Q&A on Third Quarter Results for the Fiscal Year Ending March 2010

During the fourth quarter, SPE sales are expected to increase substantially, but operating income is projected to be by only about half the amount of the third quarter. Why isn't income growing?

In addition to effects from the product mix, there is also a possibility that temporary inventory-related expenses will emerge. Also, SG&A expenses (including R&D expenses) will increase by about 3.0 billion yen, driving operating income down.

What is the current approximate lead time from order to sale?

The lead time varies depending on the type of equipment, but it is generally in the range of four to five months for SPE, while the lead time for FPD/PV production equipment is approximately 10 to 12 months.

What do you think will happen with respect to fixed costs and R&D expenses in the next fiscal year?

We have just begun making our budget for next year, but we plan to conduct all research and development necessary to achieve growth over the medium term. It is likely that R&D expenses will be approximately 10.0 billion yen higher than this fiscal year.
Sales are increasing rapidly in the second half of this fiscal year, but we have been able to control fixed costs as planned. In the next fiscal year, we hope to maintain costs at double the level of the second half of this year.

What is the outlook for orders in the January-March period?

Orders for SPE will remain flat compared to the previous quarter, but orders for FPD/PV production equipment will increase. We expect an increase of 10% to 20% in the overall orders for SPE and FPD/PV production equipment.

What do you foresee for orders in the April-June period and beyond?

Without substantial investment for the introduction of new production lines, orders for SPE would likely remain at the same level as in the October-December period. If such investment is made, orders will increase greatly. With respect to FPD/PV production equipment, the number of customers is small, so orders tend to vary considerably on a quarterly basis. Orders will likely be in the 10.0 billion to 20.0 billion yen range per quarter.

How do you sense the movement in the production equipment industry?

We expect investment in large-scale facilities by memory customers to increase this year. There is also an indication that only the strongest of the customers and the equipment manufacturers, will be able to survive. We believe that both of those developments will be positive factors for us. Achieving things that other companies are unable to do will enhance our position within the SPE industry.

There are signs that memory manufacturers will make large-scale investments. When do you think such investments will be made?

We cannot answer with regard to any specific customer, but we expect that the timing of large-scale investment will become clearer around March or April.

What are your views on the rate of growth in the SPE market and the competition within the market?

It will take some time to increase our market share, but we plan to produce definite results in the areas of etch systems and cleaning systems. We believe that the market for etch systems in particular will grow. Competition is fierce, but we hope to expand our market share by about 10 percentage points, which is to say an increase from the current 30% to around 40%. We also recently decided to begin construction of our new Miyagi plant, which will make it possible for us to perform all processes-from development to mass production of state-of-the-art etch systems-under an integrated manner. At the plant, we also plan to mass-produce etch systems that use new RLSA technology.

There was an incident where an equipment manufacturer based in the United States leaked confidential information of Samsung Electronics. Do you think that this could develop into a situation where the business model in the production equipment industry will have to undergo a change?

We strictly manage customer confidential information and plan to take even more rigorous measures going forward. We do not believe that there will be any short-term impact on our business.