TOKYO ELECTRON ANNUAL REPORT 2017

PAGE4CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Interview with the CEO
Message from the CFO

Interview with the CEO

Review of Operations
and Business Outlook

Corporate Governance
CSR-Oriented Operations

Financial Section

Corporate Data

Message from the CFO

Interview with the CEO

A new growth phase in
the semiconductor anddisplay industries
Meeting customer needs with innovative technologies that
integrate our products’ strengths
Q ues t ion01

Tokyo Electron achieved excellent results in fiscal 2017,
including record-high profit. Please tell us about theCompany’s achievements and initiatives during yourtime as CEO so far.

In Tokyo Electron’s key business fields, our products have been well received by customers and won
increased market share. We are steadily advancing such initiatives as making technological proposals using our robust product lineup as we pursue the goals of the medium-term management plan,
which ends in fiscal 2020.
Since establishing the medium-term manage-

As a result of our efforts so far, especially in thement plan in 2015, we have been working to

key fields of etch, deposition and cleaning sys-achieve world-class profitability. To reach thistems, customers have praised our products for

Toshiki Kawaigoal, we have been focusing on reinforcing prod-

their performance and adopted them for use in

President & CEO

uct competitiveness, responsiveness to custom-additional mass production processes.

ers and operational efficiency as we build strong

Consequently, our market share has increased inbusiness and technological platforms.

all our key fields, and I feel that our value to customers is also steadily rising.

TOKYO ELECTRON ANNUAL REPORT 2017

PAGE

5CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Review of Operations
and Business Outlook

Interview with the CEO
Message from the CFO

Interview with the CEO

Corporate Governance
CSR-Oriented Operations

Financial Section

Corporate Data

Message from the CFO

Interview with the CEO
Looking at medium- and long-term growthof Tokyo Electron’s robust product lineup andefforts, we have deepened technological collabo-

thus improve our responsiveness to customers.

ration with our customers’ R&D divisions. By

As part of these efforts, we established a newdoing so, we have been able to more rapidly

process integration center, which has particularly

identify hurdles in the development of cutting-reinforced our development framework for next-edge devices and accelerate technological devel-generation patterning technologies.

opment aimed at creating competitive

By both increasing our market share in our

next-generation products. Furthermore, we havecurrent key fields and advancing initiatives from aassigned marketing and R&D general managers

medium- and long-term perspective, we havefor each customer to facilitate the provision ofbeen making steady progress toward the goals oftechnological solutions that leverage the strength

the medium-term management plan.

Q u e st i o n02

Manufacturing

Medicine

What kind of growth do you expect in the semiconductor and display industries going forward?

The IoT is dramatically
expanding opportunities in
the SPE and FPD
manufacturing equipment
businesses

Transportation

SocialNetworking

Finance

With the dawn of the internet of things (IoT), the applications of semiconductors and displays areexpanding dramatically. Accordingly, the SPE* and FPD** production equipment markets are on thecusp of a new growth phase.
In the past, semiconductor demand, driven large-

As a result of this massive increase in data

ly by PCs alone, repeatedly rose and fell everytransmission volumes and diversification of semi-

three to four years, in what was known as the sili-

conductor applications, the SPE market is now on

con cycle. The arrival of the IoT, however, marks athe verge of a new growth phase.

Q ues t ion

03

You mentioned that the market is headed for a newgrowth phase. How will you turn market changes intobusiness expansion?

fundamental shift, as all kinds of devices andThe display industry is also changing, with theobjects connect to networks, rapidly expanding

creation of large-sized OLED TVs and the growing

applications for semiconductors.

range of display applications, such as display pan-

In light of the sophisticated technological hurdles our customers face, we will further hone our prod-

In the near future we will see the adoption ofels used in vehicles, head-mounted displays for

uct development capabilities and customer responsiveness in order to provide greater added value.

next-generation 5G telecommunications stan-augmented/virtual reality, and digital signage.

