TO O U R S H A R E H O L D E R S

For Tokyo Electron, the fiscal year ended March 31, 2000 was a year bearing alot of bright news worthy of the dawn of the new millennium. The rapidly accelerating revolution in information and communications moved into high gear
due to the spread of the Internet and mobile phones. In addition, theeconomies of Asia, which now play a large role in the stability of the global
economy, recovered from a prolonged slump. As a result, the semiconductorand liquid crystal display (LCD) industries in which we participate broke out of
their adjustment phases and turned upward, marking this year as a turning point.
Tokyo Electron’s results also staged a powerful recovery. Consolidated
net sales increased 40.4 percent year-on-year to ¥440.7 billion. Operating income increased from ¥6.4 billion to ¥35.8 billion and net income jumped
from ¥1.9 billion to ¥19.8 billion, or ¥113.5 per share. Cash dividends per
share for the full year were revised up ¥2 from our original forecast to ¥14.
Net sales for the mainstay Semiconductor Production Equipment (SPE) division, supported by a remarkable recovery in the second half, increased 46.6
percent to ¥355.1 billion. In addition, with orders received by the divisionsetting consecutive records in the third and fourth quarters, we were able tocarry over consolidated backlogs of ¥265.3 billion into the current fiscal year.
We believe that Tokyo Electron’s excellent products, highly reliable service
offerings, global operations and a manufacturing organization capable ofpromptly meeting the rapid recovery in demand allowed us to fully benefit
from the upturn in the business environment.

Consistently strong investment in R&D has strengthened our market position, and we continue to focus on core competencies.
We are entering an age where globalization is advancing with incredible
speed, and competition among companies is intensifying. In the midst of thesechanges, the level of development in semiconductor and LCD production
equipment is rising every year, and shortening development cycles is becoming crucial, so only companies that can respond will survive. Tokyo Electron
realizes that the development of products and processes for the next generation and beyond is the key to winning in megacompetition, and we are continuously striving to enhance our development strategies to further improve ourmarket position.
In addition, customers are now demanding that their suppliers provide integrated technologies that offer optimum solutions for their process modules aswell as total support spanning development, manufacturing, sales and service.
Our Process Technology Center constructed in 1998 for 300mm equipment isa base to relentlessly pursue these horizontally and vertically integrated technologies with our customers. The Center has attracted attention worldwide as
one of the foremost facilities of its kind. Our new-concept fast thermal pro-2

TOKYO ELECTRON LIMITEDcessing system that enables in-situ sequential processing and our wafer-levelburn-in & test system also grew out of this philosophy of integration.
Tokyo Electron’s product strategy revolves around focusing on markets
with high barriers to entry and high potential for growth where we can offer
our own original, high-value-added technologies. This approach enables us tomaintain a leading position in the market segments in which we choose tocompete. We are working to offer integrated technologies with our own
competitive core products, while also evaluating alliances with other companies in our industry.
In the past fiscal year, Tokyo Electron invested ¥37.1 billion in researchand development, representing approximately 10 percent of SPE division
sales. This investment was efficiently put toward the development of newversions of seven existing products, 300mm equipment and new business opportunities. We expect that new products brought about by this investment
will account for at least 40 percent of our product portfolio in the next few
years. With our solid financial base, we will continue to win in the global raceto develop new technology.

Tokyo Electron’s low-k toolset is a superior solution for the new
era of interconnect processes.
Today, in order to further advance the performance of semiconductor chips,
solutions to three technical challenges are being demanded: shrinking featuresizes, increasing speed, and reducing power consumption. In the area of
shrinkage, evaluations of 0.13µm design rules have already begun in 2000. Inaddition, new materials in the interconnect process — namely copper andlow-k dielectric materials — have been adopted as methods of increasing
speed and lowering power consumption, especially in logic applications.
These new materials will become mainstream in the future.
Tokyo Electron has introduced a breakthrough toolset that will have amajor impact on the interconnect process in the next generation and beyond.
It is an integrated solution realized by the CLEAN TRACK ACT® 8 SOD systemthat spins low-k films on intermetal layers, in conjunction with several othercore products. Today, the superiority of low-k spin coating for 0.13µm andbeyond continues to be demonstrated by leading semiconductor makers,
which has opened up new horizons for our business. By establishing leadership in the processes surrounding the interconnects, we have created an outstanding opportunity in the next generation of interconnect processes.
We are committed to playing a key role in helping customers successfully
execute their own particular device strategies. From that standpoint, by forming alliances with various materials makers, we are making preparations forwhatever low-k materials our customers may choose.

