Briefing Summary of the Analyst/Investor Meetingfor the Financial Results for the 3rd quarter ended December 31, 2011
Tokyo, January 31, 2012
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 the cautionary notes on the final page
Overview of Financial Results Provided by Mr. Ema, CFO<Overview of Financial Results>•

Let me make use of the Quarterly Report (English) for my briefing. The Balance Sheet on page 4shows assets held for sale until the end of the 2nd quarter, but since we sold the camera business to
Ricoh effective October 1, 2011, we no longer hold these assets at the end of the present term. Thisaccounts for almost the whole decrease in total assets. On page 5, we see that total equity has
decreased by about 10.0 billion yen. This is mainly due to the payment of interim dividends.

•

The Quarterly Statement of Comprehensive Income for all operations is on page 6. I would like tocomment on four points. The first one is the currency exchange. In the first half of the year, thecurrency exchange had a major impact, but as shown in the footnote, there was also a drop in sales of
1,660 million yen in the third quarter. This is due to the impact of yen conversion in order toconsolidate overseas subsidiaries. Profit before tax rose by 130 million yen, and profit for the quarter
was up by 110 million yen.

•

The second point is the impact of the flooding in Thailand. Of particular impact for this period was
the drop in sales of 9.0 billion yen as a result of being unable to operate the plants for eyeglass lenses
due to disaster damage. Consequently, income on ordinary basis fell by 6.1 billion yen. Losses due tothe disaster totaled 4,876 million yen, including damage to plant equipment and inventory. This is
how the flooding impacted on the eyeglass operations. For hard disk drives and optical lenses, there
was also the indirect impact of orders not coming to us because customers were unable tomanufacture products due to damage, or were unable to finish products due to stopped shipmentsfrom component manufacturers. Since the extent of the impact is unclear, we have not put a figure on
the damage, so it is best to view the amount of the impact as factored into the business activities.

•

The third point is the sale of the camera business to Ricoh effective October 1, 2011. In the 3rd quarterof the previous fiscal year, the business had sales of 13.6 billion yen, but this has been eliminated forthis period.

•

The fourth point is that since we sold the hard disk glass media business to Western Digital
Corporation in June, 2010, the sales of 3.2 billion yen that the business racked up in the 3rd quarter ofthe preceding year have also been eliminated for this period. As these operations were discontinued,
total sales decreased by 16.8 billion yen. If we discount these factors and the impact of the currency
exchange, there was a slight increase in revenue for the continuing businesses. Similarly, profit before
tax has decreased by 1.0 billion yen, but if we discount the same impact here, there has been a slightincrease in profit for the Group as a whole. We absorbed the impact of the rising prices for rare earths
last year, as well as the high yen, and were able to slightly improve profits.
-1-But, with the impact of the flooding in Thailand on the eyeglass business, and the impact of thebusiness discontinuations, superficially, it looks like dramatically lower profit on lower revenue.
•

Since page 7 shows the business divided into continuing operations and discontinued operations, thedata should be interpreted based on today’s briefing.

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Page 8 shows the cash flow table. Net cash generated from operating activities is 11.0 billion yen, but
net cash used in investment activities is negative 15.3 billion yen. “Proceeds from sales ofsubsidiary’s stocks” of 12.9 billion yen refers to the sale of the camera business to Ricoh. However,since we have not completed adjustments of the final figure, there is no impact on earnings for thecurrent settlement of accounts. As far as the 15.3 billion yen expenditure on net cash used in investing
activities is concerned, since there are expenses of approximately 20.0 billion yen after deducting
deposits and withdrawals from time deposits, and deposits for transferable deposits, the total isnegative 15.3 billion yen despite the proceeds from sales of subsidiary’s stocks.

•

Please take a look at page 10, which shows revenues and results by segment divided into continuing
operations and discontinued operations. The bottom table shows that sales for the whole business havedecreased by 25.3 billion yen, and profit before tax has declined by 9.5 billion yen. Looking at theleft-hand column, we see that sales have decreased by 1.6% for the Information Technology sector,
but profits are slightly up, while the 9.0 billion yen decrease in the eyeglass operations due to flooding
have had an impact on the Life Care segment. The decline of 11.0 billion yen in profit before tax
includes the impact of the eyeglass business.

