications

High-end servers
Graphics processors

06

07

Production TechnologyNeeds

Low power consumption>>

Higher circuit density>> Design-rule shrinkage

High-k gate dielectric>>

Multiple functions>>

Faster processingspeeds>>

Low-k interlayer
dielectric>>>>

Improved throughput

Higher productivity

08

Forecast

Improved production
yieldsREQUIREMENTS FOR SEMICONDUCTORTECHNOLOGIES DEMANDED BY END
PRODUCTS
Cell phones and other mobile devices need to be lighterand have longer battery lives in order to smoothly handle
streaming video and other content in the coming age ofdigital networks. Networks linking these devices require
high-performance servers with massive processing powerand data storage capacity. Tokyo Electron is responding
by developing sophisticated technologies that precisely
target the requirements of end products.

“k” in high-k and low-k refers to the dielectric constant of the insulator

Semiconductor Forecast by Application, 1998-2008 (Calendar Year)
Average Growth Forecast
98-08

(%)

20Mobile Handset

15

HIGH GROWTH
Automotive

10Security

ConsumerPC

Medical50

Military

10203040

2004 Semiconductor Revenue

5060(Billions of U.S. Dollars)
Source: iSupply (March 2005)

ER GROWTHNOLOGYTOKYO ELECTRON LIMITEDANNUAL REPORT 05

10 >> 11