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Challenge toward change – reforming our operating structure
through information technologyIn addition to enhancing our product strategy for the future, Tokyo Electroncontinues to build a lean business structure that can adapt flexibly to thechanges in the market. As demand for our products is growing, expanding
production capacity is currently a top priority. But even while we find ourselves in this expansion phase, we have taken up the challenge of streamlining
our operations to raise asset efficiency and maximize earnings.
One such initiative is the Total Cost Down Project, which is designed todrastically shorten lead times from order to delivery. During the past fiscalyear, we thoroughly reevaluated our manufacturing structure, resulting in acomprehensive plan for creating an ideal manufacturing model for Tokyo
Electron. Looking forward, we will work to improve the manufacturing flow itself by combining it with integrated IT tools, with the lofty objective of reducing
lead times by half within two to three years, and thus make a significant contribution to customer satisfaction.
Tokyo Electron is also moving to generate optimum value from its mostvaluable assets — people — by implementing a project to improve efficiency atthe administration level. People are the source of knowledge, so we aim tobuild a structure over the mid term that enables them to make the most of
their talents to create value. In achieving this goal as well, the promotion of an
IT strategy is key. We will continue to implement measures to streamline ourorganization, including making the best use of outside resources.

Further promoting management from the perspective of shareholders
Tokyo Electron was one of the first publicly listed companies in Japan to recognize and embrace modern corporate governance issues. Since 1997, we haveswiftly implemented a wide range of reforms to maximize returns for ourshareholders, including reorganizing the Board of Directors, implementing
stock option and performance-based incentive plans and disclosing compensation of corporate officers.
As a new development, in the current fiscal year, we will expand our stock
option plan on a groupwide basis around the world. The existing JapaneseCommercial Code limits the scope of stock options. However, Tokyo
Electron can widen the scope by introducing quasi stock options with warrants,and by taking advantage of the Law on Special Measures for IndustrialRevitalization. We expect this system to have a large and positive effect on ourability to hire and retain superior personnel on a global basis.
In order to raise ROE at the tactical level, we have set ROA as a metricusing net utilized assets on a business unit basis for evaluating management

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TOKYO ELECTRON LIMITEDand its business performance. We firmly believe that this will be an effective
method of instilling awareness of shareholder value through the efficient utilization and control of assets. In doing so, we aim to raise ROE to 20 percent or more as a short-term goal.
Furthermore, we will begin disclosing quarterly results to increase the trustthat we have gained from the global capital markets.

The IT revolution drives progress at Tokyo Electron.
Today, we are in the midst of an information and communications renaissance— an age where the Internet and mobile phones are soon to become as commonplace in everyday life as automobiles, an age where the twentieth century
paradigm of industry classifications will completely change due to the spread ofe-commerce. Furthermore, new and advanced digital consumer electronics
are rapidly emerging, meaning both the number of applications for and quantityof semiconductor chips and LCDs will explode in the future. When thinking
about just how much semiconductor and LCD production equipment will benecessary to make these key devices, you can imagine the great opportunities
Tokyo Electron will enjoy.
Tokyo Electron also participates in the IT revolution as a distributor of theworld’s superior electronic components and computer/networking systems.
Our product lineup is focused on high-value-added and high-potential fields, so
we expect to achieve high growth in these segments as well. By delivering superior products and services, we will both benefit from and support the IT revolution from the ground up.
In April 2000, the list of companies comprising the Nikkei average of 225
companies was revised, and Tokyo Electron’s stock was added to this selectcorporate group. While changes in the industrial structure are spurred on by
the IT revolution, our stock was included because it mirrors the trends of thenew era. Beginning August 1, we will reduce the minimum round lot of sharesfrom 1,000 to 100 so that more people can have the opportunity to become
Tokyo Electron shareholders.
Tokyo Electron is not only being driven by the dynamism of the new era,but is also contributing to it. We are dedicated to creating corporate value
and to sharing the benefits of this dynamism with all of our shareholders andother stakeholders.

Tetsuro Higashi
C.E.O., President
June 2000

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