•

Page 22 shows the forecast for the full business year. Compared to the previous year, sales are
expected to drop by 11.8% to 373.0 billion yen, a total decrease of 50.0 billion yen. To break it down,
the impact of the flooding on the eyeglass operation is expected to be 18.0 billion yen. Termination ofsales due to discontinued businesses is expected to be 34.7 billion yen with the media businessaccounting for 11.2 billion yen and the camera business for 23.5 billion yen. Conversely, when these
special factors are discounted, the sales outlook is for an increase of 2.7 billion yen, and, with the
exception of the eyeglass operations, a slight increase is expected for the continuing businesses in theoverall Group portfolio. With the impact of the currency exchange, we had a shortfall of 5.7 billion
yen until the third quarter, but this has been absorbed and turned into a slight increase. As for profit
before tax, we expect a shortfall of 12.0 billion yen due to the 18.0 billion yen decline in sales for theeyeglass business. The outlook is in the range of 6.0 billion yen each for the third and fourth quarters.
Adjusted for property damage of 4.8 billion yen due to flooding in Thailand, a decrease of 17.0 billion
yen in profit before tax is expected for the eyeglass business. Elsewhere, there is some fluctuation in
the continuing businesses, but the overall expectation is for a slight increase in profits. However, as I
just mentioned, since we have not yet completed the final adjustments for the sale of the camera
business, these earnings are not included, and while property damage and profit insurance due to theflooding in Thailand are included, insurance income has not been included as matters are still underinvestigation. These are the premises for this outlook.

Overview of operations by Mr. Suzuki, CEO<Mask Blanks for Semiconductor Manufacturing>•

3rd quarter performance was nearly level with the previous year. Since the situation was severe forfoundries and domestic mask manufacturers, quantities declined. Double patterning 2x development-2-

products have raised the sales, and there was a slight increase over the previous year if we discountthe financial impact of the currency exchange. 2x development is not easy.
<Photomasks for Semiconductor Manufacturing>•Times are difficult for domestic mask manufacturers. Without high-end products, the mask business istough. At the moment, semiconductor manufactures make the high-end masks of their own, and there
has been a decrease in buying high-end masks from mask manufactures. Since the mask business is
structurally difficult, we also experienced a fairly severe situation in the 2nd and 3rd quarter. In termsof mask blanks, there are some shipment to those who manufactures high-end photomasks, but otherthan the high-end products, there is little activity in foundry design.

<Photomasks for Liquid Crystal Displays>•

Since the mask business in Korea is extremely depressed, the situation is fairly bad. I think thereasons are restructuring among the Korean makers, and the time required to make decisions about
new products, but the subdued situation for new designs continued in the 3rd quarter. On the other
hand, compact models for smartphones remained buoyant. Since the size is small, the financial returns
are also small, but domestic manufacturers are working hard toward high resolutions.

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

If we only consider shipments of substrates at HOYA, there was a decline of approximately 20%
compared to the 3rd quarter estimate, and a year-on-year decline of approximately 10%. There has
been a further decline in manufacturing volumes. Since some of our competitors were damaged by theflooding in Thailand, I believe our market share has increased to some extent. Even so, on a volume
basis, we fell short of the plans. Concerning parts of HDDs, it seems there is a shortage of motors.
However, since manufacturing volumes for motors are also on the mend, people say that HOYA willbe the next to drag down supplies. Since we have one vacant plant in Vietnam, we would be able toraise production capacity in three months, but since I believe that the increase in HDD manufacturing
volumes will be transient, we will increase capacity while keeping an eye on the situation.

•

We have made progress on a replacement for cerium as a polishing material. However, since the priceof cerium is also coming down, it seems that there is no longer any need to focus on a replacement. I
believe we will build a system where we can use either material.

<Eyeglass Lenses>•

At the flooded plant in Thailand, we have completed the removal of damaged equipment, and we havefinished rebuilding the infrastructure. New equipment will be brought in from February, andoperations will restart at the end of March with production capacity at 20% from mid- to late April,
50% by mid-June, and a return to full production in the August, September period. Since there is also
the issue of capacity at equipment manufacturers, not all equipment will be brought in at once.
However, even if capacity is restored, we don’t know if the customers will come back. Since
manufacturing capacity was reduced by half, I believe it will take 12 to 18 months for customers whowent to other companies to come back. Since I believe we will not get orders unless we are flexible on
pricing, I believe that operating profits will be held back by 4 to 5 points.
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Overview of performance provided by Mr. Hamada, COO<Optical Lenses>•