To meet demand for semiconductor devices that

because Tokyo Electron offers wide-ranging solu-dards, which will serve as the infrastructure for

These changes are driving demand for technolog-

are more powerful and faster while consuming

tions to sophisticated technological challenges.

the full-scale IoT. With this, even greater volumes

ical innovation to realize displays that are, forless power, semiconductor production equipment

Leveraging the Company’s cutting-edge coreof data will be sent to the cloud for instant pro-example, flexible, higher resolution, larger sized ormanufacturers face growing expectations totechnologies and robust product lineup, we arecessing at data centers. As such new technologies

less power consuming. As a result, the market isdeliver technological innovation in such areas asoffering optimal integrated process solutions. We

and services as artificial intelligence (AI), autono-beginning to expand.

cutting-edge patterning, new device structures

will continue to use our excellent product devel-and new materials. Few companies can meet these

opment capabilities and customer responsivenessexpectations. For us, however, these expectations

to achieve business expansion.

mous vehicles, telemedicine and fintech mature,
the role of semiconductors as their underlying
foundation will only grow.

* SPE: Semiconductor production equipment** FPD: Flat panel display

represent tremendous business opportunities

TOKYO ELECTRON ANNUAL REPORT 2017

PAGE

6CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Review of Operations
and Business Outlook

Interview with the CEO
Message from the CFO

Interview with the CEO

Corporate Governance
CSR-Oriented Operations

Financial Section

Corporate Data

Message from the CFO

Interview with the CEO
We have raised the targets of the medium-term management plan, and are taking bold action totarget sales and profit expansion that greatly outpaces market growth.
Reflecting ongoing market growth, when we pre-where we will develop high-value-added etchsented our progress under the medium-termtechnologies.

management plan in May 2017, we also revised

Deposition systems also offer a large market,

the assumed size of the wafer fab equipment

and our business in this area has room to grow.

(WFE)*** market used in the plan’s financial model

Aiming to reinforce this business, we merged thefrom US$37 billion to US$45 billion, and signifi-subsidiaries for the Yamanashi and Tohoku plants

cantly increased the plan’s corresponding net sales

to promote technological integration andtarget from ¥900 billion to ¥1,200 billion.

increase efficiency. We continue to strengthen

Etch systems are one of our key businesses,

process integration functions and are accelerating

and are expected to see particularly great market

the development of products for next-generation

expansion going forward. For this business, wedevices with increasingly complex structures.

are building a dedicated logistics facilities toGoing forward, we expect to see major value

improve productivity and production capacity. By

creation through technological innovation in the

doing so, we are laying the groundwork for sales

production equipment business. By further differ-expansion that includes raising our market share.

entiating our products and services in this busi-Furthermore, we are building new R&D facilities,ness, we aim to realize world-class profitability.

Market Assumptions and Financial Targets

WFE
market size
Net sales
Operating margin
ROE

US$42 billion¥1,050 billion

US$45 billion

Q ues t ion

04

Tokyo Electron has a strong balance sheet andtremendous capacity to generate cash. How are you
planning to use the Company’s cash on hand?

We will maintain a healthy balance of investment in growth and shareholder returns as we work toensure continued profit growth and maximize corporate value.
The pursuit of profit is indispensable to sustain-

we raised the target payout ratio to 50% and set¥1,200 billion

able corporate growth. Profit generated will firsta lower limit on the annual dividend per share of

be reinvested to create innovative technologies in¥150. In fiscal 2017, we paid our highest ever26%

order to power the Company’s continued growth.

annual dividend per share. We will continue to24%
20–25%*** Wafer fab equipment (WFE): The semiconductor production process is divided into front-end production, in which circuits are formed on wafers and inspected, and backend production, in which wafers are cut into chips, assembled and inspected again. Wafer fab equipment refers to the production equipment used in front-end production
and in wafer-level packaging production.

As the industries in which we operate enter aflexibly consider stock repurchases, taking a com-

new growth phase, the range of technologies inprehensive view of such factors as investment

which Tokyo Electron must advance R&D isneeded for growth, cash on hand and the macro-growing wider than ever. The resources we caneconomic environment.

dedicate to R&D, however, are finite. We will

By achieving the goals of the medium-term

select projects to pursue based on careful exami-management plan and further improving corpo-

nation of their potential return in order to con-rate value going forward, we will do our utmost

centrate our resources effectively.

to meet shareholder expectations.

As for shareholder returns, under the mediumterm management plan unveiled in fiscal 2016,