The floods in Thailand also hit the digital camera supply chain, but both sales and volume havemaintained year-on-year growth. The digital camera industry continues to see dramatic change – thegrowing market share of mirrorless cameras, for one – and not only in Japan, but also in North
America and Europe. The mirrorless is positioned as a hybrid camera, below the SLR, but above
compact cameras, similar to an entry-level SLR camera. They have captured market shares of 15-20%
in the main countries. This is a good thing for HOYA. Because when new products are launched,interchangeable lenses are made, and as a result orders for HOYA are growing. If Canon releases a
mirrorless camera, it seems that nearly all manufacturers will be accounted for, so I believe themirrorless will establish one segment. On the other hand, the higher performance and popularity ofsmartphones is eroding the market for low-end compact cameras. Cameras with a 5x zoom lens orless are dwindling rapidly. It seems the market for compact cameras is shrinking by 10 million units
every year. The low-end compact cameras have no chance against the smartphones in terms of
convenience and performance. I think manufacturers capable of making high-performance lenses will
win out in the future.

<Medical Endoscopes>•

Compared to the preceding year, performance is nearly flat on a yen basis. Since more than 90% ofsales are overseas, we have felt the effects of the currency exchange. There are the issues of theeconomic crisis and budget freezes in Europe, but we are expanding our sales channels into emerging
markets at considerable speed. Business is sluggish in Germany, France, Italy, Britain and otherprincipal countries, but, on a local currency basis, the overall outlook is for growth of about 20% overthe preceding year. Since regional coverage is up, it seems we hardly feel the direct effects of theeconomic crisis. North America is not that bad, and Japan is up by more than 20%. In Asia, there havebeen delays in timing for some big projects, and growth was down compared to the year before, but
overall, the situation for medical endoscopes is constantly expanding and heading for double-digit
growth by region, on a local currency basis.

<Contact Lenses>•

There are about 190 eyecity stores in Japan. By steadily opening stores, we have achieved
year-on-year growth of more than 10%. Our share of users is 21%. Since the share was 13% the year
before last, and 17% last year, we have been expanding by 4 points every year. There is a risk that the
speed of growth will fall as the market share increases, but since there are still regional areas with nocoverage, I believe that continuing to open stores will lead to growth.

<Intraocular Lenses>•

We have had considerable growth in the Japanese market. In this period, our share of the market islikely to rise to about 35% to capture the top share of the Japanese market. Alcon is the manufacturer
with the top share of world markets, and they are No. 1 in every country. It is a big thing for HOYA tocapture the top market share in Japan, which is ranked second largest among world markets. In the-4-future, we will continue to launch new products, and I believe we will see further growth in Europe
and Asia where we are currently focusing our attention. Product approval has been delayed in the
United States. HOYA is not the only company faced with delays, as the FDA tends to be slow about
approving pharmaceuticals and medical equipment, so we are at the stage of waiting. When we get tothe stage where our products are ready, we will try to expand little by little in the United States as
well.
General Overview of the Forecast for the Year by Mr. Suzuki, CEO•

Decline is mostly about the impact of the flooding in Thailand. If we discount its impact, we haveovercome the issue of rare earths, currency exchange and earthquake disaster to achieve a small
increase in terms of operating profit. Structurally speaking, the company now has a better structure
than it did last year. We have also completed the liquidation of the camera business. The market
environment is not very good for the information technology field, but we have built a structure where
every division will to some degree be able to earn stable revenue. In terms of sales, I think we havebuilt a profit structure that exceeds about 20%.

Q&A
Q: Concerning future production systems for eyeglass lenses, production capacity recovery, and recoveryof customer share, please tell us your thoughts on how long it will take to return to pre-flood levels.
A: (Suzuki, CEO) The concentration in Thailand was a mistake from a viewpoint of risk management, but
it was the result of demands for further efficiency. I think it is necessary for us to improve. But in termsof time, I think that the quickest way forward is to restore production in Thailand. First, we will restore
Thailand to its original state, and then we will disperse the operations. The alternatives are to create
new capacity elsewhere, or to move the capacity we had in Thailand somewhere else, but this is still
pending. As soon as the plant in Thailand was stopped by the flooding and production capacity was lost,
we had to stop supplies to major chain stores worldwide. We would like to apologize we have caused
them a lot of trouble. To recover customers in the future, we must win back the major chain stores.
First, we must work out how to convince major chain stores and give them a sense of security that there
are no problems with supplies. Second, I think we won’t get any takers unless we lower prices. We will
lower cost and prices for a fixed period to entice major chain stores to return. We are looking at a cycleof about 18 months until things have leveled out and prices returned to what they were.
Q: In the second half of the fiscal year, sales of eyeglass lenses usually account for about 50.0 billion yen,
but with the impact of the flooding, sales will probably shrink by 18.0 billion yen. Do you have any
thoughts on sales in the second half of the next fiscal year if production capacity recovers?
A: (Suzuki, CEO) The 18 months is speculation and there is no firm foundation for it, but I believe we will
make a quick recovery to a certain level, but after that recovery will be slow. The impact was great onclients that relied on HOYA and we caused them a lot of problems. Since I think that some of the majorclients will not procure products from HOYA on the same scale as in the past when we return tocapacity, it will be hard work to get them to come back once a certain level has been passed.
Q; Regarding to mask blanks Some people say they have tried the products of other manufacturers at the-5-forefront , but it’s no good unless it is HOYA. Will this have an impact on market share in the future?
A: (Suzuki, CEO) Nobody has been yet moving to mass production for the fine 3x, nor the rough 2x. We
are yet to find out what happens in terms of quality when we get to a mass production basis. I think thetrue strength will be in how stable the product quality is once mass production starts in the future.
Q: In the medical endoscope market, are customers moving to HOYA because of the Olympus issue?
A: (Suzuki, CEO) In terms of the market, there is hardly any impact.
Q: I would like to confirm some figures. Is it correct to say that there would have been a slight increase inprofit before tax, had there been no flooding in Thailand? Compared to the 3rd quarter, will profits
increase for both Information Technology and Life Care in the 4th quarter?
A: (Suzuki, CEO) That is our understanding of profit before tax. But insurance revenue, and special losses
etc. for the flooding are still coming through in bits and pieces, so please exercise caution when you
look at the figures. Concerning the 4th quarter, the flooding has had an impact on the Information
Technology HDD disk Division in both the 3rd and 4th quarters, and also on optical lenses in the 3rdquarter, so to that extent, I believe there may well be an increase in profit.
Q: I would like to confirm the capital expenditure in the colored graph on page 10. Are the 4th quarter
figures due to investment in mask blanks in Singapore? Also, please talk about the amount of capital
expenditure on the basis of the budget for the next fiscal term.
A: (Ema, CFO) Since capital expenditure for the next fiscal term will be decided at the board meeting at
the end of March, we are not yet at a stage where I can comment. On the point of an increase in the 4th
quarter outlook, these figures are based on receipt and inspection, and since there is a time lag with thetiming for decision-making, I would ask you not to worry too much about them. There was a decreaseon an annual basis. For the past ten or so years, we have concentrated about 70% of capital expenditurein the Information Technology field. Since the completion rate for the all Information Technology
businesses has increased, we will shift investment to the Life Care segment in the next term. When we
shift to Life Care, the amount of capital expenditure will become exceedingly small. This is the time
for the switch, and we are in the middle of aggregating the figures for the next fiscal term, but from along-term perspective, capital expenditure will ease off. Instead, the weight will shift to research anddevelopment expenditure.
A: (Suzuki, CEO) Even in capital expenditure, few cases are going with investment in production increases,
and since the earthquake we have been going with risk dispersion investment at plants for blanks.
There is also the rare earths issue, and since it is possible that optical glass will not be melted in Japan,
we are going with the transfer of a part of the optical glass production to China. Assuming that this is
the case, there is a possibility of building a new plant for production of 500GB HDD in the next fiscal
term. I think it is closer to renewed investment rather than investment in increased production. In
financial terms, I think the trend is for something far less than in the past.
Q: About the employee benefits expense on page 6 of the Quarterly Report, I suppose the figure of 21.8
billion yen in the 3rd quarter is due to the termination of the camera business, but if I multiply this byfour, will I have an idea of employee benefits expense for the whole of the next fiscal year?
-6-A: (Ema, CFO) Please look at the table for continuing businesses on page 7. It varies since there arealways additional benefit amounts for retirement etc.
Certain statements contained in this report constitute forward-looking statements regarding theCompany’s future performance and environment of the industry in which the Company is involved.
Forward-looking statements are based on the judgments of the Company and corporate group obtained
based on information obtainable at the time the statements are made and they also contain risks anduncertainties. The Company does not guarantee the completeness or accuracy of the content.
Consequently, you are advised to refrain from making investment judgments relying entirely on these
forecasts. Actual performance and the industry environment may differ materially from those expressedby the forward-looking statements for a number of reasons. You are requested to make final decisions
regarding investment, etc., on your own. Please be aware that we cannot take responsibility for theoutcome of investments.

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